You’re in the process of hiring independent contractors and you’re evaluating if you should use an employer of record (EOR) to help manage your independent contractors.

This guide will help you determine what an EOR can help you with.

Benefits of an employer of record for independent contractors

Today there are more than 1.5 billion freelancers in the world. If you want to hire a remote workforce of talented independent contractors, there are going to be some HR challenges.

An employer of record can be a valuable asset for growing companies who need to hire subcontractors. An EOR can take care of most of the headaches associated with hiring contractors around the world.

Using an EOR can provide a number of benefits for businesses that engage independent contractors, including:

Access to a global pool of talent

When you think about hiring globally, it sounds nice, but there are a lot of complexities that need to be handled to do it at scale. Problems like paying invoices, maintaining legal compliance, avoiding currency fees, and more arise when you start hiring globally.

An EOR can help your businesses tap into a global pool of talent by allowing you to hire independent contractors from different countries without worrying about PE, compliance, processes, or fees.

That’s because EORs have business entities in multiple countries, which allows you to hire subcontractors from any of the countries the EOR operates in. For example, Remote has entities in 170 countries.

This can give your business access to a wider range of skills and expertise, which can be particularly valuable for businesses operating in tech industries that require specialized knowledge and skills.

Not to mention using platforms like UpWork for hiring contractors can be expensive for your freelancers because they have to pay 15% of what they earn as a platform fee. Paying your independent contractors outside of a managed platform gives them an instant raise.

Simplified invoicing and tax compliance

Collecting and managing invoices from your contractors can be a headache. Especially if you’re using multiple currencies and platforms to pay them.

Because independent contractors operate as their own businesses, you might be drowning in paperwork and invoices before you hit any kind of efficiency you had hoped for when you started hiring remote contractors.

An EOR provides tools and processes for invoicing, tax withholding, and other compliance issues for independent contractors, which can save your business time and reduce the risk of errors or non-compliance.

Local labor law compliance

As your remote team grows, keeping track of all the compliance regulations for all the countries you hire from increases the risk of compliance issues like misclassification, taxation, permanent establishment, and more.

Using an employer of record (EOR) for subcontractors allows your business to comply with local rules and regulations related to contract work, such as labor laws, tax laws, and other regulations.

An EOR can handle these compliance issues on behalf of your business, which can help ensure that you’re operating within the law and can avoid potential legal penalties or fines.

Using an EOR can help ensure you are able to meet these obligations effectively and provides you with peace of mind.

Flexibility to scale up or down

If you need to add or remove contractors based on your current goals and deadlines, you’ll face challenges such as needing to find and hire people quickly while staying compliant. Similarly, if you need to quickly decrease your workforce, you need to deal with a lot of paperwork and offboarding procedures for your contractors.

An EOR allows your businesses to easily scale a remote workforce up or down as needed, without the need to hire permanent employees. This provides your HR teams confidence that they can quickly onboard and offboard contractors to keep the company on track, and allows you to meet your growth goals with less turbulence.

Here’s how it works: When a business needs to increase it’s workforce, it can engage an EOR to hire additional independent contractors as subcontractors. The EOR will handle all of the employment-related issues, such as payroll, tax withholding, and compliance, on behalf of the business. This allows the business to quickly bring on additional talent as needed, without the need to go through the process of hiring and onboarding permanent employees.

Similarly, when a business needs to decrease its workforce, it can simply let the EOR know that it no longer needs the services of said independent contractors. The EOR will handle all of the necessary employment-related offboarding processes, and the independent contractors will no longer be working for the business.

Reduce hiring and payroll costs

Without an employer of record, hiring independent contractors and managing their invoices and currency conversions can be a time-consuming and costly endeavor.

Using an employer of record (EOR) for contractors can help reduce costs by eliminating sizable fees for bank transfers and currency conversions. An EOR can handle the payment process for independent contractors, including paying them in their local currency.

Here’s how it works:

• An EOR will typically have a local payroll system in the country where the independent contractors are located.
• The EOR will then pay the contractors in their local currency, using this payroll system.
• Because the EOR is handling the payment process, businesses do not have to worry about transferring funds internationally or converting currency manually.
• This can save money on fees associated with international bank transfers and currency conversions, which can be particularly beneficial for businesses that hire contractors from multiple countries.

In addition to saving money on fees, paying contractors in their local currency can also help ensure that they are paid fairly and accurately, based on the exchange rate at the time of payment. This can help build trust and strengthen relationships with contractors, which can be beneficial for businesses that rely on a flexible workforce.

Professional support

Hiring contractors in different countries will force you to deal with so many issues that you will need employment and legal experts to help you solve these challenges.

Luckily, An EOR can provide support and guidance on employment-related issues to both your employees and the contractors you hire, which can help your businesses ensure you are complying with relevant laws and regulations and keeping your contractors happy.

Drawbacks of using an EOR for contractors

Additional Cost

EORs typically charge a fee for their services, which can be a significant additional expense for contractors. Our recent guide found popular EORs charge around $30 per month per contractor.

EORs also typically have additional features that cost extra. So the costs can add up compared to doing it yourself.

Misclassification risk

There is a chance that the EOR may not properly classify contractors as employees, which could lead to legal issues and potential liability. It’s important to understand if your EOR includes classification solutions or if that comes at an additional cost.

If you assume your EOR is taking care of any potential misclassification issues and it turns out it’s not included in your plan, you could end up paying fines and benefits to a contractor.

Every country has different regulations around employee classification. If your EOR is not assisting with the classification you will need to ensure someone on your end is staying up to date with whether or not a contractor’s roles and responsibilities qualify them as an employee based on their local laws.

Added Complexity for contractors

Working through an EOR can add an additional layer of complexity to the hiring process, as contractors will need to deal with the EOR as well as the company they are contracting for.

Some contractors might find this inconvenient. Especially if they are used to invoicing their clients directly and receiving payments through a specific platform.

If you want to learn more about the pros and cons of an EOR in general, this guide covers 16 pros and 9 cons of EORs.

Alternative options to an EOR for contractors

There are a few alternative options to using an Employee of Record (EOR) for hiring independent contractors:

Direct hiring

Companies can directly hire independent contractors and handle all the administrative tasks involved in the hiring process themselves. This option gives companies more control over the hiring process and can be more cost-effective, but it also requires more time and effort on the part of the company.

Use a payroll service

Companies can use a payroll service to handle the administrative tasks involved in hiring independent contractors. This option can be less expensive than using an EOR, but it may still require some additional effort on the part of the company.

Use a staffing agency

Companies can use a staffing agency to find and hire independent contractors. The staffing agency will handle all the administrative tasks and may also provide additional support and resources to contractors. However, this option can be more expensive than other options.

Recommended EORs for independent contractors

If you’re interested in using an employer of record for your contractors we recommend the following companies. You can also check out our guide on how much popular EORs cost for more details

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