8 Employer of Record Myths & Misconceptions

In the world of business, there are many myths and misconceptions that can hinder growth and success. When it comes to employer of record (EOR) services, there are several prevalent myths that can lead to misunderstandings and missed opportunities. In this blog post, we'll debunk five of the most common EOR myths and provide you with the truth about these services. 

Myth #1: An EOR is a temporary solution

You may have read online somewhere that an employer of record solution isn't designed to be permanent and that, sooner or later, most companies need to set up a local entity before they outgrow the limits of an EOR. 

Not true. Very few countries currently have firm laws regarding EOR limits. Therefore, an EOR can be a long-term solution for businesses looking to expand their global workforce or streamline their employment processes. EOR providers like Deel offer ongoing support and can adapt to changing business needs, providing a scalable solution for sustainable growth.

Discover how Sendspark grew its team globally with Deel.

See also: 7 Reasons to Open Your Own Entity Instead of Hiring Through an EOR.

Myth #2: An EOR is more expensive than just setting up our own company

Not true. Setting up a business entity involves various upfront expenses and costs - both direct and indirect, as well as an investment of time and resources to understand the local tax, payroll, and employment laws. By using an EOR service, you don’t have to take on the costs associated with setting up and maintaining your own legal entities.

Entity set-up costs vary depending on location, industry, and local governance and compliance requirements. Here are the estimated costs of hiring an employee through an entity in Spain compared to using an EOR.

Once your legal entity is up and running, a slew of administrative, accounting and governance tasks come knocking, each carrying its own price tag. Post-setup, your company takes on the responsibilities of managing the workforce, payroll, and HR functions. This operational juggling act isn't just time-consuming—it also comes with a hefty set of associated costs, such as:

• Cooperation taxes
• Cost to hire a payroll manager in each country to manage benefits
• Employment contributions (insurance, pension, social security, etc.)
• Director/Manager representation
• Medical exams
• Mailing address
• Health and safety training
• Onboarding of new employees: international employment agreement, review of compliance documents, redlines, registration of the employee with local authorities
• Employee off-boarding
• Salary payments

In contrast, an EOR allows your team members to focus on core business activities and lowering your administrative overhead. Here’s an estimation of these costs if you were to hire employees in Spain:

As the client company, you pay a predictable annual EOR service fee per employee, bypassing the unpredictable costs and complexities of managing an entity independently. This predictability not only lightens the load for your team but also simplifies budgeting and expense forecasting.

Discover how Deel helped Clara expand its business without increasing expenses.

See also: Top 5 Hidden Costs of Setting up A Foreign Subsidiary.

Myth #3: EORs increase your permanent establishment risk

Not true. Most business activities are of little interest to the local tax authorities since the EOR exports the service from the employing country to another country. For instance, an engineer's work will unlikely trigger a permanent establishment since the service does not generate any revenue for the business in the country. 

The exception to this rule is when the employee, hired through EOR services, sells to clients in the country where they are employed. In this case, the employee uses their service to interact directly with the local market. In this scenario, the EOR will invoice you to collect VAT for that service. 

Often, tax authorities look favorably upon EOR arrangements since they are heavily regulated and are responsible for withholding and remitting taxes to local tax authorities, ensuring that all the necessary taxes and employer contributions are paid directly to the local government in a compliant and timely manner.  

Discover how SiteMinder confidently expanded in global markets while staying compliant with Deel.

See also: How EORs Protect Companies From Permanent Establishment Risk.

Myth #4: EORs remove your control

Not true. EOR employees work under the supervision and management of the client company utilizing the EOR service. The client company signs the employment agreement with the employee, which means they have control over the terms of employment, including the work performed, compensation, performance reviews, and other similar aspects.

Deel, as an EOR, takes on the role of the administrative employer and handles administrative tasks such as payroll, benefits, and HR complaints, reducing the administrative burden on the client company and ensuring compliance. 

Discover how switching to Deel saves Teamflow one week of admin per month.

See also: Enhance Employee Experience with a Unified HR Tech Stack.

Myth #5: EORs that work with partners are better than wholly-owned EORs

Not true. An EOR that uses the partner (or aggregator) model hasn’t obtained the legal capabilities to be the legal employer of your international hires since they don’t own any of their own entities. In fact, EORs that use the partner model aren’t actually EORs; they’re PEOs (professional employer organizations). 

