If you are planning to branch out your business overseas, handling diverse compliances in countries where you wish to employ talent may be quite a difficult task to handle. Having proper knowledge of compliances and tax rules prevailing in the new territory is crucial. To gain unparalleled peace of mind while at work, using the services of a third-party platform is going to be a prudent decision. Partnering with an EOR service provider can create wonders for your business. In that way, not only will you be able to free up your resources but also keep compliance violations at bay. Keep reading this blog to know about Employer of Record Services India and how an EOR partner can benefit you in cutting down costs while you embark on the journey of the expansion of your business.
Table of Contents
- What is an Employer of Record (EOR)?
- How Does Employer of Record Work?
- Benefits of Using an Employer of Record
- What are the Risks of Using an EOR?
- Is Employer of Record Legal in India?
- EOR vs Foreign Entity: Differences
- Tax Implications of Using an EOR
- How to Choose the Right EOR?
- How Does an EOR Differ From a Staffing Agency?
- Grow Globally With Asanify
- Frequently Asked Questions- Employer of Record Services India
What is an Employer of Record (EOR)?
To understand how does Employer of Record work, it is essential to have a proper understanding of what an EOR is. An Employer of Record (EOR) is a third-party organization that takes on the legal responsibilities of employing workers on behalf of another company. This arrangement allows businesses to hire employees in different regions or countries without having to establish a legal entity in those locations.
The EOR becomes the official employer, handling administrative tasks such as:
- Payroll processing
- Tax withholding
- Benefits administration
- Ensuring compliance with local labor laws
The client company retains control over the employees’ daily activities and work performance. The EOR doesn’t intrude into the internal decision making matters of the client company. It plays the role of being the legal employer of that organization. By using an EOR, companies can expand their global workforce quickly and efficiently, minimizing legal risks and administrative burdens.
Suggested Read: EOR- A Detailed Guide on Employer of Record 2024
How Does Employer of Record Work?
The global EOR market size is expected to expand at a CAGR of 12.07%, as revealed by studies.
Let’s take into account a relevant scenario to understand how does Employer of Record work. Say, Company X, a US-based organization wants to hire a software developer based out of Canada, without going through the complex procedure of setting up a legal entity there. So, they partner with an EOR provider, which hires their new employee on behalf of Company X. The EOR partner will handle all legal employment aspects, including payroll, taxes, and benefits, while Company X will have the upper hand in managing the employee’s daily work. This allows Company X to quickly and compliantly expand its workforce in Canada, focusing on core operations while the EOR partner ensures legal and administrative compliance.
Step-by-Step Approach to Understand How Does an Employer of Record Work
Now that we have a brief idea as to how does an Employer of Record work, let’s have a detailed understanding of its working methodology step-by-step.
Step 1: Initial Round of Discussion & Agreement Between The EOR Firm & Client Company
First and foremost, the client company engages with an EOR provider to discuss their needs and objectives. Both parties then sign a service agreement outlining the roles, responsibilities, and costs associated with the EOR services.
Step 2: Recruitment & Onboarding of Employees
The client company recruits and selects the employees they want to hire. Details of these employees are then shared with the EOR service provider. And then, the selected candidates are introduced to the EOR for the formal employment process.
Step 3: Drafting of Employment Contracts
The EOR prepares employment contracts that comply with local labor laws and regulations. After the employees sign the employment contracts, the EOR hops on to the onboarding process while ensuring that all necessary legal documents and procedures are completed.
Step 4: Payroll & Employee Benefits Administration
The EOR sets up payroll for the employees, ensuring that all local tax and regulatory requirements are met. It processes and disburses salaries to employees, including any bonuses or commissions. Employer of Record companies such as Asanify offers an excellent payroll solution that automates the entire process. Using this, single-click payroll run is made possible, thereby eliminating any kind of complex calculations that accompany the procedure. Further, the EOR administers employee benefits such as health insurance, retirement plans, and other perks as per local laws and client preferences.
