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Understanding the Employer of Record (EoR) model
Let’s take a closer look at the Employer of Record (EoR) model and explore how it operates. But before we get into how the EoR model works, let’s first understand the EoR model meaning and why more businesses are using this approach.
What is the Employer of Record (EoR) model?
An Employer of Record (EoR) is a third-party organisation that serves as the legal employer for a company’s workforce. This means companies can hire talent and expand their presence globally without setting up a legal entity or subsidiary in each new country.
With an EoR model, the hiring company manages the employee’s daily responsibilities and work performance, while the EoR takes on all legal and administrative duties related to employment. These include ensuring compliance with local labour laws, handling payroll and tax obligations, managing employee benefits, and mitigating risks associated with international hiring.
To put it simply, the EoR model provides a streamlined approach that allows companies to hire global talent while outsourcing the legal and administrative burdens to an expert provider.
How the EoR model differs from traditional employment
The difference between an EoR model and traditional employment is mainly in how it manages hiring, payroll, and compliance.
In a traditional setup, companies hire employees directly. They manage contracts, payroll, taxes, and compliance with local labour laws and regulations. To hire compliantly, they need to setup a legal entity in each country they operate in. This process can be costly and time-consuming, which can slow down your global expansion journey. You also need to ensure compliance with local regulations, which can be especially challenging if you lack internal bandwidth and are managing operations across multiple countries.
With an EoR model, on the other hand, it allows businesses to hire employees in different countries without the hassle of setting up a local entity. The Employer of Record becomes the legal employer, managing payroll, taxes, contracts, and legal compliance, while the company retains control over the employee’s day-to-day work. This approach is ideal for companies that want to expand quickly or test new markets without dealing with complex and time-consuming legal processes.
Key components of an EoR agreement
When an employer hires an EoR to manage international employment, the EoR provides an agreement to ensure transparency in the working relationship. This EoR agreement helps candidates understand how their employment will be structured, outlining key details such as:
- Employment terms: Containsdetails about job roles, salaries, benefits, and contract duration.
- Payroll and taxes: Specifies how salaries, tax withholdings, and social contributions will be handled.
- Compliance and legal obligations: Includes contracts, termination policies, and employee rights.
- Employee benefits: Covers health insurance, paid leave, pensions, and other perks based on local regulations.
- Intellectual property and confidentiality: Protects sensitive company information and ownership of work produced.
- Termination policies: Outlines notice periods, severance pay, and legal obligations when ending employment.
Servicefees: Defines the cost of EoR services and payment terms.
This agreement ensures both parties understand their roles, and candidates gain assurance that their employment is legally compliant and managed professionally.
When should companies consider an EoR model
Companies should consider using an EoR model when they need a fast, compliant, and cost-effective way to hire employees internationally. Here are some key scenarios where an EoR is the best solution:
- Expanding into new markets without setting up a legal entity: Setting up a foreign subsidiary can be expensive and time-consuming. An EoR allows businesses to hire employees in new countries quickly, without the legal and administrative burden of establishing a local entity.
- Using an intermediary solution while setting up a legal entity: If a company plans to establish a legal entity but needs to hire talent immediately, an EoR provides a temporary solution. Businesses can onboard employees through an EoR while working on long-term expansion plans.
- Accessing top talent anywhere in the world: An EoR enables companies to hire the best candidates globally, without being restricted by borders or legal complexities. This is especially useful for remote-first companies looking to build a diverse workforce.
- Allowing a current employee to work from a different country: If an employee wants to relocate internationally, an EoR ensures compliance with local labour laws and tax regulations, avoiding legal risks for the company.
The EoR model meaning and its impact on global workforce management
Traditionally, businesses looking to hire employees in a different country needed to establish a local entity, which involved complex legal, tax, and compliance requirements. The EoR model simplifies this process by acting as the legal employer while the hiring company maintains control over daily operations.
This model is particularly beneficial for remote-first and hybrid teams, as it allows companies to access skilled professionals globally without geographical limitations. The EoR model helps organisations save time, reduce costs, and focus on growth while ensuring their employees receive proper legal protections and benefits according to local regulations.
