Employer of Record: Navigating Compliance and Driving Growth
Want to onboard an employee in Latin America ?
Expanding globally can unlock numerous growth opportunities but also comes with navigating local regulations, particularly when it comes to employment. For businesses without local entities, partnering with an Employer of Record (EOR) ensures compliance with country-specific employment laws while managing operational costs.
This article will break down the compliance responsibilities of an EOR, who holds ultimate accountability, and how this solution can support both business growth and legal compliance.
Key Takeaways
✔️ EORs manage essential compliance tasks such as payroll, taxes, and employment contracts, allowing businesses to focus on growth.
✔️Organizations retain responsibility for performance management, employee engagement, and workplace culture, areas beyond an EOR’s scope.
✔️ Collaborating with an EOR ensures businesses meet all compliance requirements, minimizing risk and driving sustainable growth.
EOR Compliance Responsibilities: What Do They Cover?
An Employer of Record (EOR) assumes legal and administrative responsibilities to ensure that companies hiring abroad meet all local employment and labor laws. These include:
Navigating Local Labor Laws
Each country has its own specific labor laws. An EOR is responsible for staying updated on these regulations and ensuring that all employment practices conform to them, which helps reduce the risks of non-compliance.
Managing Employment Contracts
An EOR drafts employment contracts that meet the legal requirements of the country in question. These contracts define everything from salary and benefits to termination terms, ensuring legal protection for both parties.
Correct Worker Classification
Misclassifying workers as independent contractors instead of employees can lead to penalties. EORs ensure that workers are correctly classified based on the nature of the work performed, safeguarding companies from fines and legal disputes. For more details on worker classification, explore our article on contractor vs. employee.
Payroll Management
EORs manage the payroll process, ensuring that employees are paid on time and receive payslips that adhere to local law. Payroll management includes calculations for taxes, social security, and benefits, preventing compliance risks.
Tax and Social Security Compliance
An EOR takes responsibility for calculating and filing local taxes on behalf of both the employer and employee. This includes income tax, social security, and any other statutory deductions, minimizing the administrative burden on companies.
Occupational Medical Checks
Many countries mandate occupational health checks for employees. An EOR ensures compliance by scheduling and managing these checks, ensuring that employees meet local health standards.
Employee Benefits
Employee benefits, such as health insurance, are often required by law and vary significantly across countries. EORs manage the local benefits packages, ensuring compliance with national and regional laws.
For instance, in Brazil, employee benefits such as the 13th-month salary are mandatory and can be complicated to navigate. Learn more about Brazil’s employment laws in our guide: Brazil Employment Law Guide.
Leave and Paid Time Off (PTO) - Shared responsability
EORs administer leave policies, but companies must ensure their internal policies align with both their corporate culture and local legal requirements.
What Responsibilities Fall Solely to an Organization?
While an Employer of Record (EOR) manages many compliance responsibilities such as payroll, benefits, and employment contracts, certain obligations still rest solely with the organization. These organizational responsibilities are essential for creating a cohesive work environment and ensuring the company meets all local labor laws and internal standards.
Employee Performance Management and Evaluations
While an EOR manages HR-related administration, the organization must handle employee performance management. This includes conducting regular performance reviews, setting key performance indicators (KPIs), and offering constructive feedback. The EOR cannot manage daily work supervision, and performance metrics must be handled internally to align with company goals.
Handling Breaks, PTO, and Flexible Work Arrangements
Though the EOR may help calculate leave accruals and ensure compliance with local labor laws, managing how breaks, paid time off (PTO), and flexible work arrangements fit into the organizational culture rests with the company. The employer decides how to structure these benefits to align with both legal requirements and company values.
Building and Enforcing an Employee Handbook
The organization remains responsible for creating and updating an employee handbook. This document outlines company policies, procedures, and codes of conduct. Although the EOR may advise on local labor laws, the organization ensures that the handbook reflects company-specific policies, such as the dress code, internal communication guidelines, and expectations for workplace behavior.