Step 5: HR Management
The EOR ensures ongoing compliance with local labor laws, including changes in regulations. Further, it provides support for HR-related queries and issues, such as leave management, disciplinary actions, and performance management. EOR service providers like Asanify comes integrated with an efficient HRMS and provides with an Employee Self-service portal. This helps business owners in managing their workforce smoothly.
Step 6: Tax Filing & Statutory Compliances
The EOR withholds the necessary taxes from employee salaries and ensures they are paid to the relevant authorities. Right from handling the filing of all required tax returns to managing compliance reports, an EOR does it all. It stays informed about changes in local labor laws and updates employment practices accordingly.
Step 7: Performance Management
While the client company manages the daily work and performance of the employees, the EOR can assist with performance reviews, training, and development programs if needed. EOR companies such as Asanify comes with a dedicated Performance Management System (PMS) for employees. Business owners can use this tool to evaluate the performance of employees periodically on the basis of OKRs and KPIs.
Step 8: Termination & Offboarding of Employees
If an employee needs to be terminated, the EOR handles the legal and administrative aspects of the termination process, ensuring compliance with local laws. It manages the payment of any severance packages and continuation of benefits as required.
Benefits of Using an Employer of Record
The entire procedure of expanding your business in a new country may be quite tricky. Getting acquainted with the new legal landscape, hiring employees there while complying with the local regulations and streamlining every processes may be quite bewildering for you. You may even contemplate if the entire risk of operating in a new country is even worth it. But, guess what? The answer is a ‘yes!’ This is because you will have the support of an EOR partner that will handle all HR processes and compliances so that you get to commence business operations in the new territory as fast as possible. Making your business go global, is therefore, way too easier with an EOR partner.
Let’s have an in-depth look as to how does Employer of Record work by taking into account the benefits that EOR services offer:
1. Makes Entering into a New Market Swift
An Employer of Record (EOR) aids businesses in entering new markets by handling all local employment, legal, and compliance requirements, allowing companies to hire employees in foreign countries without establishing a local legal entity. This significantly reduces the complexity, cost, and time involved in market entry, ensuring compliance with local labor laws and regulations. The best part? You can hire top talent in a new country and start operating there literally in the span of a few hours. Moreover, the EOR manages payroll, taxes, benefits, and HR administration and mitigates risks associated with international expansion.
2. Reduces Mundane Processes & Administrative Load
With an EOR partner by your side, all the administrative burden on your business gets removed. This is because an EOR manages all aspects of employment, including payroll processing, tax filings, benefits administration, and compliance with local labor laws. By outsourcing these complex and time-consuming tasks to an EOR, you can free up your internal HR and administrative resources. This, in turn, will allow you to focus on central business activities and strategic initiatives. This streamlined approach not only increases operational efficiency but also ensures that all employment-related obligations are met accurately and timely, minimizing the risk of non-compliance and associated penalties.
3. Helps in Managing Risks
When you plan to globalize your business, the entire ordeal of conforming to the myriad of local laws and tax norms becomes a worrying point. However, you can bid adieu to all these troubles by using EOR services. An Employer of Record (EOR) aids in mitigating risks by ensuring compliance with local labor laws and regulations, thereby reducing the likelihood of legal issues, fines, and penalties. Further, your EOR partner will also manage employment contracts, payroll, taxes, and benefits, ensuring all processes adhere to local standards. By assuming responsibility for these critical functions, the EOR shields businesses like yours from risks related to misclassification of workers, incorrect tax filings, and non-compliance with employment laws, providing a layer of protection and peace of mind so that you can operate smoothly in unfamiliar markets.
4. Cuts Down Expenses
Establishing a legal entity in an altogether new country involves huge chunk of expenses. An Employer of Record (EOR) aids in cutting down expenses by eliminating the need to establish and maintain a local legal entity. This is because the entire procedure can be costly and time-consuming. The EOR manages all employment-related functions such as payroll, taxes, and benefits, reducing administrative and operational overheads. By outsourcing these tasks to an EOR, you can avoid costs associated with local HR infrastructure, legal fees, and compliance issues. This will help you have significant savings and ensure a more predictable expenditure. This cost-effective approach will further allow you to allocate resources more efficiently and focus solely on the core activities and growth strategies of your organization.
