What is Employer of Record and How Does It Help with Borderless Hiring?

What is Employer of Record and How it Helps with Borderless Hiring?

Driving business beyond national borders could be a daunting task, especially considering the convoluted nuances of local labor laws and tax regulations. The utilization of an Employer of Record (EOR) service streamlines this process, acting as your “man on the ground” to legally employ your international workforce, eliminating the need to set up an entity in each new country and freeing you to focus on collaboration and integration. Plus, if you are considering offshoring, EOR is a good option to hire tech talents outside the US.

Although the EOR market is growing dramatically, I know hiring internationally can feel intimidating at first. In this article, I’ll walk you through all the steps so you can start seamlessly expanding your tech team across borders. My goal is to make global hiring feel as comfortable as hiring in your hometown!

To do that, let’s start with the basics.

Table of Contents

What Is an Employer of Record?

So, what exactly is an Employer of Record (EOR)?

An Employer of Record (EOR) acts as the “official employer” for tax reasons, even though the tech employee produces work full-time for you.

To make the concept as easy as pie to understand, let me walk you through a non-tech example.

Imagine you’re a renowned chef, eager to spread your culinary magic into new global markets. The thought of dealing with the local laws and customs of each new country is overwhelming. You just want to focus on crafting your masterpiece dishes (or, in your case, software products). That’s where an Employer of Record comes in.

Think of an EOR as a “Global Cooking Institution” you partner with, that is professional and handles all the intricate details. The EOR becomes the legal employer of your new cooks and waitstaff around the globe, in multiple countries. 

The EOR ensures the smooth operation of all 'kitchen' procedures – from onboarding new international employees, handling payroll, and taking care of benefits, to ensuring compliance with local employment laws.
Irina Fesenko Legal Counsel at TurnKey

TurnKey is such a “Global Cooking Institution” – but instead of culinary teams, we serve you software developers and ensure they stay with you longer than one tourist season.

So despite delegating these “administrative” tasks, you, the chef, still control the everyday workings of the kitchen and have your new team turn out your signature dishes in no time. In essence, this is what record services or what some call a professional employer organization do.

Why bring in this “Global Cooking Institution”?

  • Global Presence: With an EOR, you can hire the best talent from anywhere in the world, expanding your restaurant’s reach into new international markets.
  • Legal Compliance: Each country has its own 'kitchen rules.' The EOR ensures you follow them, keeping your international operations legally sound.
  • Streamlined Processes: With an EOR, hiring, and onboarding become as smooth as buttering a hot pan. They manage the paperwork, leaving you more time for your culinary creations.
  • Expertise and Support: EORs are like a treasure trove of local knowledge. They can advise you on the right employment agreements, cultural nuances, and more.
  • Cost Efficiency: Expanding globally can be as expensive as a rare truffle. But, with an EOR, you save on administrative costs and avoid the hassle of setting up legal entities everywhere.

In essence, an Employer of Record is your “Global Cooking Institution” in the world of global business, helping clients focus on what matters most: your core business.

Overview of the Top Employer of Record Services

When expanding your tech startup globally, partnering with the right EOR service provider is key. EORs act as legal employers of your software team in each country, allowing you to hire top talent worldwide without establishing local entities. According to TechRadar and SelectSoftware Reviews, who are some of the top California and San Francisco-based EOR services for hiring developers?

Hiring via EOR is one of the services TurnKey Staffing provides. We have all the mechanisms in place to hire talent in 15 countries. We came up with a perfect services formula and called it Yourshoring: custom recruiting, onboarding, benefits management, HR support, unique talent retention program, legal and IT support at all levels. Our clients speak for themselves – R1 RCM, Ripple, Headspace, and many other guys who are just starting their big Silicon Valley journey.

Top reasons why TurnKey is your best choice to hire tech employees via EOR:

  • As former startup founders themselves (our CEO Sterling and CTO Boris have built and sold a healthcare tech company to R1), they know the ins and outs of growing tech teams internationally.
  • We’re based in Silicon Valley – get white-glove support from the representative who lives next door.
  • We’re completely transparent about the pricing and salaries of your team members; plus, we take 0% of their benefits and incentives.
  • We are flexible: we don’t have a universal blueprint we push onto every client, but rather listen to your needs and cater to them 100%.

Deel offers EOR services in over 150 countries, handling payroll, benefits, compliance with local labor laws, and smooth onboarding. With expertise in international labor regulations, Deel helps global giants like Shopify and Coinbase hire abroad with confidence.

