EOR vs. subcontractor

Subcontractor Employer of Record

Difference between hiring on EOR and subcontract

●       You work on your own rules.

●       The subcontractor usually has its own business (self-employed, freelance, small business, etc.).

●       You are your own boss.

●       The person or company which you cooperate with is your client, not your boss.

●       You liable for:

    ➢      paying taxes,

    ➢      registering your business activity at the authorities,

    ➢      ensuring yourself equipment, etc.

●       The subcontractor has a choice and may refuse to take the contract.

●       The subcontractors are paid per contract, regardless of how long this takes to complete.

●       The subcontractor can work for numerous different businesses.

●       Employer of Record is a service.

●       EOR entity is liable for:

    ➢      hiring,

    ➢      provision of appropriate equipment,

    ➢      registering workers at the authorities,

    ➢      paying taxes,

    ➢      payment of wages,

    ➢      ensuring insurance, pension and other benefits.

●       EOR entity is the formal boss of employees, but client have the right to commission certain work and manage job positions.

●       The client of EOR entity is the company or entrepreneur which wants to start a business abroad.

●       Staff employed by the EOR entity must perform the duties assigned to them.

●       Employees of EOR entity are paid hourly, weekly, monthly or an annual rate.

●       Employees of EOR entity work only for one employer.

Safety

●       This is the type of contract between two legal persons.

●       You cooperate on terms of B2B contact.

●       Subcontract is a traditional method, tried and tested by many entrepreneurs.

●       You have to legalise your company abroad at the local authority.

●       If you are an entrepreneur and you look for subcontractors abroad you do it yourself.

●       When you cooperate with subcontractors abroad, you should familiarise yourself with the local law for your own safety.

●       The biggest advantage of subcontracting is the minimisation of costs of employment, because the company commissions the task only then if it is necessary.

●       Subcontracting is usually limited to a particular area, because the simultaneous development of a company in different markets carries an increased risk of failure.

●       Working with non-independent contractors takes away the entrepreneurs’ influence on the work schedule.

●       Working with subcontractors requires a constant search for good quality services and can contribute to delaying work due to the lack of a suitable specialist.

The popularity of Employer of Record is the result of a couple of factors.

●       The first is the easy.

    As an employer you can take into account candidates from the whole world.

●       The second is the fast.

    Do you need employee in Sweden, Norwegia, Denmark or other country? You commission an EOR entity to search the worker and you have got. Simultaneous employment of employees from other countries becomes possible through remote human resources management.

●       The third is the safety.

    An entrepreneur has a whole staff of specialists at his disposal to ensure full legal compliance. Employees, on the other hand, sleep soundly without worrying about their future.

●       In addition, an employee does not worry about your own future.

●       An entrepreneur gains time.

●       Employer of Record is a global service.

●       The enterprise has full control over the progress of the work.

●       Employing staff in the EOR model allows the company to achieve stability in its operations as it reduces staff turnover within the company through the employment contract.

Insurance

●       In most cases, the subcontractor should take out its own insurance.

●       The client is not responsible for any accidents, when you perform your duties.

●       As a subcontractor you are obligated to register at the authorities yourself.

●       You have to ensure equipment for your work yourself.

●       You are entitled to the tax relief provided for persons carrying out a certain economic activity. These provisions are usually set out in the relevant legal acts and are dependent on the type of business.

●       When you work within the EOR you are the full right employee, so you have:

    ➢      insurance,

    ➢      wages,

    ➢      equipment,

    ➢      tax deduction,

    ➢      tax return,

    ➢      and other benefits.

●       The employer (i.e. the EOR entity) is obligated to register you at the authorities.

Work conditions

●       Under the law, a subcontractor is a separate legal entity, so any social benefits or tax liabilities apply to the subcontractor on the same basis as to other businesses.

●       The subcontractor is fully responsible for the tasks assigned to it.

●       The entrepreneur  most often has no influence over the manner, time (work schedule) or location of the subcontracted work. The subcontractor only has to meet the agreed deadline.

●       The freedom to work mainly applies to subcontractors who offer specialised services. Their participation in the project is then only partially controlled by the customer.

●       When an entrepreneur hires employees through an Employer of Record service, employees are guaranteed:

    ➢      a minimum wage,

    ➢      pensions,

    ➢      holiday pay,

    ➢      sick pay, etc.

●       An entrepreneur does not have to worry about personnel management, as these responsibilities are taken over by the EOR entity to which it outsources the employment of workers abroad.

●       By working in the EOR model, many employees gain greater freedom, which they may have experienced in recent times with pandemics. Remote or hybrid working has become a very attractive form of employment, and with the Employer of Record service, businesses can respond to this need and attract more candidates to their company.

Expansion

●       Working with subcontractors means a greater scope of activity while reducing costs.

●       An entrepreneur has to find a subcontractor on his or her own.

●       An entrepreneur who decides to expand by using subcontractors should first familiarise himself with the local market and the law.