Defining the EoR model in the context of international hiring
Hiring international talent comes with the challenge of navigating different labour laws and tax regulations, which can be both complex and time-consuming. An EoR model offers a cost-effective solution by handling these legal and administrative hurdles on your behalf.
Imagine hiring employees across multiple countries, each with its own unique and constantly evolving labour laws. Keeping up with these changes can be overwhelming, especially for growing companies that need to scale quickly while staying compliant. Failure to do so can lead to legal risks, fines, or operational setbacks.
When companies partner with an EoR provider like CXC, they can hire global talent with ease, ensuring full compliance while eliminating administrative burdens.
How the EoR model simplifies compliance and payroll
Managing compliance and payroll across multiple countries is a major challenge for businesses expanding globally. Each country has its own labour laws, tax regulations, and employee rights, making it difficult for companies to stay compliant. Without the right infrastructure, businesses risk legal complications, administrative burdens, and potential fines.
Take BIC Middle East, a regional leader in the consumer goods industry, as an example. The company operates in six South Asian countries through distributors but does not have legal entities in these regions. This made it difficult to manage a small contingent workforce of seven key employees, including Sales Managers and Trade Marketing Managers. Without a structured solution, handling payroll, taxes, and compliance across multiple jurisdictions became a significant challenge.
To address this, CXC provided a fully compliant EoR solution, covering everything from employment contracts and payroll processing to tax management, expense claims, and medical insurance. This allowed BIC Middle East to operate seamlessly without the complexities of setting up legal entities.
By partnering with CXC, BIC Middle East achieved full legal compliance, reduced administrative workload, and streamlined workforce management. The company now enjoys a stress-free, efficient, and employee-friendly employment structure, enabling it to focus on growth while ensuring smooth operations across all six countries.
Advantages of the EoR model for remote and hybrid teams
The rise of remote and hybrid work has made global hiring more attractive, and the EoR model provides the cost-effective solution for companies looking to build distributed teams. Without an EoR, hiring remote employees in different countries would require setting up multiple legal entities and managing various tax and employment regulations, which can be overwhelming.
Here’s how an EoR benefits remote and hybrid teams:
- Effortless cross-border hiring: An EoR enables companies to hire remote employees globally without needing to establish a local entity, making it easier to build international teams.
- Seamless payroll for distributed teams: Employees working from different locations get paid accurately and on time, with the EoR managing currency exchanges, tax withholdings, and local payroll requirements.
- Standardised benefits for all employees: Remote and hybrid workers receive consistent health insurance, retirement plans, and paid leave, ensuring fairness across different regions.
- Consistent employee benefits – An EoR provides access to competitive health insurance, pensions, and leave policies tailored to local regulations, ensuring fairness for all employees.
- Flexibility for hybrid work – If employees want to relocate or work across borders, an EoR makes it easy to accommodate these changes without legal complications
Common challenges and misconceptions about the employer of record model
The Employer of Record (EoR) model is a valuable tool for global expansion, but businesses often have concerns or misunderstandings about how it works.
Some companies worry that using an EoR means they won’t have full authority over their employees. In reality, the hiring company still manages daily operations, while the EoR only handles legal and administrative tasks.
Moreover, many assume that the EoR model is only useful for temporary employees. However, businesses can use it as a long-term employment strategy, especially when expanding into multiple countries without setting up legal entities.
While there is a service fee for using an EoR, it is often more cost-effective than establishing a local entity, hiring legal experts, and managing compliance independently. Some companies also believe hiring through an EoR is risky, but reputable providers ensure full compliance with local labour laws, reducing legal exposure.
Another common misconception about an EoR model is that employees hired through an EoR do not receive the same benefits as direct hires. However, EoR providers ensure employees get legally required benefits, such as health insurance, paid leave, and social security.
Is the EOR model a long-term or temporary solution?
You may wonder if the EoR model is best suited for short-term or long-term use. The truth is, it can be both, depending on a company’s goals. For businesses testing a new market, the EoR model offers a quick and risk-free way to hire employees without the long-term commitment of setting up a legal entity. This makes it an excellent short-term solution for companies exploring expansion.
