Study 3 Operating EOR Models & Which is the Best Fit for You

Key Takeaways:

 

1. Direct EOR: Perfect for companies seeking a hands-on approach with complete control over employee management.
2. Indirect EOR: Cost-effective and suitable for outsourcing employment responsibilities to an experienced third-party provider.
   
3. Hybrid EOR: Combines direct and indirect models, offering flexibility and customized solutions for diverse business needs.
4. Key Insight: Choose based on your company’s size, compliance requirements, and operational complexity.
5. Final Thought: Direct EOR often suits businesses by providing local expertise and A-class compliance.

Expanding your business globally? Congratulations, you’re entering the big leagues! But let’s not sugarcoat it; international expansion is no cakewalk. It comes with a truckload of legal, administrative, and compliance responsibilities. These responsibilities can leave even the savviest entrepreneurs scratching their heads. Now, there is an obvious solution to all these problems, an EOR model of employment. 

Simply put, an EOR model helps you manage employee hiring, payroll, tax compliance, and more in a foreign country. You can hand over these responsibilities to an employer of record without needing to set up a legal entity. It is your operational backbone making sure your international team runs efficiently. It helps you take the spotlight on revenue generation. 

Here’s the thing; not all employer of record (EOR) business models are created equal. Different businesses have different needs. That is why there are distinct types of EOR models customized to various scenarios. These models – Direct, Indirect, and Hybrid, exist to tackle the several nuances of global expansion. They offer flexibility and solutions based on your specific goals and challenges. 

In this blog, we’ll explore these EOR models in detail. You’ll learn what each EOR business model brings to the table. You will also get to know the challenges and benefits of the different models. We’ll give you the checklist of how to pick the one that fits your business like a glove. So, buckle up as we decode the world of EOR models for you.

Overview of Different EOR Models

Though employer of record (EOR) models have a similar approach to offering services to their clients, they aren’t one-size-fits-all. Each model serves a unique purpose, some are Ferraris, and others are dependable SUVs. Here’s the lowdown:

1. Direct EOR: Operates with its legal entities in the target countries. They ensure control remains firmly in your hands and compliance is top-notch and airtight. Practically we can call it the James Bond of EOR models; sleek and efficient.
2. Indirect EOR: This type of employer of record (EOR) model relies on local partners to deliver services, which can work well for smaller expansions. It is more like borrowing your neighbor’s car, convenient but not fully yours.
3. Hybrid EOR: Combines direct operations in key markets and indirect partnerships in others. These kinds of employer of records collaborate with local partners in markets/regions where they do not operate directly. They offer flexibility with trade-offs. It is a mix of both; great in theory but sometimes as tricky as juggling.

Let’s break down each one of them to see what makes them tick.

Direct EORs

Direct EOR models run the show themselves, with no middlemen involved. They operate with a local presence, ensuring every “i” is dotted and every “t” is crossed. This is why you can blindly rely on them and get access to their superior service. What superior service? We’ll get to it in the next sections. For now, let’s dissect the direct employer of record (EOR) model further. 

Types of Direct EORs

• Local Vendors: These providers specialize in one country and know the local laws and culture inside out. They’re ideal for businesses focused on operating and establishing a strong presence in a single market. Mainly because they know their market better than anyone.    
• Multi-Country Providers: These are global players with legal entities in multiple countries. They’re ideal for businesses expanding across multiple markets. These employer of records manage HR and administration on the client’s behalf across regions with the perfection of a Michelin-star restaurant.  

Cost Breakdown

Direct EORs may appear pricey upfront. Local vendors charge anywhere between USD 100 and USD 200 per employee per month. Multi-country operators? Expect to pay around USD 400. Yes, both of these EOR models deliver high-quality, responsive service. 

However, local vendors are clearly more cost-effective. Moreover, their specialized expertise in one particular market nullifies the possibility of even any minor error. Thus, by avoiding unnecessary global infrastructure costs, they ensure affordability and operational efficiency. Plus they never compromise on service quality.

Get complete clarity about the cost of hiring remote employees in India 

Enhanced Service Quality

It’s time to address the much-awaited question, why superior service quality with direct EOR models? Well, mainly because this structure has no intermediary layers. Consequently, it eliminates the dependency on third-party partners. This results in immediate accountability and quicker communication. It applies to any service the employer of record delivers. From handling payroll, and tax filings to providing employee benefits, the responsiveness of the EOR model is consistently high. This in turn helps in a much faster and smoother resolution of any issues.

Learn more about payroll in India through this repository.  

Indirect EORs

Indirect EOR models are like those cake mixes you buy; they work but need extra ingredients to shine. These providers partner with local firms to deliver EOR services, offering an optimized way to scale operations.

Here’s the scoop. With Indirect EOR models, you’ll pay for both the EOR provider and their local partner. Costs can pile up fast, thanks to the two-layered cost structure. Plus, service responsiveness often depends on the local partner’s efficiency. Sometimes, it can feel like waiting on hold forever which is again not ideal for time-sensitive issues.

Hence, indirect EOR business models are your best bet if you’re dipping your toes into limited-demand markets. They are your practical solution for managing smaller teams. They allow you to expand without committing to a full-fledged legal entity.

Hybrid EORs

Hybrids sound great, don’t they? A little of this, a little of that. Sure, hybrid employer of record (EOR) models try to combine the best of both worlds, but they’re not without challenges. These providers operate directly in key markets while relying on local partners where demand is low. This model provides flexibility, enabling you to maintain direct control in major markets while scaling indirectly in smaller ones. 

However, juggling both can become a logistical nightmare. Thus, while they try to strike a balance between direct and indirect employer of record (EOR) models, flexibility often takes the shape of complexity.

