Finding the Best Employer of Record: 12 Essential Questions
Posted on Jun 14, 23 by Irina Dzhambazova
International remote employment can be challenging due to the complex legal and compliance requirements. It is crucial to avoid misclassifying workers and adhere to local employment laws, including running local payroll and fulfilling employer obligations. To navigate this process, there are two main options: setting up as an employer yourself or working with an Employer of Record (EoR).
Setting up as an employer in each country where your remote workers reside can be time-consuming and unpredictable, taking anywhere from ten weeks to 18 months. It involves tasks such as registering with local tax authorities, labour departments, setting up an entity, creating employment agreements, handling payroll, complying with employment legislation, managing ongoing payroll overheads, and staying updated on changing regulations. This approach is commonly chosen by larger companies establishing international subsidiaries but may not be suitable for companies focused on core business activities.
Employing through an Employer of Record
If the above sounds time-consuming and cumbersome, you have an alternative option: employ people with the help of an Employer of Record. We go into detail on what an Employer of Record is here but the important part to understand is that this is a model (and legal status in an employment agreement) that takes care of the employment and legal relationship with an employee locally. By utilising the corporate and employment infrastructure that is in place, you do not need to do any of the heavy-lifting yourself.
This route spares you the headaches and overheads without putting you in a legally dubious situation. While a lot of the complexity that comes with global employment is taken care of for you, different Employers of Record will give a different flavour of this service, have a varying fee structure, take up a mixed set of responsibilities, and operate in their own specific way.
When evaluating a prospective Employer of Record (EoR) to meet your needs, asking the right questions is crucial. We have compiled a list of 12 questions that will help you determine if a potential EoR is the right fit for you.
1. Will the organisation legally employ your worker?
Before delving into other inquiries, it's important to investigate whether the provider handles local employment. While international employment may involve services like cross-border payments and streamlined payroll, having a local employer for your worker is essential. The EOR should handle activities such as maintaining a local corporate entity, registering as an employer with tax authorities, processing payroll, filing taxes, offering statutory benefits, and ensuring HR compliance.
Alongside that, they will also have to be running a tight ship in terms of corporate governance for all of their companies. If they do not do that, then their customers’ workers' employment may be questioned. Tools or services that facilitate international payments, handle contractor invoices or process payroll alone, do not provide the full suite of services that legal employment requires, starting with being the employer.
2. Is the EoR the direct employer, or do they work through partners?
This is an important piece to understand because the legal employer is the one who carries most of the responsibility for the employee. The fact that legal employment is offered in a specific country doesn’t automatically mean that the provider that you are engaging with is the direct legal employer. They could be working with a partner organisation that they will either put you in touch with or communicate with on your behalf. While the partner/s may be perfectly capable of legally employing your worker, adding additional layers to the international employment relationship mathematically increases the chances of something going wrong, blurs the lines of responsibility, and potentially diminishes the quality of service. Ultimately what you need to know is, if something goes wrong, who is responsible for your employee in the eyes of the local authorities.
Some Employer of Record services may opt to work with partners instead of setting up their entities because the latter takes a lot of time and commitment. Often, these entities will need to have very specific licensing, which further complicates and lengthens the process. The ability to handle and navigate through a lot of administrative red tape with panache is one of many requirements.
While a difficult process, owning their group of companies is the only way to ensure a quality customer experience. It's simply too difficult to control quality from a distance with a third party, and it's impossible to give you any guarantees when they do not control the end-to-end experience. By the Employer of Record being in control of everything that happens to your employee, you, too, will be in better control.
Yet, not every provider will opt for that. If the Employer of Record works with partners instead of having their own entities, you need to understand whether you will have direct contact with them. Beyond that ask questions such as:
What happens with performance-related issues or termination (adding layers between the customer and the direct legal employer introduces friction into any process around disciplinary action or termination that needs to be done in a compliant way)?
How do they make sure that all of the data changes from your end have been received in time for running payroll by the partner?
How do they ensure you know the latest legislation surrounding employment and tax legislation?
How do they move money between the organisations?
Have they done their due diligence in selecting that partner?
How are they making sure their partner will do things right?
3. How are employer obligations split between you and the EoR?
As you saw in the previous question, many responsibilities fall under an Employer of Record, and you have to make sure that the service you are engaging with will be able to take care of them. While they take over the specific obligations that go with local compliance, all of the facets of the ‘actual work’ will still be yours: setting goals, having 1:1’s, learning and development, etc. So when an organisation is saying that they will assist you with HR compliance or help you navigate local regulations, you will need to investigate what that means.