Suggested Read: PEO vs EOR Differences- All That You Need to Know
What are the Risks of Using an EOR?
Just like every other thing, EORs too come with its fair share of benefits and risks. However, the best thing about an EOR is that you can protect your business from getting susceptible to certain EOR risks by simply choosing the best service provider.
With an ideal EOR partner by your side, there are practically no chances of facing any hazards. To stay aware of the EOR risks that you might face if you don’t assess a service provider before going for one, it is essential to have a clear understanding of its drawbacks.
1. Risk of Compliance Issues
While EORs aim to ensure compliance, any errors or misinterpretations of local laws by the EOR can result in legal and financial liabilities for the client company. Changes in local regulations may not be immediately reflected in the EOR’s processes, leading to potential compliance gaps. Therefore, it is essential to partner with an EOR partner such as Asanify that offers the assistance of a team of HR experts who will help you stay updated about every recent changes made in compliances and regulations.
2. Data Security & Privacy
Handling sensitive employee data through an EOR can pose data security and privacy risks, especially if the EOR’s data protection measures are not robust. Ensuring compliance with data protection regulations such as GDPR is crucial. Therefore, make sure to choose an EOR company that follows stringent data security standards.
3. Quality of Service
The quality of services provided by an EOR can vary, and inadequate service levels can impact employee satisfaction and operational efficiency. Companies may face challenges if the EOR lacks expertise or experience in specific regions or industries.
4. Hidden Costs
While EORs can be cost-effective, there may be hidden fees or unexpected costs associated with their services. It’s important to thoroughly review the EOR agreement to understand all potential charges.
Employer of Record service providers such as Asanify will help you stay compliant while keeping your business shielded from hazards.
Is Employer of Record Legal in India?
Employer of Record (EOR) services, also known as professional employer organization (PEO) services, are legal and commonly used in India. These services involve a third-party organization acting as the legal employer of workers, handling payroll, HR administration, benefits, and compliance matters on behalf of client companies.
The use of EOR services is particularly beneficial for foreign companies looking to establish a presence or hire employees in India without setting up a legal entity. By partnering with an EOR provider, these companies can access local expertise and infrastructure to navigate the complexities of Indian labor laws, tax regulations, and employment practices.
EOR Services India
EOR services in India typically include the following:
- Employment Contract Management: The EOR provider drafts and manages employment contracts with the hired employees, ensuring compliance with Indian labor laws and regulations.
- Payroll Administration: The EOR manages payroll processing, including salary calculations, tax withholdings, and statutory deductions, in accordance with Indian tax laws and regulations.
- Compliance Management: The EOR ensures compliance with various statutory requirements, such as provident fund contributions, employee insurance, gratuity payments, and other labor regulations mandated by Indian authorities.
- HR Administration: The EOR handles HR administrative tasks, including employee onboarding, record-keeping, leave management, and performance evaluations, to ensure smooth HR operations.
- Benefits Administration: The EOR may offer employee benefits such as health insurance, retirement plans, and other perks, depending on the arrangements agreed upon with the client company.
While EOR services are legal in India, it’s crucial for both client companies and EOR providers to adhere to local laws and regulations. This includes compliance with the Indian Contract Labor (Regulation and Abolition) Act, 1970, the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, the Employees’ State Insurance Act, 1948, and other relevant labor legislation.
Make sure to conduct due diligence when selecting an EOR provider, ensuring that they have a solid understanding of Indian employment laws and a track record of compliance. Working with reputable EOR providers can help mitigate legal risks and ensure smooth operations when hiring employees in India.
