What's the difference between an employer of record and a staffing agency?

On the surface, an employer of record and a staffing agency can sound like the same thing. While there are some similarities, these two terms are not interchangeable. Knowing the differences between an employer of record and a staffing agency ensures you understand their roles and responsibilities when outsourcing parts of your workforce management process. 

What is an employer of record?

An employer of record is an organization that serves as an employer for tax purposes while an employee performs work for a different company. The employer of record is responsible for tasks and functions such as:

• Processing payroll and issuing payments
• Depositing and filing taxes
• Managing unemployment and workers’ compensation insurance
• Employee onboarding 
• Issuing tax forms
• Conducting pre-employment checks
• Administering benefits
• Terminating employees

Companies looking to expand their hiring options without setting up local entities often partner with an employer of record to ensure they comply with applicable legal and financial regulations. In some cases, it’s the first step to fully entering a new market.

What are the benefits of using an employer of record?

There are many benefits of using an employer of record, with the biggest being that the primary company doesn’t have to manage payroll and HR issues. This allows them to save time and reduce the number of tasks that they’re responsible for. This is especially beneficial for small and mid-size businesses looking to expand beyond their immediate area for the first time.

Using an employer of record is also an effective way to outsource HR functions, such as payroll and benefits administration. The company pays the employer of record a standard rate for every hour worked by an employee. In exchange, the employer of record handles all HR tasks.

An employer of record is also responsible for staying current with employment laws that vary by state and country. This reduces the need for the company to learn about and comply with ever-changing laws in multiple places.

What is a staffing agency?

A staffing agency is hired to perform a specific set of staffing services, including but not limited to discovery, recruitment, and placing employees on assignment. Staffing agencies generally work with three groups of workers:

• Temporary
• Temp-to-hire
• Permanent

Typically, an employer contacts the agency and explains what they need. The agency then uses that information to source quality candidates and make the best matches possible between clients.

What are the benefits of using a staffing agency?

Some of the top benefits of using a staffing agency include:

• Reducing overhead costs: The staffing agency does all the work associated with finding suitable talent for your company. This reduces overhead costs on the employer side since staffing agencies pay temporary hires themselves.
• Staffing for short-term assignments: When you have seasonal needs or a project with a clear deadline, a staffing agency can provide you with the right talent without delay. 
• Hiring on demand: If you’re in a crunch, a staffing agency can often fill a need within one business day. Compare this to how long it would take you to find and hire a contractor or employee. 
• Reducing payroll responsibilities: A staffing agency manages all paperwork, taxes, workers’ compensation, and unemployment benefits on behalf of workers, allowing in-house HR to focus on permanent, full-time staffers’ needs. 

Most companies realize that they can benefit from using a staffing agency regularly or when specific needs arise. 

Can you use an employer of record and a staffing agency?

Now that you better understand how an employer of record and staffing agency operates, you can decide how to integrate one or both into your company’s operations. It’s a common misconception that you can only use one or the other. There are times when it makes sense to use both, either simultaneously or at different times.

For example, you may decide to use an employer of record for your entire distributed workforce while relying on a staffing agency to send you workers during busy times of the year. Overall, there are two keys to success:

• Knowing what an employer of record and a staffing agency bring to the table.
• Understanding when it’s best to use an employer of record and/or a staffing agency, based on your company’s specific wants and needs. 

In many ways, it’s hard to fully grasp the power of an employer of record and a staffing agency until you gain firsthand experience. It’s at that point that you’ll come to realize what these service providers can and can’t do for you.

Need help managing your workforce?

Regardless of what you’ve done in the past, the needs of your company are sure to change in the future. And for that reason, it’s important to get all the help you need. Oyster is a global employment platform designed to enable HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce.

‍Create a free Oyster account to take our platform for a test drive. With the help of an advanced suite of distributed HR tools, you’ll find it easier than ever to manage and care for your team.