In some jurisdictions, appearing in front of an employment tribunal if the employee has made a claim would be one thing which the Employer of Record may be required to do on your behalf. There are other obligations that, instead of doing for you, they will inform you of and expect you to fulfil. Here are a few examples:
If an employee is sick, who do they have to call?
If the country has a time tracking obligation, who does it fall on?
Will they provide non-statutory benefits locally, and who will administer them if so?
All EU nationals can ask to review how their data is used, so there needs to be a privacy statement and procedure for handling data requests under GDPR. How would your potential Employer of Record handle this?
There are many other country-specific obligations that an employer in these or other countries may have, and depending on the country, a different division of responsibilities may be necessary between you and the Employer of Record. Be sure to get all the fine print clarified!
4. Do they have extensive payroll and HR knowledge as well as the right processes in place?
To be able to help you with multi-country HR and Payroll, the Employer of Record should have extensive experience and knowledge of international payroll, operations and in-house HR to help you. On top of that, they should have a good grasp on local employment and tax legislation and how it evolves. They should have the ability of making sense of that information and packaging it in a way that makes it easy for you to digest. (Boundless has a library of comprehensive Country guides publicly available to everyone). Finally they need to have robust processes in place to run accurate monthly payroll, get good quality employment agreements to you, and transfer the right data.
Investigate if, as part of the sales or onboarding process, you can speak with people who are in these roles and whose primary responsibility is employment compliance. Ask as many questions about the local employment law where your worker is and whether you, as the client, have any responsibilities you need to fulfil. Observe how they are answering those for you - does it feel like you're talking with a salesperson whose goal is to entice you to buy a product, or does it feel like you're talking with someone with deep experience in HR/payroll operations who really understands your questions and the challenges that you're dealing with?
Enquire if they can also provide written guides, which you can read at your convenience. Making sense of this very specialised information takes time and effort, and developing an extensive knowledge base for customers about local regulations should be an activity in which they have invested time and resources.
Beyond accessing this information, either through directly speaking to them or reading their content, try to gauge how much of it they have managed to automate and streamline into how they work, and their product.
It's worth bearing in mind that, when engaging an Employer of Record, you are not simply purchasing software or a widget and there is a service element to what they do, which should be easy to access and understand, both for you and your employees. After all, the whole reason that you are working with an Employer of Record is so you can get on with what matters most to you - running your business.
5. How does the employment contract work?
One of the key points to your work with an Employer of Record is how the employment relationship is handled contractually. The relationship has three sides - you, the worker, and the Employer of Record, and you all need to be involved. Having in mind that the provider is the legal employer of your worker, they need to have a contractual relationship with them. In certain countries you will also be mentioned in the agreement but sometimes you won't. While it needs to be fully compliant with the law, it also needs to be consistent with the way your company operates. You should be able to harmonise your strategy for performance management, frequency of compensation reviews, structure to work days, retreats and all other company rituals in all geographies where the Employer of Record is helping you.
Contracts in different territories vary greatly. In some geographies, you will see employment agreements that show with great detail the tripartite working relationship we’re describing above. You’ll have three signatories to the contract, and clauses that express exactly which party is responsible for what. Typically, you should expect the EoR to be indicated as responsible for payment, taxes and anything specifically local - while everything concerning policies (from time off and working from home, through travel and expenses, all the way to performance and everything else) should remain with you. You should ask in detail about the benefits that you offer to your employees and whether you can continue to extend them, or does the EoR need to take over some of these. Will they provide all of the benefits that are statutory in the country you want to hire in?
In other territories, having three signatories to the employment agreement is not possible. Some will require parallel contracts, to be signed between you and the EoR on one side, and the EoR and your employee on the other. Some will have a tripartite agreement going hand in hand with a separate agreement between employee and EoR. While you’re evaluating an Employer of Record provider, it’s important that you ask to see the template agreements they have in place for each jurisdiction you’re thinking of using their services for and how consistent the agreements are. One challenge that comes up if they are using different partners in different countries is that the quality of the agreements will be poor. You need to understand how your employees' employment conditions will look and if the EoR is able to support you creating consistency across the board, while complying with local employment practices.