However, many organisations also use the EoR model as a long-term strategy. Companies that want to maintain a presence in multiple countries without dealing with ongoing compliance and administrative burdens often rely on EoR services for years. The flexibility of the EoR model allows businesses to scale their workforce up or down based on their needs.
Whether short-term or long-term, an EoR provides a compliant and efficient way to manage international employees while reducing operational complexity.
Understanding cost structures in the EoR model
One of the biggest misconceptions about the EoR model is that it is too expensive. While there is a cost involved, it is important to compare it to the expenses of setting up a legal entity, hiring local HR teams, and managing compliance in a foreign country. In most cases, using an EoR is more cost-effective than handling everything independently.
Typically, the cost structure of an EoR includes a service fee per employee, which covers payroll processing, tax filings, benefits administration, and legal compliance. This fee is often calculated as a percentage of the employee’s salary or a fixed amount per worker. Since an EoR eliminates the need for expensive entity setup, legal consultations, and compliance management, businesses actually save money in the long run. When considering expansion, companies should weigh the predictable costs of an EoR against the high investment required to establish a local presence.
How the EoR model ensures data privacy and security
A common concern for businesses using the EoR model is how employee data is managed and protected. Reputable EoR providers like CXC prioritise data privacy and security, following international regulations such as GDPR (General Data Protection Regulation) and local data protection laws in each country.
EoR providers use secure systems to handle sensitive employee information, such as payroll details, tax records, and personal data. Advanced encryption methods, access controls, and compliance protocols ensure that this information is protected from unauthorised access or breaches. Moreover, since EoR providers specialise in employment compliance, they ensure that data is handled according to the strictest legal standards.
Choosing an EoR with a strong track record in data protection helps companies maintain trust with their employees while staying compliant with global privacy regulations.
Legal and compliance myths around EoR solutions
There are several myths about the legal and compliance aspects of the EoR model. These misconceptions often prevent companies from fully leveraging EoR services for international expansion. Below are some common myths and the facts behind them:
- “Hiring through an EoR is a legal gray area.”
- Fact: EoR providers fully comply with local labour laws, tax regulations, and employment requirements in each country. They operate legally and ensure businesses avoid non-compliance issues.
- “EoR employees don’t have the same legal protections as direct hires.”
- Fact: Employees hired through an EoR receive the same legal rights, benefits, and protections as locally employed workers, including social security, health benefits, and labor rights.
- “Using an EoR may cause conflicts with local authorities.”
- Fact: Reputable EoR providers like CXC work closely with labour and tax authorities to ensure compliance, reducing legal risks for businesses.
- “EoR services are the same as outsourcing.”
- Fact: An EoR does not replace an in-house team or function like outsourcing. The company retains full control over employee management, while the EoR handles only legal and administrative tasks.
The advantages of using an Employer of Record model
1. Ensures compliance with international laws
Local labour law adherence
An Employer of Record will guide and support your company to ensure you hire your employees in accordance with local laws in every country or jurisdiction. As the EoR acts as the legal employer, you can rest easy knowing that the legal ins and outs are taken care of.
Additionally, they already have in-depth knowledge of regional regulations, and they continuously monitor any changes to these regulations. This ensures that your business remains compliant.
Tax compliance in foreign markets
EoRs manage foreign tax compliance—ensuring that the correct taxes are withheld, reported, and remitted. They also assist in identifying potential tax incentives and exemptions, ensuring your tax strategies are optimised across the board.
2. Streamlines global workforce management
Global HR outsourcing
EoRs offer a range of services that include payroll management, benefits administration, compliance with local labour laws, and assistance with HR tasks such as hiring and onboarding.
As the legal employer of record for your company’s international employees, they essentially relieve you of many HR-related obligations. It’s a strategic solution for your business, especially if you’re seeking a cost-effective and efficient way to expand globally while actively maintaining a strong HR foundation.
Greatly benefits the administration abroad
EoRs simplify the benefits administration process by actively enrolling your employees in benefit programs, coordinating with local providers, and handling compliance requirements.
They actively ensure that your global workforce has access to competitive and compliant benefit packages. This approach not only enhances your employee satisfaction but also helps your company attract and retain top talent in foreign countries.
