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Article

13 min read

8 Employer of Record Myths & Misconceptions

Employer of record

Author

Jemima Owen-Jones

Published

December 14, 2023

Last Update

July 05, 2024

Table of Contents

Myth #1: An EOR is a temporary solution

Myth #2: An EOR is more expensive than just setting up our own company

Myth #3: EORs increase your permanent establishment risk

Myth #4: EORs remove your control

Myth #5: EORs that work with partners are better than wholly-owned EORs

Myth #6: An EOR is only for large companies

Myth #7: EORs are only for international hiring

Myth #8: EORs eliminate the need for in-house HR teams

Expand your global presence with Deel

Key takeaways
  1. EORs can be a cost-effective, long-term solution for businesses, especially when compared to the costs of setting up and maintaining a foreign subsidiary.
  2. EORs can handle the administrative aspects of HR and compliance, while in-house HR teams focus on strategic planning, talent acquisition, and employee engagement. This division of labor can help businesses optimize their HR functions and achieve greater efficiency.
  3. EORs can be a valuable resource for businesses of all sizes, regardless of whether they are expanding internationally or simply need assistance with domestic hiring and compliance.

In the world of business, there are many myths and misconceptions that can hinder growth and success. When it comes to employer of record (EOR) services, there are several prevalent myths that can lead to misunderstandings and missed opportunities. In this blog post, we'll debunk five of the most common EOR myths and provide you with the truth about these services. 

Myth #1: An EOR is a temporary solution

You may have read online somewhere that an employer of record solution isn't designed to be permanent and that, sooner or later, most companies need to set up a local entity before they outgrow the limits of an EOR. 

Not true. Very few countries currently have firm laws regarding EOR limits. Therefore, an EOR can be a long-term solution for businesses looking to expand their global workforce or streamline their employment processes. EOR providers like Deel offer ongoing support and can adapt to changing business needs, providing a scalable solution for sustainable growth.

Discover how Sendspark grew its team globally with Deel.

I love Deel…We can just focus on finding the right people and know that all of the administrative work is done for us, including onboarding and payments to tax reports and the integration with our accounting software. Ultimately, it saves me a lot of time.

Bethany Stachenfeld,

CEO, Sendspark

See also: 7 Reasons to Open Your Own Entity Instead of Hiring Through an EOR.

Myth #2: An EOR is more expensive than just setting up our own company

Not true. Setting up a business entity involves various upfront expenses and costs - both direct and indirect, as well as an investment of time and resources to understand the local tax, payroll, and employment laws. By using an EOR service, you don’t have to take on the costs associated with setting up and maintaining your own legal entities.

Entity set-up costs vary depending on location, industry, and local governance and compliance requirements. Here are the estimated costs of hiring an employee through an entity in Spain compared to using an EOR.

Min estimated cost of hiring an employee with an entity (USD) Max estimated cost of hiring an employee with an entity (USD) Min estimated cost of hiring an employee with an EOR Max estimated cost of hiring an employee with an EOR
Entity set-up costs (one-off) $60,000 $120,000 $0 $0

Once your legal entity is up and running, a slew of administrative, accounting and governance tasks come knocking, each carrying its own price tag. Post-setup, your company takes on the responsibilities of managing the workforce, payroll, and HR functions. This operational juggling act isn't just time-consuming—it also comes with a hefty set of associated costs, such as:

  • Cooperation taxes
  • Cost to hire a payroll manager in each country to manage benefits
  • Employment contributions (insurance, pension, social security, etc.)
  • Director/Manager representation
  • Medical exams
  • Mailing address
  • Health and safety training
  • Onboarding of new employees: international employment agreement, review of compliance documents, redlines, registration of the employee with local authorities
  • Employee off-boarding
  • Salary payments

In contrast, an EOR allows your team members to focus on core business activities and lowering your administrative overhead. Here’s an estimation of these costs if you were to hire employees in Spain:

Min estimated cost of hiring an employee with an entity Max estimated cost of hiring an employee with an entity Min estimated cost of hiring an employee with an EOR Max estimated cost of hiring an employee with an EOR
Ongoing payroll administration costs (per year) $50,230 $61,230 $7,188 $7,188

As the client company, you pay a predictable annual EOR service fee per employee, bypassing the unpredictable costs and complexities of managing an entity independently. This predictability not only lightens the load for your team but also simplifies budgeting and expense forecasting.

