Outsourcing global employment to an employer of record means trusting another company with your business. How your chosen employer of record handles payroll, compliance, and HR processes for your global workforce affects your international expansion plans, finances, employee experience, company reputation, and more.
That said, an EOR is more of a partner than a mere service provider, which is why it’s key to choose the right one from the start. However, EOR providers may use different business models to operate in countries you want to hire from, such as through their legal entities or in-country partnerships.
We’ll walk you through why wholly-owned EORs can better cater to your business needs and provide more security for your operations and hiring overseas.
What do EOR services entail?
An employer of record is a strategic solution for companies looking to expand their workforce internationally without establishing a legal entity in the target country.
EORs act as the legal employer for the hired staff in foreign countries, taking on responsibilities related to employment contracts, payroll, benefits administration, tax withholding, and compliance with local employment laws and regulations.
The EOR model functions as a bridge between companies and their global workforce. Key advantages include the following:
- EORs streamline the hiring process by handling and automating admin tasks such as onboarding, payroll processing, and HR reporting, allowing companies to focus on their core business activities
- Companies can quickly scale their international operations without the complexities of setting up local legal entities, making it easier to adapt to changing market demands and act fast on opportunities that arise
- EORs assume legal and compliance responsibilities, which minimizes your risk of non-compliance with local labor laws and regulations
- By partnering with EORs, companies can access a broader talent pool and unlock new markets with ease.
The difference between wholly-owned EORs and EORs partnering with local vendors
Once you determine your business needs an EOR, it’s time to understand the different models these companies may be operating under. They may choose to establish their own entities worldwide to help clients hire from different countries or operate through in-country compliance and payroll partners.
A Wholly-owned EOR model means that the company providing EOR services takes time to set up its own entities in different countries, letting you hire in a streamlined manner. Owned entities allow the EOR to establish complete control and oversight of operations in a specific country and run global payroll and other processes in-house.
Hire the right talent for the job based on their skills, not location. See how an EOR makes it possible with this free guide.
On the other hand, some EOR companies choose to build partnerships with local payroll and HR vendors to provide these services for their clients.
These EORs use the aggregator model: they don’t hire in-house experts for onboarding or payroll management, but outsource these tasks to in-country partners. While this approach may be more cost-effective for the EOR, in the long run, it can be less reliable and efficient for you.
Wholly-owned EORs: Pros and cons
Objectively, hiring through a wholly-owned EOR doesn’t come with many drawbacks. The only potential obstacle could be coverage: if your chosen EOR still doesn’t have an entity in the country you want to hire from. This could potentially cause a delay in your global expansion plans.
Learn more about other options for hiring workers overseas.
Still, the benefits that EORs with owned entities offer surpass this shortcoming:
- Direct access to your HR and payroll provider: You’ll have fewer touchpoints in communication and faster resolution of any issues, especially if the EOR offers a dedicated customer success manager
💡 Read more: 5 Key Benefits of Having a Dedicated Customer Success Manager - Better employee experience for your global team: Your workers will have a consistent and equitable experience across locations, as you don’t depend on local vendors and their way of doing business
- Mitigated data security and compliance risks: Your data is better protected, as no third parties are involved in handling sensitive employee information
- More customization: Especially in terms of HR policies and employee benefits and perks, you’re not limited to what a specific in-country partner can offer
- Stronger local compliance: With an already established presence in a foreign country, wholly-owned EORs understand local laws better and can keep up with regulation changes
💡See also: The Enterprise Guide to Global Compliance Management in 2024 - Cohesive company culture: Your brand values, culture, and standards are consistently upheld across all international locations where your employees reside
- Overall cost savings: EOR providers who own entities in your target countries typically charge less because they manage processes in-house and there are no third parties to pay additional fees to
- Experienced support for establishing your own entity: If you ever decide to move from EOR to entity setup when your number of employees in a certain country grows
💡Read more: A Guide to Setting up a Local Entity
Aggregator EORs: Pros and cons
Some EOR companies opt for the aggregator approach because it allows them to skip the time-consuming registration of their own entity in a target country and save the costs involved in the process.
This model also allows their clients to hire faster in different countries, as they don’t have to wait several months, or even a year, for the EOR to establish a new entity that will allow them to hire abroad.
However, although this EOR solution may be more cost-effective for the EOR itself, in the long run, it can be less reliable and efficient for you.
Here are some challenges you may face with the aggregator-model EORs:
- Increased compliance risks: Without a dedicated entity in each country, an aggregator EOR has to rely on local partners to provide them with local tax regulations and employment updates, exposing you to liability
💡Read more: How EORs Protect Companies From Permanent Establishment Risk
- Inconsistent processes: Multiple payroll or HR partners on the ground also mean varying processes, which creates a fragmented employee experience and may lead to employee dissatisfaction
- Dependence on multiple vendors: The risk of potential disruptions to your international operations increases with the number of vendors an aggregator EOR works with
- Limited customization options: Aggregator EORs often offer standardized solutions and the one-size-fits-all approach, which may not work for your specific business needs
- Lower quality of overall service: Multiple touchpoints and delays in communication can reduce problem resolution speed and the EOR’s responsiveness to your needs
- Higher service costs: As in-country providers charge their own fees, the overall cost of using EOR services can be higher with the aggregator model due to hidden costs (like add-on fees or changes in pricing) and higher risks of noncompliance penalties
So, which solution is ultimately most beneficial for your business?
Although fast market entry as the main selling point and a broader choice of potential EOR vendors may sound appealing at first, you should look at EOR services as a long-term investment in your global growth rather than a temporary solution.
An EOR partner doesn’t only complete hiring, payroll, and HR tasks for you, it also provides your access to first-hand local expertise in different regions and unique insights to get the most out of business opportunities.
Employers of record can be valuable advisors in how to best reach your full potential in a specific country because they already have the necessary experience to share. They can also help build stable relationships with local authorities and a positive reputation in markets where you don’t own an entity, which further facilitates attracting the best local talent.
The wholly-owned EOR model undoubtedly has the upper hand compared to the aggregator approach, providing you with the necessary flexibility and scalability that will enable seamless business expansion.
Hire hassle-free in 100+ countries through Deel entities
Whether you want to hire full-time employees in Germany, Brazil, or the Philippines, Deel’s all-in-one platform for global workforce management is the way to go. We handle all the complexity of hiring overseas through our own entities so you can focus on growing your business.
With industry-leading global coverage, built-in compliance solutions, in-house payroll, and legal experts, unparalleled data security, and first-class automation, incorporation of your business in a new market is a piece of cake.
Deel also offers a wide range of integrations with your favorite HR and accounting tools, support with immigration and visa applications, multi-country payouts, advanced contractor management tools, dedicated employee onboarding, 24/7 multi-channel customer support in your time zone and language, and more.
Learn more about Deel’s EOR services or book a call with our team to ask all your questions.