PEOs use the term EOR to emulate an EOR solution by facilitating international employment. They do this by passing your hiring requests on to third-party intermediaries, each with its own processes and systems, which can result in limited control and customization. 

Wholly-owned EORs like Deel, however, have taken the time to build their own legal entities in markets worldwide from the ground up and can engage your international hires in 100+ countries in-house without passing you off to external partners. 

This method is designed to give you complete control and oversight of employment contracts, employee benefits packages, HR, and payroll and align them with your company’s specific requirements and standards for a consistent employee experience.

Discover how Change.org has saved more than 300 hours on admin each month.

See also: Leaving a PEO: How To Change Your HR Provider in 8 Steps.

Myth #6: An EOR is only for large companies

Not true. EOR services, like those provided by Deel, can benefit companies of all sizes. They ensure compliance with local labor laws, tax regulations, and employment standards, which can be particularly useful for startups and small and medium-sized enterprises (SMEs) that may not have the resources or budget to manage these aspects in-house.

EORs also handle administrative tasks such as payroll and benefits, which can reduce the administrative burden on companies. This can be advantageous for both large companies looking to streamline operations and small businesses seeking to focus more on their core business.

Discover how health startup Us2.ai is going global with Deel.

See also: Unlock Global Talent: How to Recruit and Hire Internationally. 

Myth #7: EORs are only for international hiring

Not true. While EOR is commonly associated with international hiring, it can also be used for domestic employment. EOR providers like Deel can help businesses navigate local compliance, legal, tax, and HR requirements, regardless of whether the employees are local or international.

EOR services, such as those provided by Deel, offer a range of services beyond just international hiring. Here are some of the additional services they can provide:

• Global payroll administration: EORs handle all the administrative tasks associated with payroll for global teams. This includes calculating pay based on hours worked, making deductions for taxes and other benefits, distributing payslips, and ensuring employees are paid on time
• Tax filing: EORs take care of tax filing responsibilities. They ensure that all employment taxes are accurately calculated, withheld, and paid to the appropriate tax authorities
• Benefits administration: EORs can manage and administer benefits for employees. This includes health insurance, retirement plans, and other statutory benefits. They ensure compliance with local statutory laws and help navigate and provide supplementary benefits to stay competitive
• Compliance with local labor laws: EORs ensure compliance with local labor laws and regulations. This includes everything from adhering to minimum wage laws and overtime regulations to managing leave policies and ensuring data protection and security across borders
• HR support: EORs can provide support with onboarding and offboarding, contract creation, background checks, equipment, and workspace memberships, work authorization, equity grants, visa and immigration support, terminations, and more
• Entity setup: If you eventually choose to open an entity, EORs like Deel can provide you with entity setup services and global payroll support. You can customize your approach by leveraging multiple services, such as using the EOR model for certain locations, opting for Global Payroll in others, and even hiring independent contractors when necessary

Discover how Deel Immigration enabled a Canadian founder to launch an NYC startup.

See also: 5 Employer of Record Use Cases for Enterprise Companies.

Myth #8: EORs eliminate the need for in-house HR teams

Not true. EOR providers, like Deel, are designed to complement in-house HR teams, not replace them. They handle the administrative aspects of HR and compliance, such as onboarding, contract creation, background checks, payroll, benefits administration, and terminations.

You'll still need an internal HR department to handle the more strategic and interpersonal aspects of HR, such as recruitment, talent brand and strategy, headcount planning, conflict resolution, and day-to-day management. 

Discover how Responsible Cyber manages its international team with Deel.

See also: 9 HR Processes to Automate Today [How to Do It With Deel].

Expand your global presence with Deel

With legal entities in 110+ countries, Deel’s global employer of record model enables you to hire employees quickly, compliantly, and cost-effectively. We handle all things compliance—contracts, minimum wage, terminations, and more—and manage tax deductions, pensions, benefits, and other payroll specifics, so you can focus on growth.

If you eventually choose to open an entity, Deel can provide you with entity setup services and global payroll support. You can customize your approach by leveraging multiple Deel services, such as using the EOR model for certain locations, opting for global payroll services in others, and even hiring independent contractors when necessary. 

Book a 30-minute product demo to learn more.