EOR Vs Foreign Entity: Differences
|
Employer of Record (EOR) |
Foreign Entity |
| The EOR takes on the legal responsibilities of employing staff, including payroll, taxes, benefits, and compliance with local labor laws. | The company itself establishes its own legal entity in the foreign country and is fully responsible for all employment and administrative tasks. |
| Quick setup, as the EOR already has an established legal entity in the foreign country. | Longer and more complex setup process, involving legal, regulatory, and administrative hurdles. |
| Lower initial setup costs, as there’s no need to establish and maintain a legal entity. | Higher initial setup and ongoing maintenance costs, including registration fees, office space, local staff, and compliance costs. |
| The EOR ensures compliance with local labor laws and regulations. | The company has to take full responsibility for compliance with local labor laws and regulations. |
| The EOR assumes many of the legal and compliance risks associated with employment. | The company bears all legal and compliance risks associated with employment. |
If you wish to kick-start your operations in a new country, using an EOR is going to be a cost-effective way to go about it. Establishing your legal entity in a foreign country can be quite daunting. This is because it involves a diverse set of complicated procedures and most importantly, you need to have a proper grasp over the local regulatory norms to ensure that you are abiding by it. Only then can you conduct business operations in a new territory legally.
In case you are planning to establish a foreign entity, it is better to stay acquainted with the multiple options available here. Let’s see what these are:
1. Virtual Office
A virtual office is a type of foreign entity that allows businesses to establish a presence in a foreign country without the need for a physical office space. It provides businesses with many of the benefits of having a traditional office, such as a local address and email, but without the associated overhead costs. Once you have all these figured out, your business will be eligible to register as a legitimate company in the new country.
2. Subsidiary
A subsidiary is a different kind of foreign entity where a parent company establishes a legally separate establishment in a foreign country. This entity operates under the laws and regulations of the foreign country but is controlled and owned, either wholly or partially, by the parent company. Usually, the parent company retains major shareholder ownership. A wholly owned subsidiary refers to a company whose 100% ownership is retained by the parent company.
3. Local Representative Office
Going for a local representative office as a form of legal entity can be a simple and prudent way of maintaining your presence overseas. This entails establishing a small office that can be populated by hiring employees. Getting registered with the designated government authorities of that country is a must. Do note that, unlike subsidiaries or branches, representative offices have a limited scope of activities and cannot engage in direct commercial or revenue-generating operations. Instead, they focus on market research, promotional activities, and acting as a liaison between the parent company and local partners or customers.
4. Branch Office
Having a branch office translates to establishing business headquarters in a different country in a proper and legitimate sense. In that way, you will be able to conduct business operations freely overseas. Unlike a subsidiary, a branch office is not a separate legal entity but an extension of the parent company. It allows the parent company to engage in business activities and generate revenue in the foreign market while maintaining control over operations. To venture into new markets and enhance your revenue, branch office can be an ideal option.
5. Acquisition
Acquisition refers to expanding your business in a new territory by taking over or purchasing a business that is already established in that particular territory. While this can be quite an expensive choice to opt for, the benefit that you can obtain lies in the fact that the acquiring business’ workforce and business operations are now yours. This will let you access an easier and shorter route to establish market presence in a completely new country.
Suggested Read: Hire Employees in India Through EOR
Tax Implications of Using an EOR
Usually, the tax implications of using an EOR depends on certain core factors such as the nature of the business and the industry, the country where the business is expanding its operations and hiring employees from, and the dynamic local and national tax norms prevailing in that territory.
The EOR takes on the responsibility of managing and remitting payroll taxes, income tax withholdings, and social security contributions, ensuring compliance with local tax regulations. You won’t have to scratch your head about making precise tax withholdings from employees’ salaries. All the calculations will be taken care of by the EOR partner. However, if your workforce also consists of independent contractors and freelancers, they themselves will be responsible for handling their own taxes. The EOR will handle tax deductions solely from employee wages.
Using an EOR arrangement will help you avoid the complexities of local tax laws and reduce the risk of penalties and fines associated with non-compliance. Additionally, by using an EOR, you can let go of creating a permanent establishment in the foreign country, thereby potentially reducing your corporate tax liabilities.