Remote offers EOR services in over 150 countries, handling payroll, benefits, compliance, and onboarding. Remote’s expertise in global employment laws has attracted clients like Webflow and Fiverr.

Remofirst is an EOR operating in over 90 countries. They manage international payroll, benefits, compliance, and onboarding for fast-growing companies like Uber, Red Bull, and Toptal.

Rippling provides EOR services and HR software in over 50 countries. Their automated platform handles payroll, benefits, and compliance, serving clients like Better.com, Ledger, and Outschool.

Now that you know the top EOR options, the benefits of EOR services for simplified global growth.

Benefits of an Employer of Record

Think of an Employer of Record (EOR) as an international expeditor. This expeditor can take care of many things for your company. Here’s how it works:

  • Save Time and Lower Costs: Imagine having a magical clock that can help you manage your team’s operations more effectively, saving you time and hidden costs.
  • Better Compliance: Picture your EOR as a globe-trotting tour guide. This guide knows all the local laws and employment laws, both at home and abroad. They're like your personal navigator in global payroll, helping you avoid any compliance risks.
  • Less Risk: Think of your EOR as a safety shield. This shield protects your company from the risks of being an employer. The shield, or EOR, takes on most of these risks, not your company.

What’s in the expeditor’s toolbox?

First, it has a “time-turner” for managing payroll. This means your company can work better and faster. With this tool, you’ll see instant improvements in cash flow, how your HR team works, and the benefits your employees receive.

Second, this expeditor is like having a tour guide who can take you to new markets with ease, handling international payroll without breaking a sweat. This means your company can save more money and can use these savings to grow or reach your goals faster.

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Third, an EOR isn’t just a worker-hiring service. It’s more like a magnet that attracts talent and handles payroll processing swiftly. This means your company can grow faster. While some EORs work with agencies that find workers, they are EORs that manage everything.

So, in a nutshell, using an EOR has many perks, like a cost-effective way to handle your payroll system, making sure you’re following all the payroll compliance rules, and even dealing with tricky stuff like payroll taxes.

Don't Let Geographical Barriers Limit Your Growth. Call TurnKey to Hire Quality Developers Anywhere in the World.

When to Use an Employer of Record

An ideal place to start using EOR services is offshoring. Take a one-minute summary from our CEO, Sterling, to get the straight goods on if this is the right time for you to consider it:

If you are ready to start building your team abroad, you may want to use an EOR provider in these situations:

  • You are hiring in a new country and don’t know the local laws.
  • You want help following the right rules on taxes, payroll, and benefits.
  • You need someone with local knowledge of labor regulations in that country.

Now that you are thinking EOR, let’s discuss the benefits of this model for expanding your tech teams.

Hire Talent Anywhere with an Employer of Record

There are so many intricacies to deal with when hiring globally, In Argentina, for example, there’s a regulation requiring salaries to be paid in local currency. This law means that if you’re an international company paying employees in a different currency, you’d need to convert it into Argentine pesos. This requirement can create complexities for tech companies not accustomed to dealing with currency conversion and exchange rates, which are quite high there because of inflation. In fact, for us, this requirement was a factor in our decision not to offer services in Argentina.

If the thought of hiring talent internationally currently feels like navigating a foreign city without a map, this next section will be your GPS. I pulled together this table for you that covers all countries where TurnKey operates.