3. Implements risk management in international hiring
Their meticulous record-keeping and documentation practices serve as invaluable resources in resolving issues and providing evidence of regulatory compliance. EoRs also offer expert legal consultation and guidance, helping you make informed decisions while actively minimising legal risks.
4. Results in cost-efficient global expansion
Reduces overheads with a foreign subsidiary alternative
By actively serving as your company’s legal employer for your international workforce, EoRs effectively eliminate the need to establish and manage foreign subsidiaries.
This means your business can avoid the substantial administrative and operational costs linked to subsidiary setup. EoRs streamline these processes for you, reducing overhead expenses and the administrative burden when it comes to expanding your business globally.
Global payroll solutions
EoRs offer a centralised platform for payroll reporting and tax compliance. This simplifies record-keeping and reporting requirements by reducing the administrative burden associated with processing payroll in multiple countries. Essentially, there is no need to establish and maintain separate payroll departments for each country.
Moreover, EoRs often have economies of scale that enable them to negotiate competitive rates with local service providers, such as payroll processors and benefits providers. These help them secure cost-effective services and benefits for your employees, which positively impacts your company’s bottom line.
Employer of Record vs. International Professional Employer Organization (IPEO)
When searching for the means to streamline your global expansion efforts, you may have also come across entities called International PEOs. While at first glance they serve the same functions as an EoR, there are key differences when it comes to the structure of their employment relationship.
| Aspect | EOR | PEO |
| Employer relationship | The EoR becomes the legal employer of your company’s employees. You retain control over day-to-day work tasks, while the EoR handles legal compliance and administrative HR functions. | Both you and the PEO share the responsibilities of being the employer. This joint employment structure means both parties have a say in employment decisions. |
| Legal employer | The EoR is the sole legal employer. They take on all employment-related responsibilities, including compliance with labour laws and payroll processing. | The PEO is a co-employer. They share some legal responsibilities with you as their client company. Both you and the PEO actively contribute to compliance and HR functions. |
| Control | You, as their client, retain full control over your employees’ day-to-day work tasks, business operations, and strategic decisions. | While you maintain control over your company’s operations, PEOs actively share control over employment-related matters (like benefits and HR policies) |
| Risk and liability | EoRs actively assume the legal risk and liability associated with employment. This includes legal compliance, payroll, and benefits administration. | Both you and the PEO share the legal risk and liability related to employment matters. |
| Flexibility | EoR relationships are typically more flexible, allowing their clients to select specific services they need to outsource while maintaining control over other aspects of employment. | PEO relationships may offer bundled services, which tend to be less flexible but more cost-effective for small to mid-sized businesses. |
When should you use one over the other?
Use an EoR when:
- You require full legal compliance.
- You want your company to have complete control over employees.
- You want customised benefits and HR policies.
Use an International PEO when:
- You are comfortable sharing legal responsibility.
- You want to opt for efficiency and speed.
- You prioritise cost-efficiency.
- You want streamlined HR and compliance services.
Practical steps to implementing the EoR model
Global talent acquisition: Where and how to find them
- Use local job boards and websites specific to the country where you’re looking to hire. These platforms often have a broader reach and can attract candidates with the local expertise you’re looking for.
- Use global job search engines like Indeed, LinkedIn, or Glassdoor. You can post job openings and actively search for candidates worldwide through these platforms.
- Actively use social media platforms and professional networks such as LinkedIn, which have a global reach. You can also participate in relevant groups and forums to connect with potential international candidates.
- You can partner with international recruitment agencies that specialise in sourcing talent from specific countries or regions. They have local expertise and can actively help you identify qualified candidates.
- Encourage your existing employees to refer international candidates they know or have worked with in the past. Employee referrals can provide you with valuable talents.
Cross-border employment best practices
Observe cultural sensitivity and awareness
Be aware of and sensitive to cultural differences, customs, and traditions in each region. Doing so can help you and your staff understand cultural nuances. Which in turn, helps foster better communication and relationships.
Invest in reliable and effective communication tools and practices
Use various communication tools and channels to actively engage with your remote employees. Regular video conferences, instant messaging, and project management software can help bridge the gap and keep everyone aligned.