6. What are the employment models they use in each country
Employers of Record often don’t disclose how they handle local employment in different countries. The reality is laws wildly differ, and it’s important that employment relationships between all sides are properly executed. You will most probably need to dig deep here.
For example, an Employer of Record model can exist in countries like the UK, Ireland, Australia, Denmark or Portugal without any time or job function limitations. However, limitations exist in other jurisdictions. For example, employment through an EoR (a Portage Salarial in France) is allowed for 36 months in France. In Germany - where EoRs must be registered under what’s known as an AUG licence - there’s a limit of 18 months. Norway is another interesting example, where not only are you limited in the term (five years), but you are also limited in the scope of the work, which must be only for a defined project with clear milestones and timelines.
Complying with these legal limitations is not optional and failing to do so can put you jeopardy of breaking local laws. So always ask how the EoR provider is setup in countries such as France, Germany, Bulgaria, Sweden, Norway, Finland, Czech Republic, Croatia, or Hungary and the limitations in place. If you are looking to employ someone in Spain, be very mindful of the setup in place (We have written about why we do not support Spain).
7. How will the EoR help you if you need to end an employment agreement?
In most countries, there are pretty strict regulations to prevent unlawful terminations. Regardless of your worker's location or the situation's specifics, the Employer of Record should step in to offer you tailored advice. They should provide the necessary support to handle the situation positively and legally. This requires availability, willingness to help when the going gets tough, and local knowledge. In fact, it’s vital to your partnership with them that ending an employment relationship should be addressed in the commercial agreement you sign with the Employer of Record.
Ask if they have an established procedure for compliantly ending employment agreements. A good practice would be that they should require their customers to alert them at the first sign of an employment agreement potentially coming to an end. Doing that would allow for following the right procedure from the start and avoiding any employment tribunal or labour court cases.
8. How responsive would they be once you become a customer?
While a lot of the work that an Employer of Record will do for you is set at the start of the relationship with them, some things will come up further down the line. Employment is not a straightforward process, and the Employer of Record should ensure a smooth experience for all.
Even the most modern Employer of record organisation, built using software development best practices, and streamlined/automated workflows, should have human support that is there for you when you need them. Start by understanding how their support works. Can they demonstrate payroll and HR expertise from the first interaction? How reliable are they? What is their track record of helping customers? Understanding the support workflow can help set expectations about whether they will be able to solve issues on the first contact and save you time. It shouldn’t feel as if customer service is transferring you from one person to the next.
Beyond that it's important to understand how they will handle emergency situations, both in the short term and the long term. What happens if an employee in a different country has a medical emergency and needs access to their insurance? Would they be available over phone, email or online chat to help? What happens if an employee needs to change countries of residence, how fast can they facilitate a transfer?
The point here is to understand how they manage your expectations about availability, and if the cost for that is clear and transparent.
9. How is payroll data managed, and do you have an overview?
Ask anyone running payroll, and they will tell you that what keeps them awake at night is how data is managed, and adjustments are applied while taking into consideration tax bands, credits, allowances, benefits-in-kind, supplements, reimbursements, updates to the tax code, and many more.
Managing the employee data, keeping it safe at all times, and maintaining an efficient and zero-makes workflow for applying changes can result in added complexity when working with an Employer of Record. While your payroll department may have an auditing process when they pay out salaries, when you are working with an Employer of Record, you are subjecting yourself to their operations.
You will need to understand the data change workflow and your visibility over it. Is there a product solution in place that both you and the worker can access or is the solution a mix of tools such as email/google sheets/cloud storage? An interface would allow you to review the final payroll costs more easily before paying the Employer of Record each month, decreasing the chances of mistakes.
When you have multiple workers in multiple countries, managing all of this can become a big overhead if there is no way to have a bird’s eye view on how things are looking.
10. How do they store and keep that data safe?
Managing changes and ensuring payroll is correct is one thing; making sure your worker’s data is safe and secure is another thing for which the Employer of Record is also responsible. As some of this data is highly sensitive, and multiple parties have access to it, the Employer of Record needs to apply the highest possible measures in keeping it safe. It's important to examine an Employer of Record’s security and privacy policies to assess how they comply with local and international data protection regulations, including GDPR and Schrems II.