Navigating Employment Terms: Europe and LATAM

Labor LawsWage and Tax
Brazil (400,000+ devs)Maximum 44 hours per week, mandatory 30 days of paid holidays, 13 mandatory public holidays. Employees get a bonus equal to a month's salary every year. Plus, when they take a holiday, they receive an extra third of their usual monthly income.Minimum wage laws in place, employer taxes can be up to 30% of the developer's gross salary, and employee taxes can be up to 30% of income.
Bulgaria (25,000+ devs)Maximum 40 hours per week, 20 days of paid annual leave, 12 public holidays. There is "length of service" pay, which is an incremental increase of 0.6% on a dev’s salary for each year they have worked at a company.High employment and social welfare taxes: employee rate is 23.78%, and employer rate is 19.62%.
Colombia (100,000+ devs)Maximum 48 hours per week, 15 days of paid vacation, 18 public holidays. Employees are entitled to a bonus 13th month of salary.Progressive tax system, social security contributions. Employer taxes can be up to 47% of the developer's salary, and employee taxes can be up to 39% of income.
Costa Rica (20,000+ devs)Maximum 40 hours per week, 10 paid vacation days every 50 weeks, 18 public holidays. Also, devs receive a bonus 13th month salary (aguinaldo) here, paid in December.High taxes: employer taxes are 26.67% of the developer's gross salary, and employee taxes can be up to 35% of income.
Ecuador (15,000+ devs)40 hour maximum work week – overtime pay required, 15 paid vacation days, and 12 weeks maternity leave. There are actually two bonuses – ‘13th month salary’ bonus, plus a smaller ‘14th month’ bonus, which is equal to the national minimum salary (about $450 USD).Employer taxes are 12.15% of the developer's gross salary, and employee taxes can be up to 49.15% of income.
Estonia (7,500+ devs and digital nomads)Maximum 40 hours per week, 28 days of paid annual leave, 11 public holidays. Estonia's known for its Digital Nomad Visa that enables tech talents living in Estonia to work for their foreign employer.Progressive income tax, minimum wage laws in place. Employer tax is 33.8% of gross salary.
Guatemala (10,000+ devs)48 hour max work week, otherwise 150% overtime pay required, 15 days of paid vacation, 12 public holidays, and 12 weeks of maternity leave. Also, employees are entitled to marriage leave: min 5 days, paid by employer. ‘13th month salary’ bonus plus a Christmas bonus, both equivalent to a monthly salary.Employer taxes are 12.67% of the developer's gross salary, and employee taxes can be up to 11.83% of income.
Latvia (10,000+ devs)40 hour maximum workweek. Mandatory vacation policy: minimum 4 weeks, 11 days of public holidays.Employee taxes are up to 41% of gross income, and employer taxes are 23.59% of the developer's salary.
Lithuania (15,000+ devs)40 hour maximum work week, 20-25 vacation days based on experience, 70 days maternity leave, 12 days of public holidays.Employee taxes up to 54.5% of gross income, and employer taxes are 2.49% of the developer's salary.
Mexico (200,000+ devs)Maximum 48 hours per week, at least one day of rest per week. 7 mandatory public holidays each year. They also have a "Christmas bonus" which is equivalent to 15 days of wages.Employer taxes can be up to 29% of the developer's salary, and employee taxes can be up to 30% of income. Annual profit sharing: 10% of employer pre-tax annual profits shall be shared between all employees.
Poland (250,000+ devs including those from Ukraine and Belarus)Maximum 40 hours per week. Mandatory vacation policy: 20- 26 days (depending on overall work experience) + 13 public holidays. Employees subject to non-compete agreements here receive compensation for its full duration, which must not be lower than 25% of their last salary.Progressive income tax, minimum wage laws in place. Employer taxes can be up to 21% of the developer's salary, and employee taxes can be up to 41% of gross income.
Portugal (40,000+ devs and digital nomads)40 hour maximum work week, 22 paid vacation days, 120 days maternity leave, 13 public holidays. Mandatory 13th month (summer holiday) and 14th month (Christmas) salaries.Employer tax is 26-35% of gross salary and covers healthcare, pensions, and unemployment insurance.
Romania (100,000+ devs)Maximum 40 hours per week, minimum of 20 days (can be carried over to the next year) + public holidays. The 13th month bonus is considered a gratuity and is not required by local law.Minimum wage laws, income tax is progressive. Employer tax is only 2.25% of gross salary but employee pays 45%.
The Czech Republic (100,000+ devs)Maximum 40 hour work week, overtime pay required for hours over 40. Mandatory vacation policy: 20 days + 13 public holidays. Employer taxes are 33.8% of the developer's salary, and employee taxes can be up to 11% of gross income. In addition to the social welfare taxes, employees must also pay the personal income tax which amounts to 15-23%.
Ukraine (250,000+ devs)Maximum 40 hours per week, 24 days of paid annual leave, 13 public holidays. Employer initiative termination can be difficult as Ukraine strictly prohibits dismissal of pregnant women, women who have children under 3 years of age, and single mothers who have children under 14. Minimum wage laws, income tax is a flat rate. Employer taxes are of 22% of the developer's salary, and employee taxes are 19,5% of gross income.
Uruguay (15,000+ devs)Maximum 44-48 hours per week, 20-25 days of vacation, 5 public holidays, and a ‘13th month salary’ bonus is distributed in two halves - June and December. In addition to the regular pay during leave, employees are entitled to receive an additional amount called “vacation salary" equal to 100% of the daily wages for the vacation days.Progressive tax system, mandatory minimum wage. Employer costs can be up to 17.89% of the developer's gross salary, and employee taxes can be up to 51.1% of income.

So let me give you the summary, if you’re looking for the biggest talent pool, take a closer look at Brazil; for the best technology expertise, choose Ukraine; for maximum cost optimization, consider small countries with low taxes like Guatemala.