●       Setting up a branch of the company abroad is not a necessity when working with subcontractors. However, setting up a branch is a safer option for the entrepreneur for a number of reasons.

●       You have to check everything and keep it under control.

●       Expansion should be carried out in a safe and sustainable manner, as simultaneous cooperation with multiple subcontractors from different countries can contribute to stifling growth caused by the formalities to be carried out by the entrepreneur.

●       Signing a contract is one of the most important points, but structuring it correctly to protect the business from various events is time-consuming and requires a thorough knowledge of international law.

●       Cultures from the Middle East, the Mediterranean or South America can be completely new to an entrepreneur entering a new market and cause misunderstandings when a client is more than an hour late for a meeting or cancels it completely 10 minutes before it is due to start. What is a sign of respect in one culture may be an insult in another. Hence, it is also a good idea to familiarise yourself with the business culture of the country in question before working with subcontractors.

●       The EOR entity assumes the responsibility of employing staff. The selection of employees is up to the client.

●       The corporation has to find candidates on its own.

●       As part of the Employer of Record service, the entrepreneur is assisted by advisors with knowledge of the market and the law he or she intends to enter.

●       It is not necessary to set up a new company abroad in order to undertake business activities under the Employer of Record.

●       Remote HR management. This means that you do not have to control every detail. The EOR entity consults with you on important matters, but they do the rest.

●       Remote personnel management means that the client’s company can extend its reach to different countries. This means that it has almost unlimited access to the international market in a single service.

●       Qualified professionals working for an EOR service provider often come into contact with different cultures, which can be diametrically opposed to the culture that an entrepreneur looking to enter a new market has previously encountered. These differences can many times be a hindrance to doing business, as it exposes us to making mistakes that can lead to broken conversations or a bad reputation in the market. This is why Employer of Record is also about cultural knowledge to make a good impression on business partners from Japan or Saudi Arabia, for example.

Rules of activity

●       Subcontract is a legal form of cooperation accepted all over the world, but nevertheless there are regulations in place for international cooperation with subcontractors. This may require consultation with a lawyer.

●       Subcontractor have the right to refuse to take the contract.

●       Cooperation with a subcontractor is cost-effective when corporation need specialist in a specific field for a short period of time.

●       The schedule of the subcontractor is autonomous of the client. In other words he or she could have irregular working hours.

●       An entrepreneur pays a subcontractor for a task or project completed.

●       The price of service may be different depending on the subcontractor chosen, industries, experience, clients, geographical area, and the tasks.

●       If you choose the subcontractor abroad, you should take into account local legislation.

●       You will have to pay for each assignment, so the contract should be well thought out, so that all the elements necessary to carry out a specific assignment are set out in one service.

●       The Employer of Record is a form of cooperation accepted all over the world, but in some countries is restricted (for example, it can be related to the duration of use of the service).

●       If the EOR entity cooperates with a corporation, the employees hired by the EOR entity have to perform the duties assigned to them.

●       Hiring the employees through the EOR entity gives an entrepreneur stability for long-term projects, but many companies use Employer of Record services also in short-term.

●       Working hours are dependent on the employer.

●       Employees of EOR entity have a fixed remuneration. Simultaneously, the client of EOR entity may settle with them in two ways:

    ➢      flat fee – this way is more often chosen by entrepreneurs, as settlement is based on a fixed, predetermined rate. As a result, regardless of the salary of employees, the service of EOR has the same price.

    ➢      percentage pricing – entrepreneur pay a percentage rate which is fixed, but if the employee’s remuneration rises, the rate of payment for EOR entity will rise too. So, entrepreneurs often maintain the lowest rate of remuneration for employees in order to reduce the cost of the EOR service. This, in turn, contributes to a higher turnover of employees who leave due to low pay.

●       The cost of the EOR service varies between $200 vand $300 per employee, depending on the country and region. It is worth bearing in mind that, depending on the company, rates can also vary. Thus, the same service may have a different price at a different EOR provider.

From the law point of view both forms of cooperation are treated as a third-party company, but the EOR entity enters into a co-employment contract with the company of the client.

Legal liability

●       Usually, most of the subcontractors have their own insurance, but an entrepreneur should check they have appropriate insurance with the same level of cover.

●       When an entrepreneur engages the contractor or subcontractor, should have insurance which will protect his business from the errors from their side.

●       When you enter into an agreement with a subcontractor you should, depending on the need, include appropriate clauses to protect your interests. These most commonly relate to:

    ➢      protection of intellectual property,

    ➢      confidentiality,

    ➢      project schedule, and payment (often specifying the conditions for payment to the subcontractor’s account),

    ➢      working conditions, i.e. health and safety.

●       The relation between the corporation and the subcontractor is referred to as a legal relationship. This means that the company that hires the subcontractor has no influence over many factors related to the performance of the subcontracted duties, as these depended solely on the subcontractor.

●       Subcontractors and their clients are obliged to maintain confidentiality only within the limits agreed through the concluded contract.

●       Any disagreements between the company and a foreign subcontractor should be resolved according to the law of the chosen jurisdiction, as stated in the contract.