There is an additional factor associated with this model; cost variability. Costs can swing wildly depending on the country and whether services are delivered directly or through a partner. Similarly, service quality can be inconsistent which again depends on the partner’s efficiency. Consequently, the whole experience feels like a gamble.

Challenges of Indirect and Hybrid EOR Models

When the question arises about efficiency, both indirect and hybrid employer of record (EOR) models come with significant downsides. Let’s address their respective baggage. 

Indirect EOR Challenges

• Dependency on a third-party local partner can feel like being at their mercy. You have to constantly count on the partner’s efficiency and reliability.
• Additional cost layers inflate your budget faster than a New Year’s Eve balloon.
• Compliance standards? Often not at par with local vendors. There are also significant loopholes in the process. It’s a hit-or-miss situation.
• Safeguarding intellectual property goes for a toss for real with indirect EOR models. Why? Because they don’t even consider protecting your IP unless specified. Also, you have to form extra-legal contracts to access this service from an indirect employer of record. 

Hybrid EOR Challenges

• Performance can differ across regions, depending on multiple factors like talent quality, employee engagement, and commitment towards the company, etc. This inconsistent service delivery always keeps you on edge creating potential headaches.
• Managing direct and partner-based operations can stretch your resources and feel like herding cats. This ultimately causes operational complexity.

We are again at the most pivotal point of choosing an employer of record partner. How cost-effective is the model? And honestly, budgeting does become unpredictable in this model due to fluctuating costs and varying compliance requirements.

Decoding Common Myths About the Direct EOR Model

Direct EOR models have their fair share of myths. Let’s set the record straight by busting them, shall we?

Myth: Direct Employer of Records Are Always Expensive

Reality: Local vendors are budget-friendly and offer competitive rates with unparalleled local expertise. Adjacently, multi-country providers justify higher costs with broader coverage.

Here you can learn more about how cost-effective an EOR can be.  

Myth: Direct EOR Models Limit Flexibility in New Markets

Reality: Direct employer of records have a well-structured approach to managing international remote teams with the majority of the control in the client’s hands. From recruiting skilled professionals to integrated onboarding, they provide consistent support for both employers and employees. They also patiently address any and every question or concern along the way.   

Myth: Direct EOR Models Require High Administrative Efforts

Reality: Well-coordinated processes reduce your involvement, allowing you to focus on your business priorities.

Key Benefits of the Direct EOR Model

Direct EOR models are the gold standard and businesses are in awe of them. Why so? Let us count the ways.   

• Better Compliance: They are established legal entities that ensure you meet every regulation. Also, they stick to local labor laws like glue.
• Simplified Processes: Employee onboarding and payroll are handled like a Swiss army knife, versatile yet compact.
• Enhanced Control: Direct operations mean prompt and customized issue resolution with extra attention to detail.
• Competitive Pricing: Local providers justify every buck you pay and maximize the ROI of building an international remote team.
• IP Protection: Your intellectual property is automatically shielded with no extra or hefty contracts needed.

If that’s not enough, let me quote Henry Ford: “Quality means doing it right when no one is looking.” And Direct employer of records do just that.

How to Choose the Right EOR Model for Your Business? 

Selecting an EOR business model is like finding the perfect pair of jeans, it has to fit just right. Here’s how to decide:

Factors to Consider

1. Cost Analysis: Are you ready for layered pricing, or do you prefer the transparency of direct costs? Also, ask for structured and clear cost quotations from each of the EOR models to avoid any future surprises.
2. Service Quality: Consistency is king. Look for EOR models who are capable of offering high-standard service in your target location consistently. Don’t settle for less.
3. Compliance and Legal Control: Ensure the employer of record has your back when it comes to labor laws and other legal compliances. Even before that, check whether they themselves are well aware of the local regulatory standards.
4. Expansion Goals: Match the EOR model to your target market demand and scalability needs.
5. EOR Partner Footprint: The very first thing you have to decide upon is global or local. Whether you want the intricate experience of a local vendor or you want to broaden your horizon as much as possible with a globally operating employer of record. Choose wisely! Once you do that, check if the EOR provider has direct operations in the country you wish to expand. Ask for a reference to judge their expertise in that particular market.

 

How Do We Manage Teams at Remunance?

At Remunance, we understand that managing teams effectively requires more than just resources. It demands experience and a commitment to growth. As a Direct Employer of Record (EOR), we take on the critical task of managing non-core functions for our clients, allowing them to focus on scaling their business.

With our vast network, deep industry experience, and a tech-enabled approach, we ensure your operations run without any hiccups. Our 360° support services cover recruitment, onboarding, IT infrastructure, compliance management, and more. We not only provide essential back-office support but also help your teams thrive by ensuring they are integrated into the right cultural and regulatory environment.

What sets us apart is our quick response time, with prompt delivery in two working days or less. We ensure your international remote team is always on track. Our clients span 16 countries, and we pride ourselves on delivering timely payments and transparent information through our self-service portals. This allows our clients to easily manage and access critical data, making team management more efficient than ever.

At Remunance, we believe in ethical growth. While many opportunities may seem lucrative, we focus on those that align with our values and create meaningful opportunities for local talent. By partnering with us, you not only expand your business internationally but also contribute to the growth of the local workforce. We make certain that your team is aligned with both global standards and local values.

With years of experience and over 100 satisfied clients in our bag, we champion the direct EOR model. We don’t just meet expectations, we exceed them. Need proof? Our client satisfaction speaks volumes.

The Endnote

As we have come to the end of the blog, I hope I was able to help you with enough information through my blog about the different kinds of EOR models and how they work. Each EOR model has its merits, but Direct EOR models are the star players for a reason. Plainly because they offer the best mix of compliance, better control, and cost-effectiveness. One last advice, just align your employer of record choice with your business priorities, don’t hesitate to consult experts before deciding on an EOR business model, and you are good to go.