In the workforce solutions space, services like employer of record and payrolling are frequently mentioned but often misunderstood. Many HR and procurement stakeholders are unfamiliar with these services or how they can bring value to their organization, as they are commonly mistaken for payroll processing services provided by companies like Paychex and ADP.
I’m here to provide clarity to employer of record (EOR) services—and the tremendous benefits they can provide to your business.
What is an employer of record?
An employer of record—otherwise known as a payroll service provider—is a third-party organization that is accountable for employing a worker on behalf of a client and taking responsibility for handling all worker taxes, benefits, insurances, and other statutory and administrative costs associated with that worker’s employment. Organizations partner with an employer of record to outsource temporary labor that has been self-identified by the company. Outsourcing eliminates the tedious administrative and payrolling burdens that come with managing temporary employees. While these workers provide services for—and often sit onsite at—your organization, you will not legally serve as their employer; instead, that responsibility falls on the EOR partner who will keep your business compliant with ever-changing legal and HR regulations and the employment and taxation laws across multiple states.
The employer of record handles all personnel functions, including:
- Background screening and drug testing
- Completion and retention of I-9 forms
- Onboarding and training of workers on safety, time, and expense reporting
- Timesheet management
- Processing, funding, and distribution of payroll
- W-2 form issuance
- E-Verify compliance
- Health care benefits administration and review of plan information with workers
- Registering and filing employment taxes
- Unemployment administration
- Workers’ compensation claims
- Ongoing worker care to ensure job satisfaction
- Conversion of contingent workers to direct employees
- Termination of workers
Who assumes responsibility?
The organization and the employer of record have different partnership obligations.
- The company where the employee works will retain control of business operations and is responsible for workplace safety and compliance. An EOR does not replace the organization’s human resources department—it augments it.
- The EOR assumes liability for employment issues—and is the worker’s legal employer— along with payroll compliance and tax laws.
Why should I partner with an employer of record?
When a company hires a worker, it assumes responsibility for all employment tasks, costs, and liabilities associated with having that employee as a member of its team. Not all organizations want to handle these obligations—especially ones that operate in multiple states and/or countries. Partnering with an employer of record offers another option that provides the advantages of time and cost savings, reduced co-employment risk, and greater workforce flexibility.
For many organizations, temporary labor isn’t something that any specific resource owns. It is commonly seen as a burden to managers who have to spend time on laborious administrative and payrolling tasks to get a worker started. Outsourcing these activities to a proven employer of record not only frees up time for internal resources to pursue more valuable business objectives but ensures a more consistent and compliant engagement process for the worker. No longer will you have to worry about managing paperwork or tracking down candidates to submit information—with help from an EOR partner, these responsibilities will be removed from your plate entirely.
On the same note, liberating your HR managers and talent acquisition resources from these tasks will also contribute to cost savings. Allowing these employees to dedicate themselves to more value-producing activities will give a boost to your company’s bottom line. Outsourced EOR providers offer payroll services at very low rates—often only a few percentage points more than the statutory cost. This alternative can be significantly less expensive than doing the same work and employing the worker in-house.
Reduced co-employment risk
There are legal advantages to working with an EOR partner for your indirect hires, as well. Your payrolling provider will take ownership of employee classification efforts and protect you from expensive misclassification findings and liabilities. W-2 payroll services also offer mitigation from sensitive co-employment issues. Not only will EOR free up time for your internal resources, but it will also alleviate concerns from your legal team by taking on a portion of the employment liability.
Partnering with an employer of record enables your organization to take advantage of a “try-before-you-buy” model when it comes to talent. Interested in bringing on a resource, but unsure if they’ll fit within your team? You can choose to payroll workers before deciding whether to bring them on full-time or release them upon completion of the project. Most EOR providers offer free payroll conversions, allowing you to transition a worker to your staff at no cost.
As workforce flexibility and cost savings will continue to remain high organizational priorities for the foreseeable future, the prevalence of employer of record services should expand in the years to come. And due to the generation of time savings and an overall reduction of employee liability, your business can significantly benefit from partnering with an EOR provider. If you’re seeking a proven workforce solution that can bring value to your business, take a closer look at employer of record services.
This blog was written by President Dave Savarise.