●       The entrepreneur may require the subcontractor to comply with certain rules that are included in the contract. Hence, a poorly structured contract can cause many problems.

●       The EOR entity is the formal employer, so an entrepreneur is not responsible for any issues related to the employment of employees.

●       The Employer of Record entity contracts with employees, manages payroll and benefits.

●       In the event of any irregularities, it is the Employer of Record entity that will suffer the legal consequences.

●       The EOR entity has qualified staff who are familiar with the regulations and are responsible for completing all formalities.

●       The client of the EOR entity has influence over the performance management of the employees with whom it has an employment relationship. This means that the EOR entity cedes control and leaves decisions related to the employment of the employee to the client company. At the same time, it is worth remembering that it is the client company that has the task of selecting candidates, as the Employer of Record is only responsible for the formal hiring of employees, not the recruitment process itself.

●       The EOR entity is committed to protecting the data of the hired employees by complying with GDPR standards, collecting a backup copy of data and secure network communications.

●       In the event of claims by employees, the EOR entity handles them, as formally the client company does not employ any employees in the chosen country.

●       The client of the EOR entity should attach to the contract an agreement for the EOR entity to take up fudging to ensure compliance when registering employees with the office.

●       The EOR entity is to enforce the rights against the employee to which it is subject in relation to the employment contract.

Type of business

●       Entrepreneur should have a budget for cooperation with subcontractors. Their services have varying prices. However, price is often also an indicator of the quality of the service.

●       The services of subcontractors are often used for:

    ➢      catering,

    ➢      cleaning,

    ➢      building work,

    ➢      gardening,

    ➢      marketing services,

    ➢      IT support,

    ➢      security services,

    ➢      recruitment,

    ➢      or niche specializations.

●       Subcontractors are usually used by medium or large companies, as small entrepreneurs tend to have limited budgets.

●       Hiring a subcontractor from another country, in the country where you want to do business, may be limited by law and distance.

●       The entrepreneur may employ any number of subcontractors. However, he himself must assess the profitability of working with many partners at once.

●       Cooperation of a large number of subcontractors on one project should be well coordinated.

●       The Employer of Record service benefits all companies, large and medium-sized as well as small.

●       EOR services work well across all industries.

●       In the case of remote employment, only the flexibility of the workplace is a condition.

●       Hiring a stationary employee in the country where you want to do business is not a major problem.

●       The Employer of Record service is most often used by small and medium-sized companies that do not have a very large budget, as the price of the service is adapted to the capabilities and needs of the client, who also receives assistance from specialists in various fields as part of the service.

●       Large companies are also clients of EOR entities (but they are in a distinct minority).

●       The Employer of Record service is often used by entrepreneurs to test the foreign market in order to increase the chances of success.

●       Using an Employer of Record is most cost-effective if you employ up to 10 employees. Employing larger staff through an EOR entity is cost-effective in more individual cases.

●       Setting up an own branch abroad does not necessarily exclude cooperation with an EOR entity, which can, especially at the beginning of an expansion into new markets, support the operation of the company.

How does it work?

●       Choosing wisely – it is worth taking the time to choose the right subcontractor, who is not only qualified but also trustworthy, before committing to a partnership.

●       Contract – entering into a contract with a subcontractor should specify the tasks that fall within the subcontractor’s responsibilities. As a general rule, a company should not subcontract tasks that are critical to the company. Entrepreneur should take into account the local law regulations and taxes. This will protect the company’s interests.

●       Control – the entrepreneur should regularly monitor the subcontractor’s work to ensure that it meets the pre-agreed objectives. Blind trust can in this case lead to project failure, so it is necessary to discuss the progress of the work in a controlled manner.

●       The foreign subcontractor should be paid in the local currency, so the contractor who employs the subcontractor is responsible for its exchanges.

●       Preliminary terms of cooperation – both parties to define their needs and priorities, so that further cooperation will be fruitful.

●       Details of cooperation – the EOR should get acquainted with the client’s company policy and way of working. The entrepreneur, on the other hand, should be provided with information on the execution of the service and the terms and conditions. A small down payment should usually be made at this stage.

●       Signing of the contract – this coincides with the start of the EOR service. Previously agreed rules come into effect. The service provider begins recruiting and registering workers in the country of the client’s choice and then moves on.

●       Remote management – the entrepreneur using the EOR service has full control over employees, both in terms of their duties and pay.

●       Payment of remuneration is made through the EOR entity, which usually handles currency exchange as part of the service.

●       The company has two options of cooperation with the EOR entity: can hire employees or independent contractors.

The duties

●       The duties are depend of the agreement between the corporation and the subcontractor, but in general terms, the subcontractor is responsible for:

    ➢      to carry out the tasks assigned, in the manner specified by the contracting company, completing the tasks in the agreed time,

    ➢      ensuring you have the right tools for the job,

    ➢      paying taxes on income,

    ➢      to properly manage the budget entrusted to them under the project,

    ➢      comply with the provisions of the contract, which sets out, inter alia, the rights, obligations and duties of both parties, as well as deadlines, remuneration and clauses.

