Hiring remotely has become the new normal for the reasons that it allows hiring talents and professionals in affordable locations, and can expand your company presence globally.

Risks of Employee Misclassification

When hiring talents abroad, many companies might be tempted to choose to hire under independent contracts over permanent employees as this is the easiest way to do it.  However, each country’s labour laws define “employee” and “independent contractor” differently and not all remote employees can just simply be hired as independent contractors.

Unlike an employee, an independent contractor is not employed by a business. Instead, they work with a business as a third party, typically on a short-term basis for a specific project. Hence the word “independent” as they are independent of the client company.

Employee misclassification occurs when an employer fails to correctly identify an employee and an independent contractor. Not only does this bring legal and financial issues for both the employer and the misclassified worker, but it also can result in the loss of public tax revenue.

How to Hire Remote Employees

The most compliant way to hire remote employees is to hire them under a local entity in that country. However, setting up a new local entity abroad can be complex and expensive as it is time-consuming and requires knowledge of another nation’s law.

To save those hassles, you might choose to work with employment partners that offer Employer of Record (EOR) Services. Working with such a partner can help you handle payrolls, tax filings, and benefits for your remote employees while adhering to specific legal and financial requirements.

What is Employer of Record and what does it do?

An Employer of Record (EOR) acts as a middleman that helps clients hire from different countries in full compliance with the hire’s local employment laws.

To make it simple, an EOR is a third-party service provider that enables you to hire people in other countries by acting as the legal local employer on your behalf. Under an EOR agreement, the EOR becomes the legal employer of the company’s employees which takes on all the legal and compliance obligations. EORs usually take on HR administrative duties such as below:

Onboarding Employees

Once a new hire is found in your hire’s location, the EOR will facilitate the local onboarding process. EOR will manage all the administrative tasks, such as employment agreements and contracts, background checks, setting up payroll, and tax documentation, etc. for the new hire to start working at the company.

Paying your employees in local currencies

Payroll for both employee and employer will be managed by the EOR. This simplifies the process of paying team members in their local currency, which lowers exchange rate risks and administrative hassles.

Handling taxes

The EOR takes the responsibility of complying with payroll tax laws as well. EORs will help file the necessary tax forms, such as income tax, unemployment taxes, etc., on your behalf. This certainly makes tax filing easier as tax regulations differ in countries.

Managing employee’s compensation and benefits

EOR offers benefits packages that comply with local regulations and meet employee expectations. These benefits usually include healthcare insurance, parental leaves, retirement plans, etc.

Making contributions to statutory bodies

EOR handles all contributions to the government’s programs such as social security, pension plans, etc. on your behalf, ensuring compliance with the local laws and regulations.

Processing contract termination

When an employee’s contract is terminated, the EOR will handle all the necessary procedures.

How much does an EOR cost?

Costs of EOR services vary depending on factors such as location, scope of services, and number of employees. Typically, EORs use one of two pricing structures:

• Fixed monthly fee per employee; and
• Percentage of payroll plus applicable taxes

Benefits of using EOR

Other than avoiding employee misclassification, here are the benefits of using EOR services:

• Accelerate Time to Hire: When you’re opening an office in a new region, the process can be complex and lengthy, which can leave the candidate waiting. Working with an EOR speeds up the hiring of overseas workers.
• Save money: Entity establishment is expensive, and even more expensive to close it down if the new location is not for your business. Working with an EOR can lower the costs involved in creating legal entities in another nation as you can test the waters first and then decide whether or not to actually set up your own local entity.
• Ensures your business operates in full legal compliance: You might not be familiar with laws and regulations in other countries. Using EOR services can reduce legal risks and ensure compliance with local employment laws and regulations
• Ensure efficiency: As mentioned, EOR helps you manage HR tasks such as payroll, tax filing, compliance, etc. so that you can focus on other tasks.

At Techlinker Asia, we help you cost-effectively grow your business without having to worry about the complexities of international employment.