Any third-party vendor relationship brings an element of risk. After all, you are trusting that vendor to provide you with a service. If that service fails, it can affect your clients, profits, and employees. An employer of record (EOR) handles your employee relationships, handling compliance-heavy tasks such as payroll, taxes, benefits, and even the hiring process itself. Is trusting an EOR to perform these tasks risk-free? What risk do you take on when hiring an EOR?
How Can Using an EOR be Risk-Free?
Your EOR and Risk
Hiring an EOR means that legally, you’re partnering with a third party to take over as a legal employer for your workforce. This includes taking over the risk associated with making a mistake on employee taxes, for example. In this sense, the EOR manages all of the risks associated with the regulatory hiring environment. Companies have been trusting EORs to manage these time and task-heavy activities for decades.
From a risk perspective, the EOR is registered within the state where you’re doing business as the employer. These firms are liable for withholding payroll taxes, for example. Who receives the fines if a mistake is made? The employer, who is, again, the EOR. What are the typical responsibilities of an EOR?
- Federal, state, and local tax registration, withholding, and payment.
- Payroll processing, including handling deductions, expense reimbursements, and more.
- Benefits such as a pension, health insurance, and workers’ compensation.
- Contracting with non-full-time employees, whether they are short- or long-term.
- Hiring and termination, along with documentation.
With all this said, there are still some risks associated with hiring an EOR. Many of these risks are simply related to—can you trust this organization to do their job properly? The U.S. Supreme Court in reviewing the case, Boire v. Greyhound Corp., suggested that there are times when an EOR/employer relationship can be considered a joint employment relationship. However, these rules can be muddied as new court cases make their way through the system.
So, what is the answer to the question, “Is working with an EOR really risk-free?” The answer is tied most closely to a bigger question, which is: Do you trust the EOR you’ve hired to do their job properly? This leads us to the question of what criteria you should look for in an EOR?
Managing EOR Risk by Choosing the Right Employment Partner
To lessen any risks, however small, when choosing a third-party EOR, there are four questions to ask:
- Is the EOR legally employing the worker? Even if the EOR handles payroll, it doesn’t always mean they’re the legal employer. Allowing the EOR to legally employ workers generally lessens your risks.
- Is the EOR outsourcing to a third-party partner for employee management or other tasks. Make sure your EOR isn’t subcontracting. These situations can often muddy the communication between vendor and company or client.
- What are the responsibilities of the EOR? While your company should maintain control over daily operations, including management of employees, the EOR should handle everything on the backend, from hiring to taxes, payroll, benefits management, and more. Always get a list of full services under the contract from the EOR so you understand where the lines are.
- How much knowledge and what systems do they have in place to ensure payroll and tax compliance? Look for a company with the best technology to ensure all the bases are covered.
Are You Using an EOR?
FoxHire would like to talk with you about our state-of-the-art technology platform. As an EOR, our tools form the backbone of the services we offer, lessening the risk inherent in the employee/company relationship. Find out why large and small employers trust us to handle their employment and HR functions.