Employers of Record

In recent years, Employers of Record (EOR) have become increasingly used by businesses with international workers. EORs are often used where employers are expanding fast and have small numbers of employees in a large number of countries or where they are trying to find ways to hire individuals in locations where they lack a physical office and where the individual or their family prefer not to relocate.

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Natasha Karp, Nicholas Carling and Asker Ali
Published: 11 Jun 2024 Updated: 11 Jun 2024

What is an Employer of Record?

An Employer of Record (EOR) is a third-party organisation that can assume full legal responsibility as the employer for your workers. From onboarding and contracting to payroll and non-cash benefits, the EOR manages all employer-related tasks on behalf of your business. Some businesses may use an EOR to manage local reporting obligations rather than assuming full legal responsibility.

Benefits of using an EOR:

  1. Reduced entity setup time: By partnering with an EOR, businesses can avoid lengthy entity registration processes, allowing them to focus on core operations.
  2. Cost savings: EORs streamline ongoing administration, minimising the expenses associated with entity registration and ongoing running costs.
  3. Simplified HR processes: Compliance obligations are handled locally in each respective country, easing administrative burdens.
  4. Consistent compliance: EORs ensure adherence to local employment law regulations, eliminating the need to navigate local rules across multiple territories.

While EORs have facilitated the hiring of key talent for many organisations, it’s essential to evaluate whether this model aligns with your specific needs.

Key considerations for organisations:

As you evaluate whether or not an EOR aligns with your organisation’s needs, we would recommend considering the following factors as part of your risk-based assessment:

1. Permanent Establishment (PE): PE is a critical international tax concept, which determines whether a business has a taxable presence in a foreign country.

It’s important to note that engaging an individual through an EOR does not remove potential PE exposure. It is therefore necessary to assess the nature and extent of work undertaken by the individual in the relevant territory to determine whether a PE is created, as the consequences of non-compliance can be severe in some locations. If a PE needs to be recognised, it will be important to understand the facts and circumstances fully to determine whether the EOR can manage the local administration on behalf of your business or whether your business is required to undertake the local administration.

International PE rules have been tightened in recent years, which has increased the risk of triggering a local taxable presence. It may be possible to reduce this risk through your transfer pricing framework, and by implementing specific safeguards in relation to local activities.

The PE assessment may also impact payroll withholding requirements and it is important to remain actively engaged with the EOR to ensure compliance. For instance, there may be a requirement to run a payroll for social security purposes only, rather than for both tax and social security.

2. Payroll Complexity:

  • Global Roles: Executives with global roles may trigger payroll tax withholding obligations in multiple locations. Applications to tax authorities may be necessary to reduce or exempt withholding on employment income. A prior understanding of requirements is crucial to avoid double payroll tax withholding and adverse cash flow implications for the individual.
  • Equity Incentives: Individuals may participate in incentive schemes, such as restricted stock units or stock option plans, that may require specialist payroll knowledge to ensure compliance. Some countries, like Australia, have separate reporting requirements for equity incentive plans, distinct from regular payroll processes. It is important to confirm that your chosen provider can handle these requirements effectively.

3. Equity and Incentives:

  • Plan Rules and Third Parties:It will be important to review your existing equity incentive plan rules and ensure they allow for awards to be granted to third parties, including individuals employed by an EOR. If your intention is to provide incentives to EOR-employed individuals equivalent to direct employees, it will be necessary to assess the feasibility within your plan framework.
  • Separate Incentive Plans: Depending on the facts and circumstances, you may wish to consider creating a separate incentive plan specifically tailored for a third-party population. This approach can help to manage your reward offering more effectively.

4. Local Laws and Restrictions:

  • EOR Time Limitations: Some locations impose time limitations on EOR arrangements. For instance, in Germany, an EOR can engage an employee for a maximum of 18 months. It will be necessary to incorporate time limitations into your assessment criteria to avoid pursuing options that may not be feasible in specific jurisdictions.

5. Integration:

  • Historical Practices:Organisations transitioning to EORs may not have previously employed individuals on remote working contracts. We would recommend evaluating whether your existing policies need updating to accommodate workers who are not office-based. For example, from training and equipment requirements for EOR engaged individuals to travel and expense policies for the reimbursement of travel expenses.
  • Collaborative Tools and Systems:Review the collaborative working tools and systems available within your organisation to ensure they support the integration of remote workers effectively.

What should you do as a next step?

If you are considering the use of an EOR, we would always recommend seeking professional advice. At Evelyn Partners, we can support your business as follows:

  • We offer a complimentary workshop to help you set a clear path for your international expansion goals, including discussing and optimising your tax position
  • We can help develop a risk-based assessment to support your organisation with the decision-making process to engage potential new hires
  • We can perform a review of the proposed role from a PE perspective to advise you of potential risks, risk mitigation strategies and creation of internal control frameworks, if required

If you would like to discuss how any of the above could impact your business, please do get in touch with your usual Evelyn Partners contact or the contacts listed.

Approval code: NTEH70624103

This article references the time limitations on EOR arrangements in Germany. Please note that Evelyn Partners does not provide tax advice in this jurisdiction. However, as part of our membership of CLA Global we are able to deliver international projects.

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication.

Tax legislation

Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. You should always seek appropriate tax advice before making decisions. HMRC Tax Year 2024/25.