A Guide to Employer of Record For Startups

International hiring offers many opportunities for startups. But opportunities also bring a few challenges.

Challenges such as finding the right talent, managing local payroll, and building a team within budget.

To address these challenges, startup founders use an employer of record. The EOR providers handle everything from recruitment and onboarding to exit policies. All you need to do is pay a monthly fees which is cost-effective as well.

This guide aims to help you make an informed decision about choosing the right employer of record for startups.

The areas we’ll focus on in this section are:    

• • Why Choose Employer of Record for Startups?
  • Benefits of Working with an EOR for Startups
  • Why Choose EOR Over Other Hiring Models?
  • Common Challenges Startups Face Without an EOR
  • Common Misconceptions About EOR for Startups
  • How to Select the Right EOR for Startups?

Pretty detailed, right? Well, that’s the goal!   

Why Choose Employer of Record for Startups?

An employer of record for startups is often mistaken for a third-party HR service in a foreign country. But it’s so much beyond that. Smart founders seek a strong EOR partner for legitimate growth.

When you partner with an EOR, you hire fast, stay legally protected, and don’t scare investors. What’s not to like?

Here’s why hundreds and thousands of founders use an EOR for startups:

• • Hire fast internationally: Found the perfect engineer overseas? But cannot wait or invest to set up a local company to hire the candidate? Also, afraid of losing the candidate through the waiting process? You don’t need to worry about that with an EOR. An EOR partner can onboard them in days, not months. 
  • Save your entity setup budget: You can save up to USD 20k–USD 100k by avoiding entity setup. With an EOR, you just have to pay a monthly fee. This is cost-effective and easy to explain to investors.
  • Avoid misclassification: With an EOR for startups, you’ll have meticulously drafted employee offer letters mentioning every detail. Details such as work hours, compensation, and benefits. This will eliminate the risk of misclassification. 
  • Test markets without commitment issues: Are you in a new country, and it’s not working out? Scale down quickly without shutdowns, which can harm your reputation in the market.
  • Keep your IP safe: EOR drafts proper local contracts that protect your IP, and your product stays yours. Period.

In short, EOR for startups helps in faster growth and scaling, and lower risk. 

Benefits of Working with an EOR for Startups

Key benefits of EOR for startups, from faster market entry to compliant global hiring

An employer of record for startups helps you hire full-time employees in other countries without setting up a local company. The EOR becomes the legal employer. 

You still manage your international team. In this section, we break down the benefits of EOR services for startups.

Easy Market Entry

Hiring globally usually takes months and extensive documentation and legal procedures. With an EOR for startups, it doesn’t take a toll on your time and patience. 

Why? This process doesn’t involve lengthy registration or dealing with local authorities. You don’t need any foreign bank accounts. Your local EOR partner already knows the market in and out. 

Hence, your team gets built and becomes fully operational, often within 48 hours to two weeks.

Significant Cost Savings

The only goal of EOR for startups is not to lower costs but to gain financial control. With an entity, expenses show up randomly.

Factors such as legal fees, compliance updates, local consultants, and audits also come into play. With an EOR, these startup challenges get eradicated.

With the EOR model, you pay a flat monthly fee per employee, and that’s it. No more added invoices or urgent legal bills in the process.

This makes budgeting easier, forecasts cleaner, and burn rate far more defensible during investor reviews.

Compliance and Risk Mitigation

Every country has strict labor laws. You must follow them letter by letter; otherwise, you will face hefty fines. When you have an EOR partner, they manage payroll, taxes, benefits, notice periods, and terminations. 

They also secure IP and prevent contractor misclassification, both common issues in international hiring.

Operational Flexibility

An EOR doesn’t manage the day-to-day operations of your team at all. They don’t assign work, set targets, or review performance. That’s still all on you.

What the EOR model handles is the administrative tasks that can get you in trouble if you mess them up. They handle responsibilities such as payroll, local taxes, employment contracts, benefits, and compliance documentation.

Your employee reports to you and works your hours. The EOR stays in the background, making sure everything is up and running for your new team.

So, operationally, nothing changes. You build and run the team. You decide who grows, who gets promoted, and who exits.

You get complete operational flexibility for your international team.

Enhanced Talent Acquisition

You’re no longer limited by geography. EORs give you access to global talent and locally competitive benefits. These are the things that early-stage startups usually can’t offer alone.

Let’s now move on to our next section, where we’ll discuss EOR vs other hiring models.

Why Should You Choose EOR for Startups over Other Hiring Models?

Let’s now see why EOR is a better choice for startups over other plausible hiring models.

EOR vs Local Entity

Setting up a local entity in a new market doesn’t make any sense if you’re only in the experimental phase or are here for a short term.

You need an upfront investment of USD 20,000-USD 100,000 in the setup procedure, which includes lawyer fees, registrations, infrastructure, and assets, etc.

An employer of record for startups saves you from all this. With the EOR Model, you can scale up and down your team according to your business requirements. 

You don’t have to worry about investing such a large amount at one go. You gain maximum output with minimal investment. What can be a better deal than this?