Discover how Deel helped Clara expand its business without increasing expenses.

For global payroll, you would need a minimum of one software and one collaborator per country; this, on average, would cost us about $2,000 USD per month. Deel gives us economies of scale because it allows us to hire talent without additional costs…Also, those $2,000 USD are not fixed; as the operation grows, that number grows.

Carolina Astaiza,

Global People Director, Clara

Myth #3: EORs increase your permanent establishment risk

Not true. Most business activities are of little interest to the local tax authorities since the EOR exports the service from the employing country to another country. For instance, an engineer's work will unlikely trigger a permanent establishment since the service does not generate any revenue for the business in the country. 

The exception to this rule is when the employee, hired through EOR services, sells to clients in the country where they are employed. In this case, the employee uses their service to interact directly with the local market. In this scenario, the EOR will invoice you to collect VAT for that service. 

Often, tax authorities look favorably upon EOR arrangements since they are heavily regulated and are responsible for withholding and remitting taxes to local tax authorities, ensuring that all the necessary taxes and employer contributions are paid directly to the local government in a compliant and timely manner.  

Discover how SiteMinder confidently expanded in global markets while staying compliant with Deel.

Deel is currently supporting us with around 52 employees spread out across around 11 countries at the moment…The benefits of Deel’s dashboard allows us to effectively manage these 52 people from one platform. It also allows greater efficiencies for our payroll teams globally.

Bec Donnelly,

Vice President of People, SiteMinder

See also: How EORs Protect Companies From Permanent Establishment Risk.

Myth #4: EORs remove your control

Not true. EOR employees work under the supervision and management of the client company utilizing the EOR service. The client company signs the employment agreement with the employee, which means they have control over the terms of employment, including the work performed, compensation, performance reviews, and other similar aspects.

Deel, as an EOR, takes on the role of the administrative employer and handles administrative tasks such as payroll, benefits, and HR complaints, reducing the administrative burden on the client company and ensuring compliance. 

Discover how switching to Deel saves Teamflow one week of admin per month.

We chose Deel mostly because of its extreme commitment to their mission and prioritization of customer success...

Flo Crivello,

Founder and CEO, Teamflow

See also: Enhance Employee Experience with a Unified HR Tech Stack.

Myth #5: EORs that work with partners are better than wholly-owned EORs

Not true. An EOR that uses the partner (or aggregator) model hasn’t obtained the legal capabilities to be the legal employer of your international hires since they don’t own any of their own entities. In fact, EORs that use the partner model aren’t actually EORs; they’re PEOs (professional employer organizations). 

PEOs use the term EOR to emulate an EOR solution by facilitating international employment. They do this by passing your hiring requests on to third-party intermediaries, each with its own processes and systems, which can result in limited control and customization. 

Wholly-owned EORs like Deel, however, have taken the time to build their own legal entities in markets worldwide from the ground up and can engage your international hires in 100+ countries in-house without passing you off to external partners. 

This method is designed to give you complete control and oversight of employment contracts, employee benefits packages, HR, and payroll and align them with your company’s specific requirements and standards for a consistent employee experience.

💡 Building wholly-owned entities requires significant upfront investment and expertise to navigate local employment laws and regulations. If setting up a local entity was easy, companies like yours wouldn’t need to seek a global hiring alternative.

Our support specialist (at Deel) responds right away…and that is such a pleasure…Other providers are stuck in the past in the way their platforms are built and the way their customer service works. We wanted the elevated experience Deel provides.

Allie Shulman,

Director of People Operations, Change.org

See also: Leaving a PEO: How To Change Your HR Provider in 8 Steps.

Myth #6: An EOR is only for large companies

Not true. EOR services, like those provided by Deel, can benefit companies of all sizes. They ensure compliance with local labor laws, tax regulations, and employment standards, which can be particularly useful for startups and small and medium-sized enterprises (SMEs) that may not have the resources or budget to manage these aspects in-house.

EORs also handle administrative tasks such as payroll and benefits, which can reduce the administrative burden on companies. This can be advantageous for both large companies looking to streamline operations and small businesses seeking to focus more on their core business.