Suggested Read: Employer of Record Companies- Check Out Top 15 EOR Companies
How to Choose the Right EOR?
Choosing the right Employer of Record (EOR) is crucial for the success of your global expansion and ensuring compliance with local laws and regulations. Let’s have a look at crucial considerations and steps to help you select the right EOR:
1. Evaluate Your Needs
- Scope of Services: Determine the specific services you need, such as payroll processing, benefits administration, compliance management, and HR support.
- Geographical Coverage: Ensure the EOR operates in the countries where you plan to expand and has expertise in those markets.
2. Research and Shortlist EOR Providers
- Reputation and Experience: Look for EORs with a strong reputation and proven track record in your target markets. Check client testimonials and case studies.
- Industry Expertise: Some EORs specialize in specific industries. Choose one that understands the nuances and regulatory requirements of your industry.
3. Assess Compliance Capabilities
- Local Knowledge: Ensure the EOR has in-depth knowledge of local labor laws, tax regulations, and compliance requirements.
- Regulatory Updates: The EOR should stay updated with changes in local legislation and adapt their processes accordingly.
4. Evaluate Technology and Systems
- HR and Payroll Systems: The EOR should use modern, reliable HR and payroll systems that ensure accuracy and efficiency.
- Data Security: Assess the EOR’s data security measures to protect sensitive employee and company information.
5. Consider Cost and Value
- Transparent Pricing: Look for clear and transparent pricing structures without hidden fees. Understand the total cost of services provided.
- Value for Money: Evaluate the overall value offered by the EOR, considering the quality of service, support, and additional benefits.
6. Examine Customer Support and Communication
- Responsiveness: Ensure the EOR offers prompt and reliable customer support, with dedicated account managers or support teams.
- Communication: Clear and effective communication is vital for managing employees and resolving issues quickly.
7. Review Contract Terms
- Flexibility: Look for flexible contract terms that allow you to scale your workforce up or down based on your business needs.
- Termination Clauses: Understand the terms and conditions for terminating the agreement, including any associated costs or penalties.
8. Check References and Reviews
- Client References: Ask for references from current or past clients to gain insights into their experiences with the EOR.
- Online Reviews: Read online reviews and ratings on trusted platforms to get an overall sense of the EOR’s reputation and service quality.
Highly-rated EOR service providers such as Asanify offers comprehensive HR solutions while offering the much-needed compliance support. By making the right EOR choice, you get to attain 100% assurance that all compliances will be duly taken care of. This makes operating in a new country absolutely smooth and effortless.
How Does an EOR Differ From a Staffing Agency?
|
EOR |
Staffing Agency |
| An EOR is responsible for handling all employment-related tasks for the client company. This includes payroll processing, tax compliance, benefits administration, and adherence to local labor laws. | A staffing agency recruits and supplies temporary or contract workers to client companies, often for short-term or project-based assignments. |
| Ensures compliance with local employment laws, tax regulations, and employment contracts. | Focuses on recruiting and placing suitable candidates for temporary or contract roles. |
| Workers are legally employed by the EOR but work under the direction and supervision of the client company. | Temporary workers are employed by the staffing agency and assigned to client companies for specific periods or projects. |
| Ideal for companies looking to expand internationally without establishing a local entity. | Best for companies needing temporary or seasonal workers to handle peak periods or specific projects. |
Grow Globally With Asanify
Now that you have gained a detailed understanding about how does Employer of Record work, it is time to take the great stride ahead and take your business to new heights. So, what are you waiting for? Grow globally with Asanify and unlock the full potential of your business through our comprehensive Employer of Record services India. Asanify simplifies your international expansion by handling all employment-related tasks. Ranging from payroll processing and tax compliance to benefits administration and adherence to local labor laws, Asanify will take care of all these.