●       The EOR entity is responsible for:

    ➢      concluding contracts with employees and honouring the provisions contained therein,

    ➢      providing advice on local regulations as well as employment practices in the area,

    ➢      training new employees,

    ➢      managing employees’ schedules,

    ➢      benefits administration,

    ➢      handling workers’ compensation claims,

    ➢      payroll management,

    ➢      legalising the employment of foreign workers,

    ➢      issuing insurance certificates,

    ➢      settlement of taxes,

    ➢      formal matters related to the operation of the entity and the employment of employees,

    ➢      regulatory compliance,

    ➢      cyclical generation of reports with up-to-date data.

Action scheme

●       Operating through subcontracts is a relatively straightforward scheme. The principal has a direct relationship with the hiring contractor, who may also use subcontractors. However, the latter are not directly dependent on the end client company. Thus, the structure is divided into a kind of segment within which a given contract between two parties is closed. ●       EOR entities typically operate under one of two models:

    ➢      infrastructural

    ➢      or consolidation.

●       The infrastructure model assumes that the entity operates on the basis of contracts with subcontractors. In practice, this means that the service requested by the customer is not performed by the company to which it reports, but a third party. When choosing an entity operating on the basis of the infrastructural model, it is advisable to be particularly cautious, as we are not sure what level of service is represented by the subcontractor that will be subcontracted to handle our order in a particular country. It is therefore advisable to ask for details before signing a contract, e.g. asking for the name of the subcontractor’s company, checking information about it, etc. This will give us a complete overview.

●       The consolidation model is that the EOR entity does not use subcontractors, but branches of its company in other jurisdictions. This means that the service is performed through one and the same company. As a rule of thumb, this model is much safer and most often chosen by companies, as it ensures that all branches represent the same level of service quality as the parent company.

Status qualification: subcontractor or employee?

The problem of determining status arises because of the responsibilities and local law. Misclassification is often the cause of penalties imposed on the entrepreneur by the authorities.

●       The problem of appropriate classification is considerable especially with subcontractors who are sole traders.

●       The classification of a subcontractor is clear when it simultaneously employs employees.

●       Misclassification is most often the result of a poor division of responsibilities between principal and subcontractor.

●       The division of responsibilities between the contracting parties should take into account the provisions of local law.

●       The duties and privileges associated with a particular contract may affect the subcontractor’s classification by the authority as an employee.

●       Working with one subcontractor for too long is often considered by authorities in many jurisdictions to be an employment relationship rather than a subcontract.

●       In most jurisdictions, there is not the slightest problem in classifying employees employed by an EOR entity.

●       The entity that will be held legally liable in the event of misclassification is the EOR provider, not the client company.

●       The Employer of Record creates the contract for the employee based on local law, which minimises the risk of misclassification.

●       Classification is not affected by the type of employment. Whether the position is that of an ordinary employee or a manager, classification will follow the same pattern.

●       In some jurisdictions (e.g. the United States), there may be an issue with the hiring of employees by an external company. The client company may then be considered a so-called co-employer, which in practice translates into the authorities also treating the client company as an employer. However, this is a situation that can be avoided by experienced EOR entities, so it is worth choosing the service provider carefully.

●       Employer of Record means security in terms of employee status qualifications.

●       The EOR service provider can, if necessary, help to retrain a freelance specialist who usually works on B2B contracts into a full-time employee.

The labour market of the future

●       Working with subcontractors is a long-standing form.

●       It is often necessary to supervise the work directly.

●       In future, the permanent nature of the work will mainly concern work related to, for example, production or servicing.

●       Subcontracting on a remote work basis will be useful in many areas and will reduce the cost of maintaining employees. However, it may prove to be a hindrance to long-term cooperation, as it may involve having to find a subcontractor for a particular project or task each time. After all, once a partnership is established, it does not necessarily mean that it will continue forever. A previously tried and tested subcontractor may not have the time to take on our order. A subcontractor may also have higher financial expectations.

●       A subcontractor has the right to refuse to carry out a project.

●       The subcontractor receives a fee agreed upon at the signing of the contract.

●       The company does not have full control over the work entrusted to the subcontractor.

●       Failure to succeed on a project may result in detrimental consequences for the company working with him. At the same time, the subcontractor may not have insurance to cover these damages.

●       Remote hiring via the Employer of Record service has many advantages, such as reducing workplace maintenance costs.

●       Employees working remotely do not have to travel to work and can carry out their duties more efficiently.

●       Remote working has been used by many companies in recent years. The reason for this was a pandemic. However, after the lockdown, many companies still rely on remote working because it is much more convenient for both parties.

●       According to many statistics and reports, a larger proportion of full-time employees prefer to continue working remotely.

●       It is estimated that as many as 73% of employees would welcome the opportunity to work remotely if their employer offered it to them.

●       From an employer’s perspective, remote employment allows for a slight reduction in the cost of maintaining a position.