Discover how health startup Us2.ai is going global with Deel.

As a Software-as-a-service company, it's important for Us2.ai to be available globally. Opening sales offices requires us to deal with numerous compliance regulations, legal work, administrative tasks, and all the associated fees. On top of that, getting the right talent fit in terms of skills and culture is no easy feat for a startup with a tight budget either…Deel was by far the most comprehensive and easiest-to-manage HR platform out of the three solutions we evaluated. We also loved that the cost of using the platform for hiring was flat across all levels - assuaging our fears that premiums might go up for more experienced talent hires…

Shao Yin Tai,

Head of Finance, Us2.ai

See also: Unlock Global Talent: How to Recruit and Hire Internationally

Myth #7: EORs are only for international hiring

Not true. While EOR is commonly associated with international hiring, it can also be used for domestic employment. EOR providers like Deel can help businesses navigate local compliance, legal, tax, and HR requirements, regardless of whether the employees are local or international.

EOR services, such as those provided by Deel, offer a range of services beyond just international hiring. Here are some of the additional services they can provide:

  • Global payroll administration: EORs handle all the administrative tasks associated with payroll for global teams. This includes calculating pay based on hours worked, making deductions for taxes and other benefits, distributing payslips, and ensuring employees are paid on time

  • Tax filing: EORs take care of tax filing responsibilities. They ensure that all employment taxes are accurately calculated, withheld, and paid to the appropriate tax authorities

  • Benefits administration: EORs can manage and administer benefits for employees. This includes health insurance, retirement plans, and other statutory benefits. They ensure compliance with local statutory laws and help navigate and provide supplementary benefits to stay competitive

  • Compliance with local labor laws: EORs ensure compliance with local labor laws and regulations. This includes everything from adhering to minimum wage laws and overtime regulations to managing leave policies and ensuring data protection and security across borders

  • HR support: EORs can provide support with onboarding and offboarding, contract creation, background checks, equipment, and workspace memberships, work authorization, equity grants, visa and immigration support, terminations, and more

  • Entity setup: If you eventually choose to open an entity, EORs like Deel can provide you with entity setup services and global payroll support. You can customize your approach by leveraging multiple services, such as using the EOR model for certain locations, opting for Global Payroll in others, and even hiring independent contractors when necessary

Discover how Deel Immigration enabled a Canadian founder to launch an NYC startup.

I found the biggest impact of getting my O-1 visa was the peace of mind. I feel like I have hours back in my day, hours back in my week of not stressing about it, not reading immigration articles, not talking to lawyers. It freed up so much mental space and energy, giving me so much more time to focus on my business…

Quinn Litherland,

Founder and CEO, Authentic

See also: 5 Employer of Record Use Cases for Enterprise Companies.

Myth #8: EORs eliminate the need for in-house HR teams

Not true. EOR providers, like Deel, are designed to complement in-house HR teams, not replace them. They handle the administrative aspects of HR and compliance, such as onboarding, contract creation, background checks, payroll, benefits administration, and terminations.

You'll still need an internal HR department to handle the more strategic and interpersonal aspects of HR, such as recruitment, talent brand and strategy, headcount planning, conflict resolution, and day-to-day management. 

Discover how Responsible Cyber manages its international team with Deel.

When it comes to dealing with local laws and tax regulations in multiple countries, relying on Deel is a game-changer. It would have been impossible for us to manage these topics in-house, with extremely costly legal services. Now, I can focus on growing our business while Deel takes care of the hiring logistics…

Dr. Magda Chelly,

Co-Founder and Managing Director, Responsible Cyber

See also: 9 HR Processes to Automate Today [How to Do It With Deel].

Expand your global presence with Deel

With legal entities in 110+ countries, Deel’s global employer of record model enables you to hire employees quickly, compliantly, and cost-effectively. We handle all things compliance—contracts, minimum wage, terminations, and more—and manage tax deductions, pensions, benefits, and other payroll specifics, so you can focus on growth.

If you eventually choose to open an entity, Deel can provide you with entity setup services and global payroll support. You can customize your approach by leveraging multiple Deel services, such as using the EOR model for certain locations, opting for global payroll services in others, and even hiring independent contractors when necessary. 

Book a 30-minute product demo to learn more.

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