The Problem with Employers of Record

Posted on  Apr 06, 23 by Dee Coakley
The Problem with Employers of record

The Employer of Record space has a problem. I know that’s probably not the opening sentence you would expect to read from the CEO and co-founder of an Employer of Record (EoR) provider, but it’s the truth.

I chose to build a company in this space precisely because employing abroad is challenging and filled with unknowns. At the outset, I knew I was embarking on a journey paved with legislative and compliance riddles, and I was ready for my team to be repeatedly stress-tested. Running an organisation that exists solely to solve the myriad of problems associated with employing and paying people across multiple countries is fraught with complexity. We were prepared for the challenge.

Unfortunately, it seems that is not the case for all Employers of Record out there. Lately, we’ve been hearing from prospective customers about the challenges they face with their existing EoRs. With a deep understanding of the space through our own experience, I set out to discover more about what is happening and get to the root of the problem.

The heart of the Employer of Record problem

What I’ve found is that there’s not one singular reason for EoRs being problematic; rather, a string of poor decisions made over time contributed to the multitude of problems.

Building a global employment solution comes with a constant stream of choices. How do we establish operations in each country we work in? What employment model is best to use, given local legislation? How should we structure employment agreements, and where can we find the best legal advice for this market? The list goes on.

It’s our job to answer these questions with ironclad employment compliance in mind and in customers' best interest so they are not at any risk

5 common problems with Employers of Record: ⚠️ Poorly written employment agreements ⚠️ Poor customer support ⚠️ Building an automation product, rather than a compliance product ⚠️ Delays and mistakes in payroll ⚠️ Problematic operating models

I question to what extent other EoR providers put compliance at the forefront of their processes. Decisions solely made in the name of revenue or customer acquisition can often lead to poor or unethical outcomes (more on that later). The problems begin to compound when these bad outcomes are coupled with brand messages of compliance that leave potential customers failing to ask the right questions of their prospective new EoR provider. When you have both things in place, the industry finds itself where it is right now - filled with companies experiencing difficulties with the employment of their international workers and losing faith in the model.

But while the model is extremely complex to execute well, in itself, it’s not the problem. It’s how it has been brought to life. Below, I will take you through some of the most common problems, how to spot them, and how to vet your potential providers appropriately.

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Poorly written employment agreements

Companies who struggle with EoR providers regularly point to employment agreements as a key problem area. Often, Employers of Record will heavily rely on third parties to act as an employer on their behalf in local markets. Things can quickly fall apart when these third-party organisations and their associated contracts are not appropriately vetted. And with dozens and dozens of these local employers, chances are the country-specific contracts will lack consistency. 

A prospect I spoke with recently told me that the contracts he was seeing coming from his EoR were so poorly written that every time he clicked Send to share a contract with a new hire, he feared the candidate would refuse the job. The text was unclear, incoherent, and didn’t cover important aspects of local employment. Any user of an EoR provider should be able to have confidence in the quality of the agreements they're sending to prospective new hires. 

There’s not one singular reason for EoRs being problematic; rather, a string of poor decisions made over time contributed to the multitude of problems

At our company, we start by carefully selecting our legal advisors to ensure we draft the highest possible quality agreements. Each agreement is initially reviewed by one of our country-specialist HR Compliance Managers, who works from a bank of questions they ask to ensure every aspect of employment is well covered in the contract and on par with our contracts from other countries. 

Once the HR Compliance Manager is happy with the language and breadth of the contract, they pass it on to our Head of Legal, who then does another round of reviews. Only once HR Compliance and Legal are happy with the agreement do we start supporting employment in that country and sharing the contract with existing and potential customers. That’s how the process should be managed; EoRs should not blindly trust local partners and the agreements they produce.

Checkpoint

Upon signing a commercial agreement with an EoR but before committing to actually employing anyone, ask the EoR to show you examples of employment agreements, and request to speak with someone from the company’s HR Compliance team to understand their processes regarding providing high-quality employment agreements. Be prepared to ask in detail about their definition of a good employment agreement and how they ensure that’s what’s being delivered to you.

Poor customer support

Great customer support comes down to three main things: how fast the first response is, how good the quality of the response is, and how quickly issues are resolved. It’s that simple. Due to the complex nature of global employment solutions and how business-critical they are, prompt replies are required at every stage in the customer-EoR relationship. 

