Pros & Cons of An Employer of Record (EOR)
What are the pros and cons of using an Employer of Record (EOR)? Learn the advantages of faster global hiring and reduced compliance risk, alongside the trade-offs in cost, control, and long-term scalability.
We’ve talked a lot about Employer of Record (EOR) services in our latest articles, including by reviewing some of the leading providers and by taking a look at how exactly EORs work. One thing we haven’t covered, though, is the pros and cons of using one.
As with many things in business, there are plenty of reasons both for and against using an EOR. After all, if there were only pros then everyone would use them, while if there were only cons then EORs wouldn’t exist in the first place.
And so with that in mind, in today’s article, we’re going to take a closer look at EORs, with a focus on their advantages and disadvantages and what that means for you.
What is an Employer of Record?
Before we get started, let’s take a moment or two to define what an Employer of Record is.
At its simplest, an EOR is a third-party organization that bolts on to your company and is responsible for legally employing temporary and permanent workers on your behalf. They handle contracts, payroll, taxes, benefits, compliance and other responsibilities so that you don’t have to.
This is especially ideal for when you want to hire employees in new countries without having to establish a legal entity there, but it can also be useful if you don’t have the resources in-house to manage a full HR team.
But we’re getting ahead of ourselves, as we’ll be taking a closer look at the advantages of using an EOR later on in the article. For now, just know that an employer of record is essentially the official, legal employer, while you’re the client that they provide their services to.
The Pros & Cons of an Employer of Record
One of the biggest and most obvious advantages to using an EOR is that they make it easy for companies to expand into new regions. That’s because instead of spending a ton of time setting up your infrastructure and ensuring that you have a legal entity in place, you can cut to the chase and start bringing new employees in straight away.
The EOR takes care of all of the legal stuff for you, allowing you to focus on doing the work that pays the bills. Better still, they usually have specialist knowledge of the regions in which they operate, allowing them to better understand the cultural and legal norms and to make sure that you’re fully compliant with local employment legislation.
Building on from that last point, the fact that EORs have a specialist understanding of the regions in which they operate means that they’re a safer choice than trying to enter those regions alone. Their ability to ensure that you’re fully compliant means that you’ll face less legal risk and be more likely to avoid fines and legal proceedings. In fact, much of the legal liability will be transferred to the EOR, meaning that even if something does go wrong, they’ll be the ones to be punished.
Alongside this reduced risk, you’ll also find yourself dealing with less complexity, because the EOR will be responsible for doing much of the work. Bringing on new temporary employees can be as simple as making a phone call to say, “I need 100 more people.” The EOR will do the recruitment and fill out the paperwork for you.
Hiring people takes time. In fact, one survey by LinkedIn found that it can take as long as four months to hire someone, and then you have to deal with training, onboarding and all of the paperwork. Even when you have the internal capability to do all that, it’s still time consuming and not always the most efficient use of your time.
Luckily, EORs can take care of all of that for you, allowing you to onboard employees in weeks instead of months or to bring on dozens of people at once instead of having to do so one at a time. And that brings us on to the next point.
The greater speed and ease with which EORs allow you to bring in new employees means that you can scale your company at a speed that suits you. If you want to bring in hundreds of temporary workers in the space of a couple of weeks, you can do so. If you prefer to bring them in one at a time, you can do that too.
This unlocks a number of competitive advantages that could help your company to dominate the competition. For example, you can try a new marketplace or region without fully committing, using EORs and temporary workers to dip your toe into the water without having to hire a full-time employee or create an official entity in the region.
This is the obvious one, and it’s the main reason why EORs aren’t being used by every company on the planet. Using an EOR can be expensive because you’ll be required to pay service fees, security deposits and other chargers if you want them to work for you. The extent of those fees will vary from one EOR to another.
Some EORs also include hidden costs and additional fees, such as by charging you for account setup, billing you for any changes to your contract or requiring you to pay if you want to end the contract and move things in-house.
The other main drawback of working with an EOR is that you have less direct control over your employees and your approach to HR. True, you’re the client and so you have the final say over what the EOR does on your behalf. However, you’ll have handed over the day-to-day control and won’t have much of a say in the finer details.
For a lot of companies, this isn’t a problem. In fact, some see it as another advantage, because they don’t want to get bogged down in all of the details. It really depends upon how much control you want to maintain.
When you outsource your human resources department to an employer of record, you’re putting your fate in their hands. Whether you realize it or not, you’re suddenly reliant on the EOR for your company to keep operating and, preferably, growing.
If the EOR goes out of business or if they’re dealing with a backlog and taking forever to get things done, it’s your company that will suffer. If you were dealing with HR in-house, you’d have more control over your own destiny, although that’s not to say that you’ll live in a utopian dream where everything will miraculously be done on time.
Should You Use an Employer of Record?
This all brings us on to the question of whether an employer of record is right for your business. Unfortunately, there’s no easy answer.
Instead, you’ll need to weigh up the pros and cons that we’ve talked about today and decide whether you think it’s worthwhile. In particular, you’ll want to look at the cost of using an EOR and to decide whether you’d rather save some cash and take on the challenge of expansion in-house.
If you do decide to use an employer of record, you should spend some time looking at different EORs, reading reviews, and understanding the specific pros and cons of each EOR. For example, some are great at scaling but only work in certain regions, while others pride themselves on their affordability but don’t have the same amount of functionality.
If you’d like to learn more about some of the different EORs on the marketplace, we’ve got you covered. Check out our series of EOR reviews to find out more.
Conclusion on Using an Employer of Record
Now that you know a little more about EORs and the pros and cons of using them, you’re much better placed to decide whether you think the pros outweigh the cons for your company.
Remember that there’s no simple answer to whether or not you should use an Employer of Record, and it all comes down to the situation you find yourself in and whether it makes sense for your company.
With that said, if you do decide to work with an Employer of Record, we’re on hand to help you out. Get in touch with us today to find out more!
Written by
Christa is a Copywriter at Employsome with 17 years of professional writing experience across global brands, startups, and online publications. A native English-Finnish writer, she brings strong editorial skills and a versatile background in business, SaaS, and finance. At Employsome, Christa focuses on clear, practical content about HR, payroll, and Employer of Record topics.
Our content is created for informational purposes only and is not intended to provide any legal, tax, accounting, or financial advice. Please obtain separate advice from industry-specific professionals who may better understand your business’s needs. Read our Editorial Guidelines for further information on how our content is created.
