Over the past few years, many opportunities have popped up for companies to go worldwide with their businesses. Growing economies, advanced technologies, access to new markets and top talents are all major factors motivating companies to stretch beyond their borders.
Anytime a company is looking to tap into a new market, the EOR vs subsidiary debate usually arises. So which way to go? Let’s discover more about an employer of record and a subsidiary to know which option best fits your unique needs and requirements.
Employer of Record
Usually shortened as EOR, an employer of record is an employment solution whereby a third-party organisation recruits and onboards workers on behalf of your company.
The EOR service provider acts as the lawful employer and handles tasks and responsibilities for employment benefits, relationship and HR. An employer of record’s clients only manage daily activities.
What Does an Employer of Record Do?
With an employer of record, your business can hire workers overseas without setting a legal subsidiary in the respective jurisdiction. This is possible since the EOR service provider becomes the workers’ lawful employer, meaning the organisation takes over the full legal liability. The employer of record is responsible for the following:
Hiring and onboarding: As already mentioned, the EOR recruits and onboards new employees. An EOR has entities in countries where it hires employees from.
Termination: An EOR helps its clients manage the termination process based on local rules and regulations.
Payroll and taxes: An employer of record service provider handles tax registration and filing as well as processing all necessary deductions, withholdings, and payments, among others.
Local benefit administration: A top-rated EOR company ensures your business is compliant and offers attractive benefit packages and registration with health coverage and local pension, etc.
Compliance: An EOR is responsible for ensuring your business hires and manages workers according to local labour laws and regulations.
Establishing a Subsidiary
Establishing a local subsidiary is the traditional way of company expansion. It requires you to understand the local laws regarding taxes, labour and payroll and also go through several steps that can take months or even years. To establish the foundation for your legal subsidiary, you need to go through these steps:
Get your subsidiary registered with the foreign country’s authorities
Open a local bank account
Consult with a team of local financial, legal, and human resources consultants to ensure compliance with statutory and tax laws.
Whether you decide to establish a legal subsidiary or partner with an EOR, you’ll enjoy the benefits each option provides and also encounter some challenges. If you want to establish a legal and physical presence for a long period, establishing a subsidiary would be an ideal option.
But if you’re looking to expand quickly and hire global workers seamlessly and compliantly, an EOR is a perfect choice. An EOR is immensely beneficial in terms of finances, compliance, and managing workers.