Employer Of Record: What Is It And What Are Its Responsibilities

Employer Of Record

Last updated on June 2nd, 2023 at 04:15 pm

Globalization and the flexibility of work have opened up a wide range of opportunities for the internationalization of companies. However, opening a subsidiary or starting an operation abroad can pose a series of challenges from the point of view of talent management. Employer of record Mexico provides employers with the ability to hire employees in Mexico without having to establish a legal entity.

An EOR acts as the legal employer of the employee, taking on all employer responsibilities such as payroll, taxes, benefits, and compliance with local labor laws. This allows companies to quickly and easily expand into Mexico without the need for a lengthy and expensive incorporation process. For this reason, in recent years, the term Employer of Record (EOR) has gained relevance. But what exactly is it and what are its functions?

What is an Employer of Record (EOR)?

The transformation of the labor market, digitization or the need for new skills are rapidly changing the landscape of work. The future of your organization will largely depend on organizational restructuring and workforce planning. In this sense, many companies with an international structure choose to simplify things by outsourcing some tasks through an Employer of Record.

An employer of record Mexico or EOR, a term that would literally translate as employer of record, is an entity that assumes certain responsibilities of the talent and human resources department. These responsibilities usually have to do with the financial and legal procedures necessary to create and operate an office or team abroad. Thus, an EOR company manages, for example, payroll, employee benefits and tax documentation.

There are many reasons to outsource functions through an EOR, but companies often seek to simplify HR operations and streamline access to new markets. By subcontracting to an Employer of Record, this entity formally becomes the employer of the employees of the parent company. In return, the latter ensures proper compliance with the legislation of the labor market in which it will operate.

Hiring an EOR has five great benefits:

  • The company that hires their services benefits from lower entry barriers to a new market.
  • The company’s human resources department can manage its time more efficiently and effectively.
  • The company gains efficiency in the cost structure, profit management and compensation.
  • The savings allow for more liquidity to support the company’s business expansion.
  • The organization avoids problems related to legal compliance and minimizes risks.

Responsibilities of a Local Employer EOR

An Employer of Record is not always in charge of the same functions, since these will vary depending on the needs of the company that hires their services. Even so, an EOR entity usually has a fairly well-defined set of core responsibilities.

1. Assume The Local Responsibilities For The Creation Of A Subsidiary

EORs are legally constituted entities in the country or countries in which they operate. By assuming control of the staff of the company that hires their services, they also assume the process of creating a subsidiary, which greatly simplifies the work of the parent company. EORs come to represent the company as legitimate employers in the local market.

2. Ensure Legal Compliance

When a company decides to start operations in a market other than the one in which it usually operates, compliance with new rules and regulations is usually one of the biggest sources of risk. An Employer of Record guarantees compliance with local labor and tax legislation, being in charge, among other things, of drafting contracts in accordance with current regulations.

3. Manage The Staff Of The Subsidiary Or The Local Team

An EOR entity becomes the employer and human resources manager for all purposes. This implies that the Employer of Record takes charge of everything related to the hiring and incorporation of new talent, the necessary work permits, the management of contracts (including their termination, if necessary) and the management of salaries and the rest of the benefits, such as vacations, pension plans or sick leave.

4. Manage The Correct Payment Of Taxes

The payrolls are structured by the Employer of record Mexico EOR in such a way that they comply with all the tax regulations of the local market. In other words, the Employer of Record ensures that the proper withholdings are applied and that the tax payment is correct. Consequently, an EOR entity has the necessary knowledge and means to administer the taxation of the subsidiary’s workforce.

Usually, an employer of record Mexico also offers consultancy services, advising the contracting company about the best practices to organize the workforce and manage talent in accordance with current legislation. In short, an Employer of Record is a key tool to simplify the process of opening a subsidiary abroad or starting operations in a new market and reducing the risks involved.

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