The rise of remote work has enabled contingent workforce programs to broaden their searches for talent, often across borders and even oceans. As a result, they are finding an increasingly complex legislative landscape that drives concerns about misclassification risk and the use of talent platforms to directly source and manage talent.
Enter the employer-of-record service model. According to SIA’s recently released Employer of Record and Independent Contractor Evaluation and Compliance Landscape 2023 report, an employer of record provider, or EOR, is an entity that serves as the employer of a worker recruited and hired by an end-user hirer for administrative purposes only while the employee performs work under the direction or control of the end-user hirer.
An EOR partner “enables companies to legally engage with workers in a new country or region without the need to set up a legal entity or face the risk of violating local laws.” EOR offerings can span across the employee administration value chain and include services such as onboarding, benefits provision, administration, payroll, and time and expense management, among other administration services.
EOR service providers generally offer three EOR operating models:
- Direct: The EOR has incorporated or registered its entity in the country where they provide services.
- Indirect: The EOR is not incorporated or registered in the country where they provide services and so utilize their partner ecosystems to subcontract with a local partner to provide services effectively, held to the exact service-level agreement requirements as the EOR provider itself has with its customer.
- Hybrid: This model, which is commonly used, utilizes both direct and indirect models.
While the EOR model appears to be a solution to the lack of a physical presence, it can come with its own legal and administrative risks and complications. These include data protection, tax implications and intellectual property rights. Fiona Coombe, SIA’s director of legal and regulatory research, reviewed these concerns earlier this year in a CWS 3.0 article.
However, the service model does aim to reduce such risks, along with costs and time to market entry. Hence, they can provide a competitive advantage for growing multinational firms seeking to expand their footprint or to access talent in new countries of operation, according to the report.
“EOR solutions are largely adopted by firms that are primarily focused on expanding their employee size and tapping potential markets across regions, and many smaller organizations lack the in-house expertise (i.e., HR, legal, accounting) required to fulfill to global expansion strategies,” says Matt Norton, SIA’s global workforce solutions research director and author of the report.
“In addition to in-country experts and legal staff, many EOR vendors have developed online country-specific compliance databases that immediately reference local HR, tax, cultural and legal norms and regulations,” he states. “These solutions enable employers to reduce or eliminate the costs, effort and risks in navigating the complex process of establishing business entities and operations in foreign countries.”
SIA estimates a global market size of between $25 billion and $35 billion for EOR and IC evaluation and compliance services globally. And interest is not slowing down: Among the 11 provider companies profiled in the study, EOR spend grew by 46% globally between 2021 and 2022.
As enterprises expand their geographic footprints and the ability to tap talent throughout the world increases, the EOR model may be something to consider.
The full version of the Employer of Record and Independent Contractor Evaluation and Compliance Landscape 2023 report is available to members of SIA’s CWS Council.