●       Remote workers are the same as in-office employees, they have fixed hours, a fixed rate and employee benefits, and they must perform all duties assigned to them. They cannot refuse to take on a project.

●       In addition, by employing workers through an EOR entity, the entrepreneur does not worry about administrative matters, payroll management, employment formalities or legal compliance.

Time

●       No time is wasted by the entrepreneur on employee induction or training.

●       Working with a foreign subcontractor involves currency exchange and the collection of invoices and documentation, which are necessary for subsequent settlement with the authorities.

●       The entrepreneur will have to spend time agreeing on the contract and accounting issues.

●       Working with a subcontractor can bring a ‘breath of fresh air’ to a project, a new perspective on the performance of a particular task at hand that is backed up by knowledge. This gives the project a clear time frame, so the entrepreneur can manage projects more effectively.

●       The costs of working with subcontractors can vary depending on the country of origin. A different rate will apply for a particular service in Norway and another in Albania. However, in order to obtain such information, the entrepreneur must devote time to research.

●       The entrepreneur does not need to manage staff abroad, as subcontractors are not entitled to employee benefits.

●       Working with a subcontractor also means fewer official matters, as the company entering into cooperation with the subcontractor is free of taxes that it would have to pay as an employer.

●       Working with a subcontractor does not involve registration formalities with the authorities, and therefore cooperation can start almost immediately.

●       Problems may arise with the qualification of subcontractor status, which usually results in penalties from the authorities. Clarification of the matter can sometimes take time and block further operations abroad.

●       The entrepreneur must take the time to conduct and select job candidates.

●       The induction of employees is handled by the EOR entity.

●       The entrepreneur saves time because he is free from the formalities of registering the employee and the company as an employer – these duties are taken over by the EOR entity.

●       The entrepreneur can spend more time dealing with other matters than managing staff abroad, as the Employer of Record service provider takes care of these issues.

●       Currency exchange and payment of fees rest with the company that hires the employees for us.

●       The time needed to do the work is determined based on discussions between the service provider and the client, who manages the most important job-related issues.

●       A company wishing to employ workers abroad does not have to waste time registering  a branch office with the authorities.

●       Accounting and bookkeeping do not take time, as this is handled by the EOR entity.

●       The entrepreneur does not have to wait until he knows everything about the local labour market before expanding, as the Employer of Record service providers support specialists who are up to date with employment law and standards.

●       The classification of employees is generally unproblematic, which saves a lot of time.

Budet

●       Contracting with subcontractors is very cost-effective when starting a business.

●       The initial phase of business development requires as much simplicity and cost containment as possible. Working with subcontractors in the early stages of the company reduces the liability associated with taxes, termination, severance payments, contributions and many other obligations.

●       The pricing of subcontractor services varies not only depending on the type of work, but also on individual criteria. Each subcontractor may quote a different price for the same work.

●       The entrepreneur does not worry about providing equipment for the work.

●       By using an EOR service, the entrepreneur does not take on the liability associated with their employment, redundancy or benefits.

●       The cost of retaining one employee is approximately USD 250 upwards (the rate depends on the company providing the service and what specifically is to be addressed in working with our company).

●       The company’s budget should be geared towards a fixed monthly expense in the form of a service subscription. The monthly fee is agreed between the service provider and the recipient before the contract is signed.

●       The client does not directly bear the cost of the work equipment. However, it can be included in the monthly service fee.

●       The Employer of Record service is largely focused on the activities of small companies that want to try out the market or need a small number of employees to do work for them abroad.

●       When hiring more than 10 employees, it is important to bear in mind that the cost of the service will also increase. Before taking such a decision, it is important to consider whether such a measure will be beneficial for the company.

Local law

●       The entrepreneur is on his or her own or should seek an experienced lawyer to guide him or her through the formalities of running a co-op or company abroad.

●       The entrepreneur should familiarise himself with local tax and accounting regulations or hire a qualified accountant who is familiar with these regulations.

●       The establishment of a branch of the company is not required. However, long-term cooperation with the same subcontractor may be classified by the authorities as an employment relationship.

●       There is a greater risk of formal irregularities, which may result in penalties from the authorities.

●       In the case of foreign contractors, the entrepreneur should, when entering into the contract, include a clause that specifies the jurisdiction and applicable law. Then the law of only one of the countries will apply to the contract, while the jurisdiction determines which court system will resolve any disputes. So if we do not want to get burned on this issue, this is a task for a qualified lawyer, as immigration laws often change from country to country.

●       The entrepreneur has access to specialists who are familiar with the laws of many different countries.

●       Reduced risk of legal irregularities.

●       Assistance in the correct classification of employees in the authority.

●       The Employer of Record service also includes employee benefits, which may vary in rate or scope depending on the jurisdiction.

●       The EOR entity ensures compliance with international regulations on accounting issues, among others, but not only.

●       The entrepreneur has access in one place, in one service, to all the specialists he or she would need to hire when operating abroad on his or her own.

●       The entrepreneur can concentrate on the business instead of the formalities, as it is not necessary to set up a branch office.