On top of that, it's important to establish which measures are being taken to keep your data secure. Ask questions such as where the servers which store the data are physically located; what is the disaster management and data recovery plan; do they have any threat detection systems in place; are they ISO27001 certified, or are they aiming to achieve certification soon?
11. How much will it cost you to employ someone through them?
Typically, an Employer of Record would either charge a flat fee for their service (regardless of the salary they are handling) or a set percentage of the compensation. The fee may be harmonised for all countries or differ slightly. These fees would be charged either every month or billed once annually. The price that they quote may depend on a certain commitment from your part (timeframe, number of workers, etc.).
Inquire in detail how the fee structure works and ask them to help with gross-to-net calculations, employer taxes and also their fee so that you can see exactly how much it will cost you to employ someone through them both monthly and annually.
Find out whether they cover everything the Employer of Record will do for you or whether additional charges may come up. Ask if there are additional charges for particular circumstances, such as employment termination. How does their fee structure impact employment in multiple countries? If you decide to break the contract, are you liable for any fees?
12. What are the terms oftheir commercial agreement, and can you easily end it?
While we have already mentioned that handling employee terminations should be explicitly mentioned in the commercial agreement with the Employer of Record, what other important terms might be there that you should understand? Here are a few:
Minimum term of engagement
Deposits you will need to pay upfront
Minimum team size you need to have at sign up
Any expectations on adding more workers
Cancellation clauses and fees in excess of any employee termination fees
How easy or difficult it is to extract employer or employee data from their systems and interface
Clear division of responsibilities and ownership of the compliant employment
Clearly expressed IP ownership and confidentiality
Payment transfer fees
Foreign exchange fees
Any fees for customisation of employment agreements, or later addendums
As with everything else in life, if you are not happy with your Employer of Record, you should be able to get out of the relationship with them reasonably easily. Ask what the terms on that are and if you are bound to work with them for a certain period. (You can see the Boundless commercial terms here). No Employer of Record will be justified in making it hard to leave them and migrate to a different provider, or to move to employing people through your own entities.
Start employing across borders with confidence today
We hope that these 12 questions and their significance have provided you with insights into how to assess the value of an Employer of Record and choose the best one for you. These questions are rooted in our experience of reimagining global employment and striving to develop the most optimal, safe, and compliant solution. If you are seeking a secure and reliable approach to employing your globally dispersed workforce, don't hesitate to contact us today. We are eager to address these 12 questions and any additional inquiries you may have, recognising the immense importance of effectively managing your valued staff.
Need help in figuring out how to employ your international workers?
The making available of information to you on this site by Boundless shall not create a legal, confidential or other relationship between you and Boundless and does not constitute the provision of legal, tax, commercial or other professional advice by Boundless. You acknowledge and agree that any information on this site has not been prepared with your specific circumstances in mind, may not be suitable for use in your business, and does not constitute advice intended for reliance. You assume all risk and liability that may result from any such reliance on the information and you should seek independent advice from a lawyer or tax professional in the relevant jurisdiction(s) before doing so.
Written by Irina Dzhambazova
Irina Dzhambazova is the editor of this publication and leads many of the marketing efforts behind Boundless. Previously she crafted stories at SaaStock and Dublin Globe and travelled the world capturing case studies of companies using the Kanban Method. Throughout this experience, she was almost always "the remote worker" and knows a thing or two about the potential and challenges of this way of working.
It’s been a few months since the UK officially exited the EU. While many aspects of the Brexit deal are better understood now, we have a way to go to grasp the details thoroughly. One crucial topic to many companies with UK-based employees or those employing UK nationals abroad is how Brexit impacts employment. The […]
Working as independent contractors can leave people feeling like second class citizens in comparison to their properly employed counterparts. Still, it has to happen in a compliant and legal way, for the benefit of all.
Considering employing someone in the Philippines? To do that compliantly, an employer has a lot of obligations they have to fulfil. One comprehensive and important topic is the set of local employee rights a worker residing in the Philippines is entitled to. Below is a guide to employee rights in Philippines to help you understand […]
The most crucial aspect of international employment is understanding the law in the country where your employee is relocating. Every place has its own unique rules on your contractual obligations, statutory notice periods, taxation, and employee protections.
Considering employing someone in Canada? To do that compliantly, an employer has a lot of obligations they have to fulfil. One comprehensive and important topic is the set of local employee rights a worker residing in Canada is entitled to. What makes things a little more complex in Canada is that those rights differ among […]