Building a global employment solution comes with a constant stream of choices. It’s our job to answer these questions with ironclad employment compliance in mind and in customers' best interest so they are not at any risk.

With this in mind, we embed subject matter experts within our customer support and success functions. Our response time averages less than one hour (42 minutes and 45 seconds, to be precise), and our average time to close tickets is one business day. You can read more about our customers’ experience with timely support here

However, as it turns out, not all Employers of Record prioritise customer support to this standard. I’ve heard stories of first responses coming four days later and customers being left without satisfactory answers to technical questions. Part of this could be due to overreliance on third parties, which can cause difficulties in accessing the right information. That overreliance can have other implications as well. 

As someone I spoke with recently told me, when contacting their EoR for support, the person never knew in advance who they would be speaking with or what quality level of support they would receive. That was because the support representatives for each country were from different third parties. They were all of poor quality, but the varying degrees of poor quality made the experience even more frustrating. As well as issues with third-party providers, many EoRs that have grown at speed have struggled to build quality internal support teams and processes to match the scale. The people paying the price for that are customers experiencing this myriad of quality issues. 

Checkpoint

Always ask how much access you will have to subject matter experts and how speedily you can expect responses to open tickets. If at any point during the selection process your own questions, especially the more technical ones, are answered with “don’t worry about it” or “let me get back to you”, be cautious. EoRs are in the business of making you feel safe about your employees. Actions, not words, should showcase that.

Building an automation product, rather than a compliance product

We're a tech-forward company, and I can confidently say that we've built a beautiful product with a great user interface. A high-quality tech platform should be considered as table stakes for an Employer of Record service, but what powers an EoR goes beyond just the technology. “Product” is much more than just lines of code; it’s the employment infrastructure in each country (fully owned company and all necessary licences to employ), the local employment agreements, payroll processing service, tax filing service, provision of benefits, and expert support. 

Always ask Employers of Record how much access you will have to subject matter experts and how speedily you can expect responses to open tickets.

I have come to believe, though, that many founders got into this space believing their sole goal was to build an automation product while they could outsource compliance and technical knowledge. EoR has levels of complexity that can’t simply be automated away. We don’t see our product solely through the lens of being an automation-at-scale challenge; it’s an employment-compliance-at-scale challenge. The product won’t deliver a quality experience if crucial contributors to the experience have all been outsourced. 

By solving solely for and through automation, many providers end up creating the wrong products, the wrong team structures, and the wrong in-house capabilities. The result is more problems for customers who now have to deal with payroll headaches and cases of non-compliance. Even if these automation-first providers wanted to change course, that’s a hard task when you already have the wrong product or team structure. 

Checkpoint

Ask your prospective Employer of Record how they define themselves and their product. Ask them what they think about compliance and how that is embedded in their product and team structure. If they don’t have an immediate, clear answer, that’s a red flag.

Delays and mistakes in payroll

The goal of any organisation that handles employment and payroll should be 100% accuracy, 100% of the time. To achieve this, our payroll team has an ironclad process in place, which you can read more about here.

Even with the most stringent standards, however, errors and file issues can still happen occasionally. In these instances, what matters is what happens next and how mistakes are rectified. Transparency is key. Any identified issues should be shared with customers before payroll is run to avoid any mistakes in data transfer. If data mistakes do happen, they should always be rectified by the following cycle. 

Ask your prospective Employer of Record how they define themselves and their product. Ask them what they think about compliance and how that is embedded in their product and team structure. If they don’t have an immediate, clear answer, that’s a red flag

It turns out not all EoRs follow these standards. We recently signed a large customer in the finance space that switched to us due to, among other reasons, monthly mistakes in payroll processing and significant delays in rectifying those problems. Their former provider never even provided payroll documentation. Instead, the company’s HR teams were embarrassingly notified of issues by employees. Without clear reference documentation, it was then incredibly difficult to get to the bottom of where the mistakes happened and what corrections should be made. This constant stress led them to seek an alternative.

Checkpoint

Ask about the payroll documentation you can expect to see each month, how much time you have to respond if anything looks incorrect, and how long it takes the provider to rectify mistakes. Ask what goal their payroll department sets for themselves and what is their north star. The right answer is 100% accuracy, 100% of the time.