●       The EOR entity will also handle work permits and visa applications for foreign workers.

Company branch abroad

If the entrepreneur’s ultimate intention is to establish his or her own branch or company abroad, the use of an EOR service or cooperation with subcontractors may be more or less viable.
●       Cooperation with a subcontractor is profitable in the short term due to the absence of tax, administrative and contribution obligations.

●       Terminating a subcontractor is much easier than terminating an employee.

●       Short-term cooperation may not be beneficial if it is to temporarily support our operations in a foreign market, as in some countries the procedure for setting up a business can be complicated and take a very long time (this is especially true in countries outside the European Union).

●       There is a significant risk of a subcontractor being misclassified as an employee if certain conditions are not met, which often vary from jurisdiction to jurisdiction.

●       Not all tasks can be subcontracted as this may jeopardise the direct interest of the company.

●       By using the EOR service, an entrepreneur can start a foreign operation before receiving permission to establish a branch.

●       Once the entrepreneur has set up his or her business abroad, the Employer of Record entity can be counted on to help enrol on the payroll the employees he or she previously employed for us.

●       Before our foreign branch is established, we have the chance to see how the market in question operates.

●       When we enter a new market, we receive expert assistance in personnel administration. The EOR entity will be able to advise on what will be the best solution for our business at the moment.

●       Termination of cooperation with an EOR entity is straightforward and usually agreed by mutual agreement.

Settlements

●       Settlement with the subcontractor is straightforward from a tax perspective, as the subcontractors pay for it themselves.

●       The subcontractor’s remuneration should be governed by the contract concluded at the beginning of the currency and method of payment. The cost of exchanging currency directly through our bank can often push prices upwards, so it is better to find cheaper currency exchange services.

●       Employees employed by the EOR entity are paid through it.

●       The wages of employees hired under the EOR model cannot be less than the jurisdiction’s minimum wage for full-time employees.

●       Under the Employer of Record service, the entrepreneur does not have to worry about issues of withholding taxes and contributions on employees’ wages.

●       EOR providers usually offer currency exchange at a favourable rate, so that the entrepreneur is not at a loss.

●       The EOR entity takes care of a comprehensive payroll service.

Benefit package

●       The entrepreneur saves money by working with a subcontractor, as they are not entitled to any employee benefits.

●       If the entrepreneur wants to work with a particular subcontractor, the only thing he can offer him is a competitive salary.

●       There is no guarantee that the cooperation will be prolonged, which, moreover, if it drags on too long, may be considered an employment relationship.

●       Subcontractors themselves should ensure that they continually improve their qualifications.

●       With the Employer of Record service, even small companies can offer attractive benefits to employees.

●       Benefits help to keep employees in the company.

●       Employee packages can often also contribute to improving an employee’s skills.

●       With the Employer of Record service, even small business entrepreneurs can offer their employees interesting benefit packages.

●       An EORentity is also a good working environment. Benefit packages that improve the comfort of employees are invaluable here. This enables them to be more effective in carrying out their duties.

Caution

Sometimes, companies, not knowing how to properly register a worker in a given jurisdiction, offer candidates to work with them under the rules provided for contractors. However, such an arrangement is seen in many countries as tax evasion and a violation of the law. In many countries, the penalty for doing so is not only a fine or monetary penalty, but even imprisonment. In addition to this, it may also result in increased scrutiny by the authorities and the company’s reputation may be damaged, making it difficult to operate in the market.

How to choose?

●       The subcontractor should have extensive experience, especially if the entrepreneur is looking for a specialist in a specific field.

●       It is a good idea to ask the candidate for a portfolio to assess his/her level of sophistication and skills.

●       It is advisable to check the reputation of the subcontractor in the market in order to avoid problems in cooperation, which should be based to some extent on trust. Without this, it is not possible to carry out the project smoothly.

●       A subcontractor’s good reputation is something that usually attracts the attention of businesses looking for independent specialists, as it is usually an indication of the quality of the service.

●       The scope of service that a subcontractor offers is very important, as it may not be sufficient for our project.

●       The cooperation with a subcontractor should be governed by a contract that provides the company with proper safeguards against the spread and use of company information.

●       It is advisable to do thorough research on the subcontractor with whom you intend to cooperate. Often such information can be provided on the Internet, as well as in official databases that register business entities. Some information is available for a small fee, but this should not be a problem if we are serious about the security of our company and want the project to succeed.

●       Reputable subcontractors are specialists who do not hesitate to invest in their own development and in good equipment that will enable them to perform their tasks more efficiently and quickly. It is therefore worth finding out what software they use and what equipment they work with.

●       A subcontractor’s work system has a direct impact on its efficiency. It is not only about management, but also about the efficient flow of information and the necessary documentation.

●       Subcontractors who are accountable to the authorities for their obligations are trustworthy. This is particularly important in the context of projects, because legally operating a subcontractor means no problems. If we invite people who may be in conflict with local law to work with us, our company may also suffer the consequences.