Want to Learn All the Ins and Outs of Employment in Different Countries? Our Top Legal Team Has a Complete Guide to Every Location.

Now, as I touched on the talent agencies earlier in the post, let’s discuss the main differences between them and EOR companies.

EOR vs Staffing Agency: What’s the Difference?

An EOR becomes the legal employer for a client company. A staffing agency just connects employers to job seekers. Most don’t handle the work of being an employer.

Many of these agencies are not set up to provide HR training or handle payroll services properly. They may not understand all the rules about risk, health insurance, and benefits. In most cases, they won’t be willing to take on all the responsibilities of being an employer. But your expeditor, the EOR, can!

Some key differences:

  • Legal Status. The EOR takes on all employer responsibilities and compliance. A staffing agency does not act as the official employer.
  • Services. EORs handle HR tasks like payroll, benefits, and taxes. Staffing agencies provide candidate searching and hiring support.
  • Suitability. EORs suit companies needing help with global employment compliance and payroll. Staffing agencies suit those needing to fill temporary or permanent roles.

In general, EORs take on the legal and compliance burden while staffing agencies offer hiring assistance.

Another term that is often mistakenly used as a replacement for EOR is PEO (professional employer organization.)

Employer of Record (EOR) vs. Professional Employer Organization (PEO)

Though they may seem similar, an Employer of Record and a Professional Employer Organization (PEO) offer different services. The differences are centered around whose responsibility it is to manage the rules, and handle the insurance, and business registration.

How do PEOs and EORs differ?

PEOEOR
StructureIs a co-employerIs a full legal employer
RiskShares your liability Reduces your liability
ScaleWorks for smaller companies with full-time tech employeesWorks for larger companies with full-time or temporary tech employees
ScopeOutsources your HR departmentTakes over your role as employer
CostResults in higher long-term costsResults in lower long-term costs

You Take on More Risks with a PEO

A PEO handles HR functions for all your employees. However, an EOR hires your workers and manages them.

This means that if you work with a PEO, you still handle the employment contracts. But if you work with an EOR, they handle the contracts and you work out a service agreement with them.

This is crucial because if you don’t understand the difference, you could face legal risks. The reason is that PEOs and EORs deal with risks differently.

A PEO is more like a limited partner. You still take on all the responsibilities and risks. But an EOR is the legal employer of your workers. This means they take on the risks. Also, any problems with employment contracts are the EOR’s problem, not yours.

EORs Manage Compliance Better

PEOs can’t always fully manage your developers, like when hiring in another country. Every region has its own rules that you must follow, and some PEOs can’t do this for you.

However, an EOR deals directly with your employees, so they are more involved in managing payroll compliance and other legal concerns. So, if you want to spend less time worrying about following rules, an EOR is usually better than a PEO.

Employer of Records Take Care of Insurance

When you hire a PEO, you also pay for their insurance and your own. But with an EOR, your staff is covered under the EOR’s insurance. EORs know how to handle all the insurance rules, especially health care, which they also offer to your team.

EORs Make Business Registration Easier

If you hire a PEO, you still need to register your business in every place you operate. This can be a difficult process and expensive, plus you would need to understand the corporate law in each location.

But EORs are already registered in the places they offer services. This means you don’t need to register your business in different countries to have local staff in those countries.

Struggling with International Hiring? TurnKey is Just One Call Away to Solve Your Global Staffing Needs.

How to Choose an Employer of Record Provider

Choosing an EOR is like picking the perfect teammate for a game. Here’s what you should look for:

  • Global Reach: Just like a good travel guide, your EOR should know different places. They should be ready to help you hire employees in any new markets or foreign countries.
  • Knows the Rules: Your EOR should be a rules expert. They should understand local laws, such as tax laws and employment regulations. This will help you stay on the right side of local governments and tax authorities.
  • Services: An EOR should provide many services. From managing payroll to supporting contract staffing, they should cover all your needs. This is particularly important if you have independent contractors or international employees.
  • Good with Tech: An EOR should provide easy-to-use tools. This will help you keep track of things like payroll and employee data.
  • Helpful and Available: Your EOR should always be ready to help, just like a reliable friend. They should answer your questions and support you when needed.
  • Trustworthy: Your EOR should have a good reputation. Do they have a good track record? Have they been in business for a while? This shows they have the needed local expertise and industry knowledge.
  • Fair Pricing: Finally, your EOR should have clear and fair pricing. Make sure they provide good services for a reasonable price, without any hidden fees.
an Employer of Record Provider