Problematic operating models

Something that Employers of Record often don’t disclose is how they handle local employment in each country. The reality is laws wildly differ, and it’s important that employment relationships between all sides are properly executed.

For example, in countries like the UK, Ireland, Australia, Denmark or Portugal, an Employer of Record model can exist 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 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. 

At Boundless, we embed subject matter experts within our customer support and success functions. Our response time averages less than one hour (42 minutes and 45 seconds, to be precise), and our average time to close tickets is one business day.

Complying with these legal limitations is not optional. Yet, as we have heard from customers, there are instances where EoRs opt out from complying with them. I believe this partly comes from the fact that risk is factored into their commercial models. While EoRs may lead their customers to believe they will absorb the full risk as the legal employer (and bear the financial cost), the reality is that in some jurisdictions, such as Spain and Poland, the service receiver bears a very significant risk. 

When we were setting up in Poland, we spoke to five different legal firms to ensure that we were leaving no stone unturned in our quest to operate under the most appropriate model for the country, which has complex employment legislation. We found that if we employed people for longer than 18 months, there was an unnecessary risk, the balance of which would start to transfer more to our customers from that point. While the situation in Poland is not clear-cut, and some of the lawyers had slightly varying perspectives, it was evident that if we were to support long-term employment in Poland, there was a very strong likelihood that we would be asking our customers to absorb a level of risk that’s not consistent with our strongly held belief that selling a compliance product means having a laser-sharp focus on compliance. We, therefore, made the call to impose a strict 18-month limit in Poland, limiting our revenue-generation period but putting customers and compliance first. 

Spain is an entirely different conundrum. I have already written extensively and publicly about why we decided not to offer employment there. The short story is that, with some very rare exceptions that would not generally apply to our customers, outsourcing employment responsibilities to a third party is not viable for more than six months. As an employer, your only option to employ permanent remote workers is establishing and running your own Spanish company.

Yet, virtually every Employer of Record (other than Boundless) offers unlimited employment in Spain. When I wrote about Spain, I expected to receive an outcry of people trying to defend their position. We received none of that. What I did get, though, were calls from companies using other EoRs who told me about some of the supposed solutions in place. When they had asked their providers about the legality of those, they had been given evasive answers.

While many of our decisions to have a laser focus on legal compliance may sound limiting from a revenue growth perspective, we have found the opposite to be true. This approach has won us many customers in regulated industries such as Pharmaledger and Fund Recs, where companies have a real respect for compliance and understand the value of avoiding misclassification risks (e.g., venture capital firms, financial services, private equity funds, and banks).  

Checkpoint

To catch a questionable view on compliance, just ask an EoR provider how employment happens in France, Germany, Bulgaria, Sweden, Norway, Finland, Czech Republic, Croatia, or Hungary and the limitations in place. And then ask about Spain. Don’t stop at the first answer you get; insist on getting to the bottom of it. Vague answers like “don’t worry about it” or “it’s up to you if you want to take the risk” are huge red flags.

To catch a questionable view on compliance, just ask an EoR provider how employment happens in France, Germany, Bulgaria, Sweden, Norway, Czech Republic, Croatia, or Hungary and the limitations in place. And then ask about Spain.

Work with a trusted EoR partner

Hopefully, this article has given you a good perspective on global employment solutions and the potential pitfalls customers fall victim to when working with Employers of Record. Now you know what to look out for and, more importantly, what to ask before you engage a provider for your global employment needs.

At Boundless, we make it our business to do cross-border employment right, so that you can avoid unnecessary risk. If you’re ready to work with a trusted EoR provider who doesn’t compromise on compliance, we’re here to support you. 

Get in touch today, and let’s discuss how Boundless can manage your international hiring needs the right way.

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Written by Dee Coakley

Before founding international employment platform, Boundless, Dee Coakley was a three-time COO, having spent 10 years with B2B SaaS businesses (Masabi, Bizimply & Axonista). In her COO roles, she experienced first-hand the operational challenges of setting up employees in new countries, and so set about building a solution. Boundless handles cross-border HR compliance and payroll for small and mid-size businesses, removing the barriers to growing teams internationally.

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