●       The professionalism of foreign subcontractors also means good communication which, on the one hand, will allow you to establish your client’s expectations and, on the other, will allow you to exchange the necessary information in a short space of time so that the project does not drag on unnecessarily. This is because poor information flow can generate errors, the correction of which will be time-consuming and require additional budget resources.

●       A very important issue of cooperation is the protection of intellectual property. In order to ensure adequate protection, the entrepreneur should already, at the stage of concluding a contract with a subcontractor, include a clause that obliges the subcontractor to comply with security and protection rules.

●       The subcontractor should always take the situation into account when carrying out a project.

●       The reputation of the EOR service provider in the industry is a very important factor that should be considered first.

●       It is important that the service provider has registered Employer of Record providers in various countries and, above all, where the entrepreneur would like to recruit employees. This way, the entrepreneur can be sure that his or her assignment will remain in the hands of the service provider to whom he or she has entrusted his or her affairs and not in the hands of subcontractors who work with the EOR entity.

●       The Employer of Record entity should also be flexible, as one of its tasks is to adapt the way it operates to the client company’s policies.

●       The reputation of the EOR provider is one of the elements that should be of particular interest to an entrepreneur seeking this type of service, as this can translate into both the quality of the cooperation and the reputation of the client company itself.

●       The choice of the right Employer of Record provider is very important, especially from the perspective of the scope of services, which should fully meet the needs of the company.

●       It is worth considering how an EOR provider protects its clients’ information. The use of Employer of Record services often entails the client company entrusting important data to a service provider that should protect it in an appropriate manner.

●       The Employer of Record service provider can be checked e.g. on the Internet (whether the EOR entity has its own website, whether it is listed in official state registers, history of cooperation with other business entities).

●       Employer of Record is all about the remote management of a team of employees, which is why, when choosing a service provider, the entrepreneur  should pay particular attention to the way in which the team of employees employed by the EOR provider is managed, and should not be afraid to make improvements that can improve the functioning of his or her business and that of the client.

●       Payroll administration and the collection and archiving of business records are also subject to modernisation these days. It is worth checking whether the Employer of Record service provider we are considering is using them.

●       The automation of EOR systems is what largely determines whether a service provider will be able to adapt to the requirements of its clients. Activities such as purely manual record-keeping expose us to many errors and a weaker flow of information and therefore less control.

●       Communicating between the Employees of Record service provider is one of the key issues. It usually refers to one of three forms:

    ➢      through a consultant who is appointed to contact your company on an ongoing basis,

    ➢      tools that enable you to manage your tasks,

    ➢      instant messaging tools that allow you to communicate easily and quickly on the management of your foreign employees.

●       Procedures related to the protection of the client company’s intellectual property should be clearly defined in the contract concluded with the Employer of Record service provider. One action that may particularly expose a company to this issue is to entrust the handling of an assignment to a subcontractor with whom the EOR entity works in the country concerned. This is why most companies opt for service providers that have their own branches in other countries.

●       The EOR service provider should have backups of information as a security measure.

Other services

We will also take a brief look at other popular services that can be used by entrepreneurs preparing to expand into foreign markets.

1.      PEO – Professional Employment Organisation

●       DOES NOT employ workers.

●       The entrepreneur is the formal employer.

●       In order to hire employees, the entrepreneur must establish a branch of the company abroad.

●       PEOs usually set a minimum number of employees that must be employed by the foreign company in order to cooperate.

●       A PEO provides services that relate to the management and adaptation of the company’s HR department to the locally applicable regulations.

●       PEO is in the official sense an associate of the client company.

●       PEO has no or very limited legal liability.

●       The company using the services of PEO is obliged to pay the insurance policy of the employees and the service provider.

●       The use of PEO’s services is definitely more beneficial in the case of companies with an established position on foreign markets. On the other hand, for small companies or companies that are just starting to build their international position, the option to increase security while reducing costs is preferable.

2.      GEO – Global Employment Organization

●       Consists of a number of EOR units spread across a number of countries.

●       EORs are part of GEO.

●       GEO has supervisory functions over individual units in other countries.

●       GEO is an entity with a wide international reach.

●       GEO ensures legal and business compliance.

●       As part of GEO’s services, an entrepreneur can recruit with the help of an entity that later officially becomes the employer of the hired employees.

3.      Recruitment agency

●       Seeks candidates for a position that has become vacant at a client company.

●       The agency’s task is to carry out the recruitment process at selection and interview level.

●       The role of the recruitment agency is limited to finding candidates.

●       The agency’s services DO NOT include the registration of the employee or his formal employment as an employee – these matters are the responsibility of the client company.

●       The agency is responsible, inter alia, for checking the candidate’s professional history and preparing the relevant documentation.

4.      FSaaS – File System as Service

●       FSaaS entities ensure that their customers comply with local regulations.

●       FSaaS manages risk.

●       Using this type of service saves time and money, as the entrepreneur does not have the necessary specialists in one place.

●       The company’s responsibility for the employees entrusted to it ends with the completion of formalities at the office, which our FSaaS entity oversees.

