If you are running an accounting or finance firm with distributed teams in different locations, you may have heard of the term "employer of record" (EOR). An EOR is a third-party organization that takes on the legal and administrative responsibilities of employing workers on behalf of another company.
By hiring an EOR, you can avoid the hassle and cost of setting up a local entity, complying with local labor laws, managing payroll and taxes, and providing benefits to your employees in each country where you operate. It’s the easiest way to build a fully distributed team legally and with almost any complications.
But is there any downside to not being the employer of record for your offshore accounting talent? In this article, we will explore some of the pros and cons of using an EOR service versus being the direct employer of your global workforce.
The Pros of Using an EOR Service
According to a recent report by QYResearch Group, the global employer of record services market size is projected to reach US$ 6604.4 million by 2028, from US$ 4299.1 million in 2021, at a CAGR of 6.8% during 2022-2028. This indicates a growing demand for EOR solutions among businesses that want to expand their global presence and access a wider pool of talent.
Accounting firms are not falling behind and every day there are more and more companies leveraging on international talent, in a constantly shrinking accounting labor market. But why this hiring method is so interesting to accounting firms? Here are some reasons why:
Cost savings
One of the main advantages of using an EOR service is that you can save on labor costs by hiring offshore accounting talent at lower rates than in your home country. For example, South America is becoming the go-to region for high-quality accounting talent over The Philippines and India.
You can also avoid the expenses associated with setting up and maintaining a local entity, such as legal fees, accounting fees, office rent, utilities, etc. Additionally, you can benefit from the economies of scale and expertise of the EOR provider, who can negotiate better deals with local vendors, suppliers, and authorities on your behalf.
Compliance
With EOR services you can ensure compliance with local laws and regulations regarding employment, taxation, social security, health and safety, etc. The EOR provider will take care of all the administrative tasks related to hiring, onboarding, payroll, taxes, benefits, and termination of your offshore accounting talent. They will also handle any audits, inspections, disputes, or claims that may arise from your global operations. This way, you can avoid any legal risks or penalties that may result from non-compliance or ignorance of local rules.
Flexibility
Using an EOR service also gives you more flexibility to hire and manage your offshore accounting talent according to your business needs. You can easily scale up or down your global workforce without having to worry about long-term contracts, severance payments, or notice periods. You can also adjust the compensation and benefits packages of your employees based on market conditions and performance indicators. Furthermore, you can delegate the day-to-day supervision and communication with your offshore accounting talent to the EOR provider, who will act as your local representative and liaison.
Competitiveness
Finally, using an EOR service can help you gain a competitive edge in your industry by allowing you to access a larger and more diverse pool of talent across different countries and regions. You can leverage the skills, knowledge, and experience of your offshore accounting talent to provide better services to your clients, improve your efficiency and productivity, and innovate your processes and solutions. You can also expand your market reach and brand awareness by having a local presence and reputation in each country where you operate.
Potential Downside to Not Being the Employer of Record
While using an EOR service has many advantages for accounting and finance firms with distributed teams in different locations, it also has some potential drawbacks that you should be aware of before making a decision. Some of the disadvantages of using an EOR service include:
Less control
One of the major myths about using an EOR service is that you may feel like you have less control over your offshore accounting talent and their work quality. Companies usually think that since the EOR provider is the legal employer of your employees, they have the final say on matters such as hiring, firing, compensation, benefits, training, etc. This is not at all true as most of the EORs work through fixed fees so you only need to terminate your contract with the EOR if not comfortable with either the service or the employee's performance.
What is not a myth is that you may face some challenges in maintaining a consistent company culture and values across your global teams. This is true with every distributed team you build. A careful plan, training, and constituent feedback are always necessary to keep a team cohesive, no matter whether you hire them directly or through remote staffing services.
Atrophy of HR
A true drawback of using an EOR service is that it may lead to the atrophy or decline of your internal human resources function. By outsourcing most of the HR tasks to the EOR provider, you may lose some of the core competencies and capabilities that are essential for managing your workforce effectively.
We strongly suggest you rethink their tasks to talent retention actions such as providing career development paths, feedback mechanisms, recognition programs, etc. Additionally, you may face some difficulties in integrating your offshore accounting talent with your onshore teams and creating a cohesive and collaborative work environment.
Changes in company culture
As we said before, using an EOR service might result in some changes in your company culture and identity. By hiring offshore accounting talent through a third-party organization, you may lose some of the direct connection and interaction with your employees, which may affect their loyalty and commitment to your company. You may also have to deal with some cultural differences and communication barriers that may arise from working with people from different backgrounds, languages, and expectations. Furthermore, you may have to adapt your policies and practices to suit the local norms and preferences of your employees, which may not align with your company vision and values.
Dependence on EOR provider
A fourth drawback of using an EOR service is that it may create a dependence on the EOR provider for your global operations. By relying on the EOR provider to handle all the legal and administrative aspects of employing your offshore accounting talent, you may expose yourself to some risks and uncertainties that are beyond your control. For instance, the EOR provider may change their terms and conditions, increase their fees, or terminate their services without prior notice. They may also face some issues or challenges with the local authorities, vendors, or suppliers that may affect your business continuity and reputation. Moreover, they may not be able to meet your expectations or standards in terms of quality, timeliness, or responsiveness.
Making an Informed Decision
While the downsides mentioned might seem daunting, they don’t necessarily mean that firms should always opt to be the employer of record. The decision largely depends on a company’s infrastructure, resources, and long-term goals.
For some, leveraging third-party EORs makes sense as they provide a hassle-free solution to manage offshore accounting talent. They handle everything from employment contracts to benefits administration, giving firms more time to focus on their core competencies.
However, for firms looking to have tighter control and a more hands-on approach with their offshore teams, becoming the employer of record is a beneficial decision. This decision can foster stronger relationships, ensure direct compliance with local laws, and provide a more unified team environment.
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