What is an Employer of Record (EOR) payroll service?

employer of record

In the last few years, we have seen an increase in globalization and the international expansion of companies. While international expansion may be exciting for a company, it can also be overwhelming, due to the complexity and risk involved in complying with foreign employment regulations and laws. This is where the Employer of Record (EOR) payroll service comes into play.

An EOR is a personnel management solution whose aim is to “help” companies handle the legal and administrative aspects of employing workers in a foreign country. Instead of creating a legal entity in the destination country, the company hires the EOR to fulfil the employer’s obligations, while the company continues to be responsible for the day-to-day management of the employees and their work tasks.

EOR services are commonly used by companies that want to expand into international markets without having to deal with the complexity of payroll and employment management abroad. An EOR takes care of all legal and compliance aspects, such as the issue of employment contracts, the management of taxes, and the presentation of reports to the local authorities.

Furthermore, an EOR also takes responsibility for employee payroll, including tax deductions and social security contributions. This relieves the company of the need to understand and comply with the local payroll and employment laws and regulations.

Employer of Record (EOR) payroll service. What advantages does it offer?

Legal compliance: You can rest assured that your company complies with all the local payroll and employment laws and regulations.

Greater efficiency: An EOR takes care of payroll and workforce management, enabling your company to focus on its core business. This can help to increase the efficiency of your company and to improve the productivity of employees.

Reduction of costs: When your company uses an EOR payroll service, it can save on recruitment costs, overheads and other costs associated with expansion into a new market.

Greater flexibility: When using an EOR payroll service, your company acquires greater flexibility in the recruitment and management of employees in a foreign company. This can help reduce the complexity and risk involved in expanding into a new market.

Legal risks of hiring an EOR

In view of the aforesaid, you could have the impression that, here at Rosclar, we would encourage a company to opt for an Employer of Record (EOR) payroll service, when it wants to expand into overseas markets without having to deal with the complexity of payroll and employment management abroad. But perhaps what no one has told you, and it is important that you should know, is that this type of service can entail some legal risks that we want to be sure you are aware of before you make a decision.

In Spain, there is very strict legislation regarding the illegal transfer of workers. This means that, if a company hires a person through an EOR, this will be considered to be an illegal transfer of a worker. In this case, the company could be liable to very serious economic and legal sanctions.

Although EOR services appear to be an easy way in which to outsource payroll management, it is important to bear in mind that, in practice, it represents a risk that those involved must be aware of. In the event of doubt, it is recommended in all cases that you should seek legal advice in order to ensure that you are complying with the law.

Given the aforementioned, if you are thinking about hiring an EOR service in Spain, it is important for you to be fully aware of the legal risks associated with this means of outsourcing payroll management. If you have any doubts, it is best to seek legal advice in order to avoid problems in the long term. Contact us at Rosclar and we will be delighted to help you. You will never work alone.

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