International businesses face unique challenges when it’s time to hire talent, and there are international laws businesses must adhere to. Along with limiting legal risks, you also want to make sure that the people you hire are the right fit for your business.

Hiring talent overseas gives you a couple of options. You can choose to work with an employer of record (EOC) or go with an independent contractor (IC).

However, before you make a decision you need to understand the key distinctions between EOR and IC. These differences can help determine which is the best option for your business.

What is an Employer of Record (EOR)

Think of an employer of record as a third-party source of talent. An EOR is an organization that allows companies to outsource their responsibilities as an employer. In other words, you’re responsible for paying the talent‘s company for loaning out their talent but that’s about it.

The EOR takes care of all the legalities, and this means you don’t need to worry about regulations and other compliance requirements, the EOR is handling everything. In a nutshell, an EOR can be a turnkey solution to your international hiring needs.

What is an Independent Contractor (IC)

An independent contractor is someone who is self-employed. They are both the employer and the employee of record. An independent contractor can work hours they set and negotiate their contracts.

They’re also responsible for providing any necessary equipment and handling their taxes. You’re still responsible for paying an IC’s wages but pretty much everything else is taken care of by the IC.

Comparing EOR vs IC

At a glance, it can seem like there isn’t too much of a difference between EORs and ICs. The primary difference is an EOR shares employees with your business and an IC works for themselves.

While this is accurate, there are more key distinctions between the two types of talent. Even the type of relationship between you and the employee can vary. For example, you tend to have a more formal relationship with EORs since it’s an employee of record. Your business relationship with an IC is usually less formal simply because independent contractors typically work for more than one client at a time.

So, with an EOR you’re not sharing the employee, only borrowing while needed. An IC works for themselves and considers your business one of their clients. To highlight this, here are a few more differences between EORs and ICs.

Taxes and Payroll Handling

The EOR handles paying the employee’s wages and taxes. While the employee is performing duties for your company, they’re actually employed by the EOR.

ICs are also responsible for managing their payments. The IC sends you a bill and you pay the total amount, and the IC is also responsible for taking care of their taxes.

However, it’s up to you to figure out how to report the wages you pay an IC to the proper tax authority, which is exactly when it can get complicated. If the IC is U.S.-based, a 1099 Form should work just fine. If the IC is international, you may need to do some research to find the local tax office.

Compliance Standards and Other Legal Responsibilities

When you choose to work with an EOR, you’re assuming almost none of the risk. The EOR assumes all legal and compliance responsibilities. The EOR even handles any set-up costs, but don’t worry, you’ll see the amount reflected in your bill. However, knowing that someone knowledgeable is handling the legalities can take a huge weight off your shoulders.

Hiring an independent contractor means you’re assuming all responsibility for compliance standards, and this means familiarizing yourself with local labor laws, tax regulations, and employee legal rights. These can change by country so it can take some time to ensure you have an adequate understanding of local laws.

Some of the legalities you’re responsible for as an employer include:

• Ensuring the talent is covered by worker’s compensation insurance
• Determining eligibility for benefits
• Tracking hours worked and compensating for any overtime

You may also need to draw up a legally binding contract and this can take time. You may even need to bring on legal assistance and this is another expense your business may not be ready to handle.

Who Is The Best Fit For Your Business?

When deciding between an Employer of Record (EOR) and an Independent Contractor (IC), it largely depends on your business needs. Each option comes with its own set of advantages and drawbacks, so it’s essential to do your homework and consider how much risk you’re willing to take on.

Evaluate factors such as cost, control, and compliance requirements to make an informed decision that best suits your business objectives.