Our expert team ensures seamless operations and mitigates the complexities of navigating foreign markets, allowing you to focus on your core business activities. With Asanify’s Employer of Record services India, you gain access to a global talent pool, reduce administrative burdens, and minimize risks, all while ensuring full compliance with local regulations. Partner with Asanify today and take your business to new heights with confidence and ease!
Frequently Asked Questions (FAQs)- Employer of Record Services India
1. What is an Employer of Record (EOR)?
An Employer of Record (EOR) is a third-party organization that takes on the legal responsibilities of employing workers on behalf of a client company. This includes managing payroll, taxes, benefits, and compliance with local labor laws, allowing the client company to focus on its core business activities.
2. How do Employer of Record Services India help with global expansion?
An EOR facilitates global expansion by handling all local employment tasks, such as hiring, payroll, tax compliance, and benefits administration, without the need for the client company to establish a local legal entity. This enables businesses to quickly and efficiently enter new markets while ensuring compliance with local laws and regulations.
3. What are the main responsibilities of an EOR?
The main responsibilities of an EOR include processing payroll, withholding and remitting taxes, managing employee benefits, ensuring compliance with local labor laws, handling employment contracts, and maintaining accurate employment records.
4. How does an EOR differ from a staffing agency?
An EOR acts as the legal employer for the client company’s workers, handling long-term employment responsibilities and compliance. In contrast, a staffing agency provides temporary or contract workers for short-term assignments, focusing on recruitment and placement rather than comprehensive employment management.
5. What are the tax implications of using an EOR?
An EOR manages and remits payroll taxes, income tax withholdings, and social security contributions on behalf of the client company, ensuring compliance with local tax regulations. This arrangement can help avoid creating a permanent establishment in the foreign country, potentially reducing corporate tax liabilities.
6. How does an EOR mitigate risks for businesses?
An EOR mitigates risks by ensuring compliance with local labor laws, reducing the likelihood of legal issues, fines, and penalties. The EOR also assumes responsibility for employee classification, tax filings, and benefits administration, providing a layer of protection for the client company.
7. Can an EOR handle employee benefits?
Yes, an EOR manages employee benefits, including health insurance, retirement plans, and other mandatory or optional benefits required by local laws. This ensures that employees receive the necessary benefits and that the client company complies with all local regulations.
8. How does an EOR ensure compliance with local labor laws?
An EOR has expertise in local labor laws and regulations, ensuring that all employment practices, contracts, and policies comply with the legal requirements of the country in which the employees work. The EOR stays updated with changes in legislation to maintain ongoing compliance.
9. What types of businesses can benefit from using an EOR?
Any business looking to expand internationally or manage a remote workforce can benefit from using an EOR. This includes startups, small and medium-sized enterprises (SMEs), and large corporations seeking to enter new markets without the complexities of establishing a local entity.
10. How do I choose the right EOR for my business?
To choose the right EOR, evaluate your specific needs, research and shortlist providers based on their reputation and experience. Assess their compliance capabilities, review their technology and systems, compare costs, and check customer support and references. Ensure the EOR operates in your target markets and aligns with your business objectives.
11. How does Employer of Record work?
An Employer of Record (EOR) works by acting as the legal employer for a client’s workforce, handling payroll, tax compliance, benefits administration, and adherence to local labor laws. The EOR ensures all employment-related tasks comply with local regulations while the client company manages the employees’ daily activities. This setup enables businesses to hire and manage workers in new markets without establishing a local entity, reducing administrative burdens and legal risks.
12. What is EOR in India?
In India, an Employer of Record (EOR) is a service that handles all employment-related tasks for businesses, including payroll, tax compliance, benefits administration, and adherence to local labor laws. Let’s understand how does Employer of Record work. The EOR acts as the legal employer for the client’s workforce, ensuring full regulatory compliance while the client manages the employees’ daily activities. This allows companies to hire and manage employees in India without setting up a local entity, simplifying expansion and reducing administrative and legal burdens.
Not to be considered as tax, legal, financial or HR advice. Regulations change over time so please consult a lawyer, accountant or Labour Law expert for specific guidance.
