Outsourcing or Employer of Record: 8 Key Differences

When you want to hire an international employee finding an HR services provider can be daunting. From traditional HR outsourcing companies to full-service Employer of Record (EOR) organizations, there’s no shortage of options.  

In this article, we’re taking a closer look at outsourcing and EOR organizations, including what they are and how they compare. We’re diving into the eight key differences between the two, so you can determine which is best for your company’s global hiring needs. 

What is HR outsourcing?

HR outsourcing is when you hire an external company to perform services you would generally perform in-house. The outsourcing HR company does tasks that an internal employee would, such as completing paperwork and onboarding employees. They can also provide more strategic services, such as HR compliance or tax consulting.

In other words, outsourcing is a way to work with international employees indirectly. You hire an outsourcing firm, and they handle the employees. 

What is an EOR?

EOR stands for Employer of Record. EORs make it easy for you to hire, manage and employ global employees legally. EORs have legal entities and infrastructures set up in countries worldwide, allowing them to hire international employees from those locations compliantly. 

EORs serve as employees’ legal employer, handling the HR, payroll, taxes and liabilities, enabling you to work with those employees without setting up a legal entity or worrying about HR. Essentially, EORs allow you to work with workers in other countries while shifting all the HR responsibilities to the EOR.  

8 key differences between outsourcing HR services and using an EOR

Let’s take a closer look at the primary differences between these two HR service providers. 

1. Control

Do you want to choose who works for you? And be able to supervise or collaborate with them directly? Then, an EOR is the way to go.

An EOR handles the backend of employment while leaving you firmly in charge of the day-to-day life of your employees. So, you always know what’s going on. Your global employees hired via EOR should feel no different from your traditionally hired employees. The only thing that’s different is that the EOR handles your HR, taxes, payroll and compliance. 

A conventional human resource outsourcing business works by placing itself between you and the workers. It directs, manages and supervises them for you with zero involvement from you. This might seem like a good thing. Unfortunately, however, these companies often overpromise and underdeliver. They might employ subpar workers or provide a poor working environment. In any case, you have no influence or control over the employees or their working conditions. 

Other times, the outsourcing business outcomes are disappointing because you haven’t gotten to connect with the team members, train them, clear up misconceptions or set expectations. This hands-off approach often leaves you in the dark about what’s happening. And in this day and age, that leaves you with a lot of risks.

2. Accessibility

An EOR operates with a sleek business model and legal structure that enables it to facilitate global HR services while eliminating barriers between you and your employees.

EORs don’t block you from accessing, communicating or teaming up with workers. You can collaborate with an EOR employee as seamlessly as you can with any other in-person or remote team member.

Managed HR firms are all about maintaining their secrecy and protecting the talent they’ve acquired. As a result, outsourcing to these businesses keeps you separated from the employees doing the work.

3. Cost

There’s a common misconception that outsourcing is the cheapest way to source outside labor or services. However, that’s not entirely accurate. 

Your average cost per employee is far lower with an EOR than with outsourced HR services. In fact, hiring employees abroad with an EOR costs around $297 per employee versus $1,600+ with managed HR firms. This is mainly due to excessive overhead and inefficient management styles at many HR outsourcing firms.

4. Transparency

Outsourcing HR firms view their internal consultants, international human capital, global knowledge value chain, employee practices, outsourcing labor models and other dealings as intellectual capital. As a result, they keep these matters guarded and behind closed doors. 

Things are different for EORs. An EOR’s structure, platform and technology are its IP and competitive differentiator. Consequently, what happens with people remains transparent. And that makes a world of difference.

5. Complexity

EORs offer end-to-end HR management – handling processes, doing paperwork, and even assuming your legal, compliance, and tax burdens. Everything related to HR compliance happens effortlessly, without requiring work from your end.

Outsourcing involves a mishmash of legal, compliance and cultural recruitment, hiring, onboarding, and management processes. There’s far more regulatory and tax complexity to deal with, along with plenty of ongoing paperwork.

6. Primary purpose

EORs and outsourcing HR firms tend to attract people for different reasons. HR services companies attract people looking for cheap labor and bottom dollar rates. 

EORs attract people looking for more specialized and strategic employee recruitment, placement and HR services, such as finding the best talent, rapid placement and onboarding, recruiting for a specific role, combatting the skill shortage and leveraging cost arbitrage.

Ironically enough, those using EOR services tend to get more cost-effective services than a managed HR firm will provide.

7. Onboarding timeline

An EOR can get new employees onboarded within days. A managed HR company typically takes between 4 to 12 weeks. Why the stark difference?

An EOR works by legally onboarding your employees into its own organization. It already has this process down pat. Things are pretty much the same no matter which client they’re working with; onboarding for a new organization simply represents another chance to perfect an already optimized routine.

On the other hand, HR services companies have to figure out how to onboard every new employee into their client’s organization. That means dealing with new insurance companies, assessing compliance, analyzing the business’s legal structure for tax and regulatory issues, etc. That can take months.

8. Administration

EORs offer full administrative transparency, while outsourcing HR companies leave you in the dark. EORs leverage an international network of vetted local experts, providing efficient and transparent administration at all times.

Global outsourcing firms treat their administrative models like top-secret proprietary information. There’s no oversight, transparency or interference allowed on your end. As a result, there’s no way to tell what’s going on or who is handling things.

An outsourcing HR firm might operate with a highly centralized management and consulting team without sourcing local professional experts. Or it might have a massive, distributed team and bloated overhead, rely on inexperienced junior staffers or subcontract with other HR outsourcers. Of course, they could also be doing everything perfectly. However, there’s no way to examine what’s happening behind the scenes. 

Ready to hire and manage the best talent from around the globe?

Outsourcing to an HR services firm isn’t the only way to hire international employees and take care of your HR. Instead, you can go with an EOR and maintain transparency, control and connection with your global employees – without any HR or compliance headaches. 

That’s where we can help. As a Global Employer of Record and #WorkFromAnywhere technology company, our platform enables you to hire, pay and equip global employees in just a few clicks – no local entity required. Plus, our solutions, like Managed Devices, Employee Monitoring and VR Workplaces, give you and your global team everything they need to thrive. 

Get started with Outstaffer today.