The Risks of Taking a Non-Professional Direct EoR Relationship
Alex Margolin| Dec 08, 2022
The risks in working with a direct EoR include:
- In disputes, they will ultimately look out for themselves
- May enforce strict termination policies to avoid legal disputes
- Rush employee set-up
- Take more than they can handle
- And more…
Read on to learn what are the main benefits of working with a professional payroll platform
By 2028, The global Employer of Record (EoR) Services market size is projected to reach $6.6 billion, marking its territory as an essential employment model for businesses looking to expand compliantly and seamlessly into new regions.
However, like with any fast-moving area of business, there will always be people who attempt to take advantage. Increasingly, we’re hearing stories of non-professional direct EoR solutions that are taking clients for a ride, at the clients’ expense.
A direct EoR solution is a company that has registered or incorporated their own entity in the region, who will become the Employer of Record for your hires in that country. This is in contrast to an indirect provider who forms relationships with subcontracted EoRs on your behalf.
Here are some of the risks of working directly with local EoR partners, which will help you avoid these worrying trends in the market.
Non-Professional Direct EoR Providers Who Look out For Themselves
Look too closely at the role of HR and hiring managers over the past few years and you could come away with whiplash. First they had to handle the remote working realities of the pandemic, followed by the hiring onslaught caused by The Great Resignation. Today, with hiring freezes running through many companies in fear of an oncoming recession, things have changed once again, and unfortunately – layoffs have become the name of the game in many organizations.
Many companies who turned to direct EoR providers to help with onboarding new hires or setting up entities more quickly during the period of growth have now come unstuck. We’ve had many clients tell us that they’ve been forced to pay massive termination fees and settlement packages to employees, far beyond what is fair for the employment period or situation.
Ultimately, the direct EoR is looking out for their own best interests, attempting to avoid even the chance of legal disputes by forcing extreme termination packages of 6+ months per employee onto the client.
We’ve also seen non-professional direct EoR providers rush the set up of employee onboarding, leaving companies open to risk. If businesses don’t hold the required employment licenses in the country in question, they could be held liable for non-compliance penalties and fines. It stands to reason that you want to trust the EoR you’re working with, but in many cases, they will say anything to get you signed up, including skipping steps when a process takes time, like it does in many countries such as Israel, Austria, or Italy.
How a Professional EoR Solution will Support the Needs of the Client
As a payroll platform working with professional EoRs, at Papaya, we always use our centralized legal team in-house to ensure we mitigate these kinds of risks and costs for the client ahead of time. Our job is to support the interests of the client, and we use local EoR providers as a means to achieve the client’s goals – not the other way around.
With this approach, our clients still get the speed and ease of setting up a new presence abroad through local partners, but have our guarantees and protection as the foundation of this relationship. As we’re working for you, we’re not looking to force you into a set of our own norms or collective agreements. We won’t tell you what pension and medical benefits you’re allowed to offer for example. Instead, we will work with you to understand how you want to approach each element of employment in-region, even if that means offering a more competitive package than the mandatory requirement.
Non Professional Direct EoR Providers Who Bite Off More Than They Can Chew
When companies work directly with a non-professional direct EoR provider, the truth is that you’re taking on a less experienced partner than when you work with a payroll platform working with professional EoRs.. The teams who work internally for a local EoR are unlikely to have the background to support you with niche employment issues such as equity, tax or compliance for example. Sometimes they don’t even work in the same country as your employees, and don’t even have the local expertise on benefits and cultural expectations!
A non-professional direct EoR who doesn’t operate locally, and instead uses a representative office can create challenges for the employees, and for your business, too. For example, your employees may legally need to directly report their taxes as their employer is not actually a local employer in their region. In addition, the business may not be entitled to certain benefits, as they only have a representative office in-region, they haven’t actually got an official local presence.
That’s why we haven’t been surprised to hear from clients that they have experienced mistakes and miscalculations from their direct EoR provider. To make things worse, sometimes the EoR will approach employees directly, demanding reimbursement for thousands of dollars which have been incorrectly paid to them due to miscalculations in payroll or benefits. In this situation, a company can’t do anything to help their employee, as the local EoR is, on paper and in the eyes of the law, their direct employer.
If and when employees have a legal dispute to deal with, they don’t actually have a local EoR representative to speak with face to face who understands their culture and expectations, as the EoR was never operating locally to begin with.
How a Professional EoR Solution Handles Compliance and Communication
At Papaya, we take full liability for any errors or miscalculations from day one. Of course, we’ve developed our unique compliance engine, and we believe in our technology which provides layers of checks and balances to ensure there are no mistakes. But if an error was to occur, we are a professional EoR solution that would never charge the employee with any problem that had happened out of their control.
This allows our clients to have full confidence in the service that we provide, and is another example of how our focus is on the best interests of our customers and their end-users, not on our own bottom line.
Welcoming in the Go-between
There are situations where a middle-person adds complexity and delay, and where going direct will save you time and resources, but this isn’t one of them. When you work with Papaya, a payroll platform that works directly with professional EoRs, you’re gaining the benefit of our global experience and knowledge, and the peace of mind that we hold the liability.
On top of that, you get our cutting-edge technology, our industry-leading Business Intelligence platform, and our global network of trusted and vetted EoR partners who are ready to hit the ground running to help you grow your business.
Want to see how it works for yourself? Schedule a demo of the Papaya Global platform.