How EORs mitigate cross-border tax risks

How working with an EOR reduces cross-border hiring risks.

Bridge between Canada and the US

Hiring employees from around the world offers several significant advantages to your company. From the ability to tap into a broader, global talent pool to adding diverse perspectives and experiences to your team, recruiting and hiring international workers can help your company exceed its goals. 

Adding international workers can be a challenging process, though. To legally hire individuals from any given country, you typically need to have an established business entity in that country. This ensures that the individual's employment complies with the laws of their country of residence, which cover everything from time off and other benefits to payroll taxes. 

International taxes, in particular, can be challenging. That's where an employer of record (EOR) comes in. Working with an EOR eliminates many pitfalls of hiring internationally, including mitigating cross-border tax risks. 

What is an EOR?

An employer of record is a company that employs workers on behalf of one or more other companies. For example, staffing agencies that provide temporary employees to client companies are EORs because they hire, manage, and pay employees who work for other companies.

EORs also provide services for companies that wish to hire individuals from other countries that have different employment laws. For example, a U.S. company hoping to hire an employee from Portugal could work with an EOR in Portugal that would employ that individual and manage related HR and payroll functions. Although the employee will perform work for the U.S. company, their employer of record is a Portugal-based company.

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An EOR allows companies to legally hire international workers without the expense or bureaucratic hassle of establishing a business entity in another country. It also eliminates the risks of not knowing or understanding the intricacies of local employment laws. Every country has its own regulations, and it's easy for an outside company to run afoul of those rules without adequate guidance from an expert. 

EORs and tax risks 

One hazardous area for employers hiring internationally is taxation. Consider some of the elements of payroll taxes that you have to handle for your employees, like filing reports, making quarterly payments, calculating withholdings, and issuing end-of-year tax documents. Now consider performing similar tasks for employees in different countries with different tax laws. Unless you're intimately familiar with those regulations, you run a substantial risk of non-compliance—and hefty sanctions and fines. 

Working with an EOR is a simple way to fully comply with international tax laws. EORs either maintain an entity in the country where they hire employees (for example, an EOR established in France employs French nationals to work for foreign companies) or subcontract services to another local company. In either case, the EOR and their subcontractor have intimate knowledge of the employer's tax responsibilities and assume responsibility for compliance.

This means you don’t need to worry about missed deadlines or other tax-related issues. The EOR takes care of everything, including:

  • Calculating and submitting payroll taxes.
  • Calculating and submitting social program contributions.
  • Classifying employees for tax purposes.
  • Developing competitive benefits packages that comply with local employment laws and standards. 
  • Issuing payroll in local currency.

Because the EOR is responsible for submitting taxes, reports, and other documentation to their country's agencies, they bear the burden of penalties for late or incorrect filings—not you. They employ workers on your behalf, and as such, they assume responsibility for employment and tax law compliance. You can focus on running your business, not trying to make sense of international tax laws.

EORs are a cost-effective solution

As an employer, you might worry that an EOR will increase the cost of global hiring. However, considering the costs and risks of establishing an international entity, you'll find that working with an EOR is a cost-effective solution. In some cases, you can save money using an EOR, as they can help you determine salary ranges that are significantly less than you might pay a worker in another country.

Employer of record risks 

For all the advantages of using an EOR, you need to also consider the risks and disadvantages. Some countries, for instance, have strict limitations on how long companies can retain workers via an EOR, the type of work employees can do, and how much authority the contracting employer has over the EOR employees. 

Still, when you want to attract and retain top talent from the global marketplace to your business, reduce the risks associated with non-compliance, and streamline operations, an EOR is a convenient and effective solution. Contact Oyster today to learn more about global employment options and how to expand into other countries without establishing a foreign entity or navigating the complexities of securing work visas. 

About Oyster

Oyster is a global employment platform designed to enable visionary HR leaders to find, hire, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expenses.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.

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