What is an employer of record solution? Basically, it’s a part of business process outsourcing (BPO) services that significantly simplifies global expansion. It’s a great solution for both big enterprises hiring in countries with emerging markets and smaller companies looking for full-time independent contractors overseas.
Here we will discuss EOR vs PEO vs GEO, and a Staffing Agency: which solution is the most comprehensive and why building a cooperative relationship with an employer of record company is a beneficial option. Let’s start!
What is an Employer of Record?
An employer of record is an external organization that is responsible for payroll, tax calculation, benefits, and mundane documentation of another company in particular location. This model is widely used among tech companies that need to manage operations for their remote employees abroad. In essence, it’s the part of BPO services which deals with transactions concerning human resources and eases many related complications.
Benefits of Engaging an Employer of Record Company
There is a wide range of advantages for a tech company to use employer of record services. Let’s dig a little deeper and clarify which businesses can benefit the most from such a partnership.
No Obstacles to Hiring IT Talents Overseas
An employer of record company is considered to be a pain-relieving solution for businesses that are going to expand globally or already have their representative units overseas. From my experience, many software development enterprises and startups face difficulties trying to navigate in an unknown legal environment. Picture this: with an employer of record, there is no need to set up a local entity or worry about violating foreign labor laws, as all the liabilities of having offshore developers on staff are managed instead of you.
It’s a common practice for IT companies to engage rare specialists from different states to assemble their professional teams. Let’s imagine that you want to launch an offshore development center in Ukraine and need to hire some more specialists from nearby countries like Poland, Romania, Moldova, Slovakia, or Hungary. With a provider of employer of record services, you don’t have to deal with immigration authorities and their ever-shifting policies. Usually, a vendor can arrange all visas, work permits, and legalize your foreign employees.
That’s exactly what we did for Grammarly – an IT product company, which aims at improving written communication with the help of an AI-powered platform. Ukrainian immigration law appeared to be way too confusing, so they reached out to our IT recruitment agency for outsourcing assistance. Our leading lawyers took complete responsibility for the legal processes and arranged residence permits for Grammarly’s employees and their families.
Less Paperwork & Saved Hours
Last but not least, the delegation of HR-related operations to an external firm gives many opportunities for business growth and development. For instance, due to reduced operational concerns, software development companies can focus on the improvement of their products to generate more revenue, as there is no need to worry about routine paperwork and back-office support.
Employer of Record Services: How Does it Work?
Before the final decision to outsource operational business tasks, it’s vital to figure out who is responsible for what to avoid possible miscommunication in the future. To make everything clear, let’s define the scope of liabilities of the EOR services company:
– Ensuring the legal rights of the employees to work in the state where the EOR service provider is located. It includes arranging visas and work permits, avoiding delays and refusals;
– Keeping the client updated in terms of local labor laws and organizing all the working processes in compliance with them;
– Managing all payroll-related matters inside the offshoring country;
– Bookkeeping and accounting administration;
– Tax planning and consultation;
– Administration of employee benefits, such as medical insurance, day-offs, sick leaves, and more;
– Operating as a shelter for a client during the interaction with authorities of the host country.
At the same time, the EOR company is not responsible for:
– Curating employees’ career development and position duties;
– Making decisions as regards contract termination, compensations, etc.;
– Projects supervision.
Defining Differences between EOR, PEO, GEO, and a Staffing Agency
There are a few HR outsourcing solutions that may seem very similar at first glance. However, it’s crucial to compare the terms “EOR” vs. “PEO” vs. “GEO” vs. “Staffing Agency” to mitigate possible legal risks. Let’s have a closer look at these models to decide which one suits your IT business the most. In essence, the main distinctions lie in the areas of:
✓ Scope of services
✓ Employee Contracts
✓ Business Registration
✓ Insurance Coverage and Benefits
Professional Employment Organization (PEO) is a third-party company that works under the co-employment model. Put simply, you hold the employee contracts and remain the legal employer, while working with a PEO that provides the outsourcing services of local payroll and compliance. Due to this, some people argue that this partnership doesn’t allow you to operate under the PEO company, which means that you will still have to set up your own legal entity in a foreign location. As a result, this model offers more control to business owners because the ultimate decisions are always up to you. The PEO model is especially popular in the USA where employment requirements differ across the states and regions, so tech companies need additional consultations.
Employer of Record (EOR) performs a more comprehensive role, compared to PEO. They hire tech specialists, manage and keep their contacts, plus work on benefits and insurance. In other words, they are the legal employer for the software developers who actually work for your company. Another vital point is business registration. While the PEO solution requires you to open your own legal entity in an offshoring location, an employer of record model does not. Your employer of record partner will take over all legal & accounting hurdles of the employment procedure in a foreign country.
Global Employment Outsourcing or GEO is pretty much the same thing as an employer of record service. It implies having a service agreement with a provider who is responsible for managing all your HR-related operations while holding the employee contracts. In contrast to professional employment organizations, a GEO gives you an opportunity to hire foreign IT contractors without the need for establishing legal entities in those countries abroad. Partnering up with GEO enables you to hire developers from many different countries where your partner firm is registered. It’s a perfect chance to cover new markets and expand your business.
In comparison to EOR and GEO that assume the roles of legal employers for tax and administrative purposes, a staffing & recruitment agency hunts software developers for IT companies. Such firms are focused on searching candidates, screening their CVs, conducting job interviews, matching the applicants with employers, and providing regular IT recruitment service efficiency reports. Companies often turn to staffing agencies in cases of special projects, sudden seasonal spikes, or skill shortages.
Do you Need an Employer of Record Agency? Consider the Alcor Solution
No need to panic if you feel confused due to the great variety of available EOR models. Just imagine having an all-in-one place for recruitment and back-office support. I have some good news: that’s exactly what Alcor has to offer.
Our financial team can provide you with payroll, accounting administration, tax planning, and calculation services. Apart from that, we offer audit services combined with financial modeling and analysis. Our accounting experts work closely with the legal department that handles Ukrainian labor law compliance, employment contract reviews, as well as provides visa support and gets work/residence permits for your employees. As a result, you get fully transparent and fast accounting and payroll with a full pack of additional services.
Sitecore is an IT industry-leading platform that manages content, supplies contextual intelligence, automates communication, and praises Alcor accounting services. The company was looking for optimization of the accounting processes for its offshore software development center in Ukraine. Therefore, we drafted a new operational structure and handled all the documentation to comply with both Ukrainian and International standards. Today, Sitecore enjoys operational comfort, cheaper accounting services in Ukraine, and 100% transparency with the Alcor Model.
All in all, an employer of record is a business solution that lets companies receive back-office support, such as HR management, payroll assistance, accounting, legal & compliance solutions, and others while expanding abroad. Moreover, with an EOR model, you won’t have to open your legal entity in the foreign location. However, you’re unlikely to receive IT recruitment services from such a vendor and will have to look for a reliable hiring partner to satisfy this need.
In case you want to receive professional tech recruitment services and ultimate operational support in one place, consider the Alcor model. Alcor is an international recruitment services provider in Eastern Europe that specializes in both the employer of record services and IT talent recruitment of senior and lead developers. Compared to many other vendors, we have a “pay-per-service” option, so you can choose only the services you need. That’s an efficient way of optimizing expenses.
Our solution might benefit your business. Just leave us a message!