5.      ASO – Administrative Services Organization

●       A service that was created to meet the needs of companies that were outsourcing their operations.

●       Manages administrative matters and HR tasks.

●       As part of the service, the entrepreneur can benefit, for example, from the management of international payroll or employee benefits.

●       The ASO entity DOES NOT take any responsibility for oversights and thus, in case of mistakes, the entrepreneur will be exposed to penalties from the authorities.

●       Under the ASO, the entrepreneur cannot delegate the completion of formalities related to the employment of an employee.

●       The entrepreneur, in order to use the services of an ASO, must already have business entities registered in several countries.

6.      BPO – Business Process Outsourcing

●       By using BPO services, an entrepreneur may not have to worry about, among other things, personnel handling, accounting or payroll management.

●       BPO entities often use external companies.

●       BPO services sometimes also include assistance with employee recruitment.

●       BPO helps to manage a company’s budget and resources more effectively.

●       BPOs are NOT in the business of hiring employees as an employer for a client.

●       BPOs are NOT liable for mistakes.

7.      Outsourcing

●       Allows the management of human resources and the employment of employees to be transferred to a third party.

●       The employee usually does not know who the relevant employer is.

●       Communication between client and outsourcer is often difficult and contributes to many misunderstandings. This is usually due to unfamiliarity with the language of the company with which the service provider is working.

●       The trader is in a limited position to check how and to what extent the employee performs his or her duties.

8.      Temporary employment agency

●       Is looking to recruit suitably qualified candidates.

●       Recruits workers for specific positions, which are usually intended for short-term or seasonal workers.

●       The activities of temporary employment agencies usually focus on specific industries.

Advantages and disadvantages of certain foreign markets

USA

Employer of Record services in many countries vary due to innovation, coverage and the way they operate, which is often dictated by local law. The longest-standing presence of these services has been in the United States, where businesses have needed assistance with hiring in various states as early as the 1960s. As a result, today’s Employer of Record services in the US are highly developed. Special software offers the possibility of:

●       control payroll transactions,

●       monitor account statements,

●       manage the administration of employee benefits and claims.

A characteristic of the US labour market is that there is no notice period for termination of a contract, so it can be terminated at any time. The right of immediate termination is available to both pirates, employer and employee.

Singapore

The Singapore market has recently become increasingly attractive to many companies that choose to expand their operations. The biggest impediment is the rather complicated law, as well as the business culture. However, entrepreneurs are attracted by:

●       the country’s political stability,

●       geographical location,

●       access to a highly skilled workforce.

Hence, a big help for entrepreneurs who are interested in the Singaporean market is the Employer of Record services, through which they can immediately start a business that will comply with local regulations. This solution is often used by many companies in that location. This is also due to the fact that setting up a company in Singapore requires a substantial budget.

Indonesia

Indonesia is first and foremost a complicated procedure for setting up a company. However, it is increasingly becoming a destination for many entrepreneurs. The long waiting time for the necessary permits is usually shortened through the Employer of Record service. As a result, pre-entrepreneurs can start their business in this country almost immediately. In addition, all employees are introduced to their duties with appropriate training. Most companies choose to hire short-term employees in this location. Using EOR services in Indonesia reduces the cost of doing business.

Poland

Poland is a country where highly skilled workers can be found. The Polish labour market is characterised above all by employees with qualities such as loyalty, diligence and development. As a result, companies gain staff who make a huge contribution to the development of the company. It is also worth noting that the cost of hiring an employee in Poland is relatively low. However, the regulations in this country are so complicated that they require a thorough knowledge of the provisions contained in:

●       the Constitution of the Republic of Poland

●       the Polish Labour Code,

●       international agreements and laws and statutes that relate to the duties and rights of employees and employers.

The biggest obstacle for entrepreneurs is the requirement to have a branch of the company in Poland in order to employ workers there. This is why many businesses choose to use the Employer of Record.

Summary

The history, both of EOR, subcontracting and many other services that transferred some of the responsibilities from the company to individuals or third parties, goes back several hundred years, and we can attribute its greatest expansion to the period of strong economic development in the 19th century. At that time, people working, so to speak, “on their own  account” – something like today’s freelancers – had very poor working conditions. This applies to pay as well as the environment, the way and the tools they used. These people often found it difficult to get paid for their work. Therefore, as the need arose, over time the topic of protecting workers’ rights began to be addressed.

The EOR service as we know it today dates primarily from the 1980s, although of course there were already pioneers of this form of activity in the market before that. Meanwhile, subcontracting as a form of work performance is much older, but still much more difficult today both to classify and to put into a legal framework that allowed the interests of both parties – client and subcontractor – to be protected.

At the same time, it must be remembered that the various forms of outsourced employment have clarified with the passing of time and the needs of the market. Therefore, as a rule, all outsourced forms of employment are similar, but not the same, which allows entrepreneurs to more precisely select the tool that will really suit their company’s needs.

Take back your reply
Leave a comment
Number of comments: 0