Common EOR Pricing Models

By now, you are likely wondering how much it might cost to hire a developer with the help of an Employer of Record (EOR). Of course, there is not a one size fits all answer as the costs depend on the model and services. Three popular pricing models are:

  • Flat Fee: Some EORs charge a set amount every month. For instance, an EOR called Remote charges $599 per month per emplyee if you pay for a whole year at once. If you prefer to pay month-by-month, it costs $699.
  • Salary Percentage: Some EORs charge a percentage based on the employee's salary. Most often, the fee ranges between 10-15% of a developer’s salary. This is the model we use here at TurnKey Labs.
  • Hourly Rate: With some EORs, you pay for each hour of service. Like hiring a plumber or electrician – you pay for the time they spend working for you.

Remember, the total cost to hire a developer can include other things too. You might need to pay to find the right person for the job. There could be costs to your own team while they wait for the new hire to start.

When an EOR checks all these boxes, it’s a good sign they can support your global workforce well and help you grow your tech business!

How TurnKey May Help in Your EOR Journey

Since EOR is part of a bunch of handcrafted services, our mission is to help you make your team’s international growth seamless. 

Are you thinking about hiring a full-time software development team? At TurnKey, we make it simple. Here’s how our process works:

  • Understanding Your Needs: It starts with a chat with our friendly account managers based in California. We'll work out exactly what you need from your development team.
  • Fair Pricing & Simple Contracts: Our contracts are easy to understand, with clear prices and no hidden extras. If you need to leave, we make that simple too. We want you to stay because you love our service, not because you're tied into a contract.
  • Finding Your Team: We find the top 3% of remote tech candidates for you to choose from. They're handpicked from your preferred countries and have the skills to meet your development goals.
  • Smooth Start: We help your new team settle in, including getting them up to speed on your big-picture goals. We'll support you every step of the way.
  • Get Building: Now it's time for the fun part! Your team is ready to start building great software. They're up to speed on your goals and eager to help you beat the competition.
  • Keeping Your Team Happy: We know that teams work best when they stick together. So, we've created a special program to keep our developers happy. It gives them great benefits and a way to voice any worries before they become problems.
Yourshore model | TurnKey

Like everything, there are some disadvantages to using EOR services, but here at TurnKey we have found a way to diminish them. For instance:

  • Control Concerns: Using EORs can reduce company control over employees since EORs are the legal employers. Yet, at TurnKey, your team remains entirely yours, ensuring you maintain ownership.
  • Cultural Integration: Building a company culture with EORs can be challenging. However, our HR team seamlessly integrates retention programs without affecting your culture.
  • Cost Implications: Legal employment with benefits can be pricier than direct contracts. However, if your business doesn't require EORs, we offer another tax-efficient method to directly hire developers from 16 countries.

But don’t just take our word for it… 

Here’s what our clients say!

TurnKey played a pivotal role in scaling up a company called R1. We helped them onboard a powerful team of 40 full-time staff spread across various functions like UI/UX design, DevOps & Infrastructure, Implementation & Integration, and Customer Support. The result was a significant boost in productivity, as evident from their impressive performance – 51 product updates per year. This high-paced work rhythm equates to an almost weekly release cadence. As the folks at R1 put it when asked about their EOR team members, “We often forget they’re not in the same building as us.”

YourShore Difference

To sum up, we’re ready to find a solution for your needs within EOR services and beyond.

FAQ

Is it easier to open an entity in another country or use an EOR?

Using an Employer of Record (EOR) is often easier. Opening an entity requires understanding local laws, regulations and setting up operations. An EOR already has all that in place.

Can you onboard contractors through an EOR?

Yes, an EOR can help onboard contractors. They manage the hiring and payroll process, ensuring compliance with local laws.

Which countries are EORs present in?

EORs are present in many countries worldwide. TurnKey has all mechanisms in place to hire talents in the 16 countries, including: US, Mexico, Colombia, Brazil, Costa Rica, Guatemala, Ecuador, Uruguay, Ukraine, Romania, Poland, Bulgaria, Czech Republic, Latvia, Lithuania, Estonia.

Tech talents in some countries like Mexico prefer official employment to direct contract, so having the option to work through the EOR model means a bigger chance of them joining your crew.

How much does an EOR typically cost?

EOR costs can vary. They usually charge a percentage of the tech employee's salary, often between 10% and 40%. This includes taxes, insurance, and service fee.

April 11, 2024

TurnKey Staffing provides information for general guidance only and does not offer legal, tax, or accounting advice. We encourage you to consult with professional advisors before making any decision or taking any action that may affect your business or legal rights.

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