When a business hires an employee, it assumes responsibility for all employment tasks, costs, and liabilities associated with having that employee on staff. But not all businesses want to deal with that responsibility. There is another option: using an employer of record.
What is an employer of record?
An employer of record (EOR) is an organization that serves as the employer for tax purposes while the employee performs work at a different company. The EOR takes on the responsibility of traditional employment tasks and liabilities through offering EOR services.
The employer of record handles all personnel functions, including:
- Processing and funding payroll
- Depositing and filing taxes
- Handling unemployment
- Handling workers’ compensation
- Issuing Forms W-2
- Collecting and processing time sheets
- Creating and maintaining employment contracts
- Employee onboarding (new hire)
- Maintaining certificate of insurance
- Completing and storing Forms I-9
- Complying with E-Verify
- Doing background checks and drug screenings
- Offering and administering benefits
- Terminating employees
These features are usually available through a software platform. The platform allows clients, employees, and recruiting partners to handle their aspects of communication for the work assignment. The software also provides insights and analytics on the employees on assignment, costs, and more.
Benefits of an EOR
By using an employer of record, recruiters and other businesses can free up time. Not having to deal with payroll and HR issues can potentially save hours.
An EOR is a cost-effective way to outsource payroll and HR functions. The business pays the EOR a set hourly or monthly rate for the employee’s work, and the EOR handles all tasks.
Employer of record services can be especially helpful when dealing with payroll processing and employment laws for employees in multiple states. The EOR stays updated on the state and local laws so you don’t have to worry about learning and complying with laws in multiple places.
The business and the employer of record have different responsibilities.
Let’s start with the business or client of the EOR. The business where the employee works retains control over business operations. The business also is responsible for workplace safety and compliance.
The employer of record is liable for employment issues along with payroll compliance and tax laws.
Employer of record in contract staffing
When applied to recruiting agencies offering contract staffing, the employer of record serves as the legal employer for contract employees. The employer of record responsibility often falls onto a third party known as a contract staffing back office. Recruiters can take on the back office responsibilities themselves, but recruiters can also outsource the responsibility to a contract staffing back office.
If you choose to add contract staffing to your recruiting business, you need to decide who will be the employer of record for your contractors.
Also, if you decide to run the back office yourself, you need to make sure you have the time and resources to do so.
Lastly, if you don’t want to run the back office yourself, a contract staffing back office provider can take the responsibility from you. The employer of record will handle staffing agency (recruiter) payroll funding, pay the workers, and handle all payroll and employment responsibilities.
Global Employer of Record
Other non-recruiting businesses can also use employers of record (EORs). When a business wants to hire an employee from another country, but has no entity in that country, the business can use an EOR. The employee still works for the business, but the employer of record handles payroll and HR issues in that local country.
This enables the business to expand globally, without having to establish an entity or worry about local employment laws and taxes. With the rise of remote work trends, global EORs are poised to be a vital part of the global employment ecosystem for companies that want to hire anyone, anywhere.
Getting an Employer of Record
Whether you’re a recruiter who offers contract staffing or an business leader looking to hire abroad, you need to make sure employees are classified correctly, paid accurately, and employment issues are handled. Otherwise, there can be consequences at the state and federal levels.
FoxHire provides an employer of record back office solution for recruiting agencies and other businesses. Learn more about FoxHire’s Employer of Record (EOR) services.