Set clear expectations and objectives
Set clear performance expectations and objectives for your employees, regardless of their location. Ensure they understand their roles, responsibilities, and goals.
Use local HR support for compliance and legal expertise
Utilise local HR expertise, whether in-house or through an Employer of Record, to actively address region-specific HR issues.
Also, stay informed about local labour laws and compliance requirements in each region where you have employees. Partner with experts, such as EORs, to ensure adherence to local regulations.
Standardise your HR policies
Develop standardised HR policies that align with and actively address local labour laws and regulations.
Offer personalised training and development opportunities
Offer training and development opportunities that cater to the specific needs and preferences of your employees in different regions. This can include language training, cultural sensitivity training, and skills development.
Implement flexible work arrangements
Implement flexible work arrangements that cater to local preferences and legal requirements, such as remote work or flexible hours.
Leverage performance management tools and processes
Use performance management tools and processes to actively track and evaluate your employees’ performance. Regular feedback and performance reviews can help your remote employees stay aligned and consistently grow.
Promote team building and inclusion
Promote team-building activities and inclusion initiatives that bring employees from different regions together. This can foster a sense of belonging and collaboration—removing the social gap between your employees.
When possible, organise occasional in-person meetings and team gatherings to further strengthen relationships and communication.
Develop crisis and emergency plans
Develop crisis and emergency management plans. You should actively consider regional differences for this, such as natural disasters or political instability.
Promote feedback and open dialogue
Create a culture of open dialogue and encourage your employees to share their concerns and feedback. This way you can actively address any issues that arise.
Invest in the appropriate tools and technology
Invest in technology tools that support remote collaboration. Consider video conferencing tools, project management software, and secure communication platforms.
Why CXC is the ideal partner for Employer of Record solutions
Choosing the right Employer of Record (EoR) provider is crucial for any growing businesses. With decades of experience in contingent workforce space, CXC helps businesses hire talent anywhere without the complexities of establishing legal entities.
When you partner with CXC, we cover everything associated with international hiring, from payroll and tax management to benefits administration and labour law compliance. Our expertise ensures businesses remain compliant with local labour laws and regulations.
Whether you’re hiring remote employees, expanding into new markets, or managing a hybrid workforce, CXC provides the flexibility and security you need to scale efficiently.
How CXC’s EoR model ensures global compliance
One of the biggest challenges of international hiring is navigating complex labour laws and tax regulations. CXC’s EoR model ensures businesses remain fully compliant with local employment laws in 100+ countries.
Our compliance experts stay updated on changing labour laws, tax policies, and employment regulations. This means businesses don’t have to worry about misclassifying employees, incorrect tax filings, or violating local labour laws. CXC also ensures that contracts, payroll, benefits, and termination processes align with country-specific legal requirements.
By partnering with CXC, you can confidently expand into new markets, knowing that every employment decision is legally sound. Our proactive compliance approach minimises risks, giving you peace of mind when expanding globally.
Customised EoR services for businesses of all sizes
We understand that every business has unique hiring needs. Whether you’re a startup hiring your first international employee or a multinational company managing a global workforce, CXC provides tailored solutions to meet your specific business requirements.
For small and mid-sized businesses, CXC simplifies the hiring process, enabling them to scale without the burden of setting up foreign entities. We take care of everything from payroll to compliance, allowing you to focus on growing your business. On the other hand, large enterprises can benefit from CXC’s ability to manage complex workforce structures, ensuring consistency across multiple markets.
Our EoR model also allows businesses to scale up or down based on market conditions, providing a cost-effective alternative to traditional way of hiring. With our customised support, localised expertise, and a deep understanding of industry-specific needs, we ensure you can expand into global markets seamlessly and compliantly.
Get started with CXC’s EoR services for seamless global hiring
Expanding into new markets can be challenging, but it doesn’t have to be. With CXC as your EoR partner, we make global hiring simple, compliant, and stress-free.
Whether you’re hiring your first international employee or building a distributed team, we provide the expertise and infrastructure you need to manage an international workforce effectively.
Ready to expand your business? Speak to our team today!