Providing Training and Development
Employee training and professional development also fall under the company’s purview. While the EOR might handle onboarding from a compliance perspective, offering specific skills training and leadership development programs is essential to maintain employee growth and align with the company’s objectives
Enforcing the Right to Disconnect
The right to disconnect—particularly relevant for remote or hybrid work environments—ensures that employees can separate work from personal time. While an EOR manages labor law compliance related to working hours, the organization is responsible for enforcing policies that protect employees’ personal time. Companies should communicate clearly regarding expectations outside of working hours to avoid burnout and legal issues.
Employee Engagement and Culture
The EOR handles technical and legal aspects of employment, but building a positive company culture and ensuring employee engagement fall under the organization’s responsibilities. Creating a workplace where employees feel valued and connected requires internal focus, as it directly affects employee retention and productivity.
Internal Conflict Resolution
While the EOR may provide guidance on local employment laws, the employer must take charge of addressing internal conflicts, such as disagreements between employees, and ensuring that HR policies are followed. Mediation and conflict resolution play a crucial role in maintaining a healthy workplace.
On What Compliance Concerns Might an EOR Advise a Company?
An EOR can provide expert advice on many compliance matters, including:
Occupational Health and Safety
Countries often have strict regulations around health and safety, particularly for industries such as manufacturing or construction. The EOR advises companies on how to comply with these laws, minimizing the risk of workplace incidents.
Termination Procedures
EORs provide guidance on legally compliant termination processes, ensuring that companies adhere to notice periods, severance pay, and other local requirements. In Latin America, termination laws can be complex, with significant financial consequences if mishandled. Learn more about how to hire or terminate employees legally in Latin America.
Data Privacy
When expanding globally, data privacy is a critical compliance concern, especially with the increasing number of stringent data protection laws. An Employer of Record (EOR) ensures that your business complies with local data protection regulations, such as the General Data Protection Law (LGPD) in Brazil or GDPR in Europe. This includes managing the secure handling, processing, and storage of employee data, ensuring confidentiality, and obtaining explicit consent for data usage where necessary. Companies must establish robust policies to protect sensitive employee information, such as payroll details, health records, and personal identifiers, and avoid data breaches, which can lead to fines and reputational damage.
Anti-Discrimination Laws
An EOR also advises businesses on how to comply with anti-discrimination and workplace harassment laws, ensuring equal treatment in hiring, compensation, promotions, and termination practices. In many LATAM countries, stringent anti-discrimination laws protect employees from any form of bias based on gender, race, religion, sexual orientation, or disability.
Workplace Diversity Regulations
Global businesses must be aware of local regulations governing workplace diversity and inclusion. Many LATAM countries are increasingly focusing on promoting diversity in the workplace, with laws and incentives encouraging companies to hire diverse talent. For example, in Brazil, specific legislation encourages the inclusion of individuals with disabilities in the workforce, with businesses required to hire a minimum percentage of disabled employees based on company size.
Who Holds Ultimate Responsibility for Compliance: EOR or In-House HR?
Although EORs manage many aspects of compliance, responsibility is shared. While the EOR handles statutory requirements such as payroll, taxes, and employment contracts, the in-house HR team remains responsible for internal company policies and practices. For example, while the EOR ensures the timely payment of wages, the company must ensure employees adhere to company policies regarding breaks or performance.
Managing Compliance with an EOR vs. Setting Up an Entity
Establishing a legal entity in a new country can take months and require significant financial investment. An EOR streamlines this process by enabling businesses to hire employees without needing to establish a physical presence.
Cost Breakdown:
EOR Costs: EOR fees generally range from 5-15% of an employee’s salary, depending on the country. This cost covers compliance, payroll, and tax filings.
Entity Setup Costs: Setting up a legal entity can involve legal fees, local administrative costs, and ongoing compliance expenses. For example, setting up a business in Brazil can cost upwards of $20,000 and take several months.
By partnering with an EOR, businesses avoid the hidden costs of maintaining compliance themselves, such as ongoing legal consultations, complex tax filings, and HR management.
Manage Your Employment Compliance with Europortage
Europortage specializes in providing comprehensive EOR, payroll, and HR services across various countries. Our expert team manages local compliance requirements, from employment contracts to tax filings, while ensuring seamless growth in new markets. Whether expanding into Europe, Latin America, or other regions, Europortage offers reliable support to streamline your business operations.
If you’re looking to stay compliant and grow globally, contact Europortage today for tailored solutions.