EOR vs Independent Contractors

When you’re entering a market for the short term, contractors look like the most feasible option. But in reality, this hiring method can cause you some of the biggest legal and compliance problems.

The most common mistake startups make when hiring international contractors is treating them as full-time employees. The consequence? Worker misclassification, lawsuits, court procedures, financial penalties, and a lot more.

With an EOR model, you can shield your international hires from misclassification. EOR for startups drafts contracts without loopholes, as they know every nook and corner of local labor laws.

EOR vs PEO

PEOs can handle only the HR and administrative aspects of the process, not the hiring. When you go for this option, you need to conduct the recruitment process all by yourself in a new country. Sounds pretty daunting, right?

On the other hand, an employer of record for startups handholds you through the entire process from screening candidates to onboarding them.

Most of your worries end there, and you can finally focus on business growth in the new location.  

Read PEO vs EOR: Which is right for your organization. 

We’ll now look at some of the downsides startups face without an EOR.

Common Challenges Startups Face Without An EOR

Let’s see the most common startup challenges when it comes to international expansion without an EOR model. 

Local Labor Laws

Legal complications in a new country are all the more challenging. Hiring internationally on your own means burying yourself in rules and documentation. 

An employer of record for startups handles all the rules, benefits, termination laws, and related requirements.

Tax Obligations

Payroll and taxes are complicated by multiple currencies, varying tax deadlines, and local filings. Often, you get stuck at audits due to a mismatch in these factors. EOR for startups helps founders avoid drowning in a new market.

Slow Market Entry

Another major challenge of not partnering with an EOR is slow team building internationally. Hiring quality talent and building a fully operational team can take months if you try to do it on your own.

The biggest drawback of this is that you lose the competitive edge in the new market.

Handling local HR

Taking responsibility for HR and admin in a foreign land is a huge commitment. It not only demands your time but also your proper planning and monitoring. 

When you’re trying to grow a business in a new market, that’s the last thing you want to worry about.

Loss of Qality Talent

As mentioned earlier, hiring slows with an EOR for startups. The right candidates and quality talent slip away fast if you don’t attend to them early. 

You need to screen them, interview them, and offer a competitive salary package before time runs out.

Inflexibility in Scaling

Without the support of an EOR partner, the flexibility of scaling your team up or down is significantly limited. Your options for project-based or short-term hires become limited without the EOR model.   

Beyond these challenges, there are also some misconceptions about the employer of record for startups.

Let’s focus on them in the next section. 

Common Misconceptions about EOR for Startups

Let’s break down the misconceptions one by one. 

• • Myth 1: EORs are mostly useful for large enterprises. Could not be more wrong. In fact, 41% of startups take EOR support to flourish in a market.
    This is mostly because they believe the employer of record for startups can assume a share of responsibilities that only a local body can handle.
  • Myth 2: The parent company loses control over the foreign team, and EOR takes over. It’s just the opposite. EORs only manage the admin and execution.
    The nervous system of the team, work goals, and team performance are still managed by you.
  • Myth 3: EOR for startups actually becomes very high on budget in the long term.
    The truth is that registering an entity in a foreign jurisdiction requires significant upfront investment, which can be avoided by using an EOR partner.
  • Myth 4: EOR is only for the short term. It depends on your business requirements and how long you plan to run your international team through an EOR partner.
  • Myth 5: Independent contractors are a much more feasible option. Wrong! This has the most risk of worker misclassification.
  • Myth 6: EORs don’t provide good benefits to employees. Oh, the oxymoron! EOR partners know and negotiate the best possible benefits for the new hires.
  • Myth 7: EORs lack uniqueness. A strong “NO”. You just have to find the right EOR model that suits your business demands and goals. EORs devise customized plans all the time for their clients. 

Now that you know why EOR for startups is the ideal choice for founders, let’s discuss how you can find the right EOR partner for your business in the next section.   

How to Select the Right EOR for Startups?

Key steps to choose the right Employer of Record partner for your business

The most crucial part of partnering with an EOR model is choosing the right one. It’s not a difficult task if you do it strategically. Let’s see what those ways are:

• • Transparent pricing: Check for hidden fees before signing any contract. My personal recommendation would be flat fees over percentage-based pricing. It’s much easier to calculate and track.
  • Choosing the right model: Before pricing, you need to understand which EOR model best suits your expansion plans. Check for pointers such as whether startups in your target location are operating independently or outsourcing services.
  • Background check: Ask questions like how long it takes for them to hire the first candidate. You can estimate the total team building duration by this. Because when you’re investing in a foreign land, time is money.
  • Client testimonials: Check for factors such as their availability, support system, and industry expertise. Ask for client testimonials if required. You can know them truly only after these factors are verified.

Read how to choose the best employer of record for your startup.

Conclusion

The primary role of an employer of record for startups is to keep your business safe and sound during expansion.

And EOR models understand this assignment very well. An EOR not only shields your international team but also helps it grow and flourish.

The main attraction? All this happens within an optimized budget and within weeks. Another benefit is the flexibility you gain when partnering with an EOR.

Be it scaling your team or managing your team operations, you lead the story every time. Sounds like a pretty impressive deal, right? 

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