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Its true: both options will address employee payments.
However, they differ significantly in scope and the level of support they offer.
An EOR is a third-party organization that acts as the legal employer for your companys professionals.
Payroll service providers are much simpler in scope but also in reach.
What is an Employer of Record (EOR)?
This arrangement allows companies to hire internationally without establishing a legal entity in each country.
Does the EOR Also Handle Payroll?
EOR servicesmanage payroll processes inaccordance with local tax requirements, so its accurate to say it includes payroll services.
They also handle benefits administration, setting up packages that align with local expectations and statutory requirements.
Who Uses EOR services?
EOR services are practical for companies that need to hire workers in an international market.
An EOR for handling domestic employees is feasible but sounds too contrived to work out.
Potentially, an EOR can also handle international contractors, not just employees.
Still, if a company wants to work with international freelancers, they wont need an EOR.
Contractors can invoice the legal entity instead.
What is a Payroll Service?
A payroll servicefocuseson managing employee payments, including salary or invoice payouts, tax deductions, and contributions.
Instead, they offer support to companies with legal entities in place and need assistance processing payroll.
Still, payroll services dont specialize in offering HR support for the hiring process and benefits.
The company remains responsible for complying with local labor laws, providing benefits, and managing employee relationships.
Who Uses Payroll Services and How Necessary They Are?
Payroll services are suited for companies with hundreds of employees in different jurisdictions.
Specialized employees know that payroll is more than just filling out employee timesheets and inputting them into software.
Some taxes require a deposit slip with a check, while others require electronic ACH payments.
Keeping track of these details is easier with a payroll service or software.
Another use case of payroll services is to pay out international contractors who invoice for their compensation.
The invoice might be in many currencies, and the payroll service will handle that conversion.
This setup is particularly beneficial for companies hiring in foreign countries where they lack an official legal presence.
In contrast, with a payroll service, the company remains the legal employer or the invoiced entity.
An EOR complies with local labor laws, taxes, and employee benefits across multiple regions.
The EOR handles all the compliance-related aspects of employment, including termination policies.
A payroll service, on the other hand, is limited to handling payroll tax calculations and filings.
It doesnt extend to the legal side of labor compliance.
In fact, the EOR will include payroll services.
For international employees, it manages paying their salaries or tax deductions.
Global vs.
Domestic Use
EORs are particularly well-suited for businesses that want to expand globally and hire employees across multiple countries.
This method helps companies hire new workers straight away in virtually every market.
It also makes it possible to tap into new talent pools and markets quickly.
With an EOR, companies are safe in knowing that they are meeting local employment regulations and avoiding penalties.
For a public company that cant afford a public relations crisis, an EOR seems like a good fit.
When to Choose a Payroll Service
Below are the factors to consider when choosing a payroll service.
This is because the payments are handled domestically, which can take place because the professionals are not employees.
This is helpful for companies who want to have full control over their HR processes and legal obligations.
