There are several options for international and U.S. companies that want to hire employees in Canada. However, one of the best (and easiest) ways to expand internationally is with the help of an employer of record. But what is an employer of record (EOR), and how does it work?
In this article, our Canadian employment, immigration, and compliance experts will answer the question, “What is an employer of record?” Our specialists will also explain how an EOR works and discuss alternatives to EOR services. Plus, we’ll share our advice on how to choose the best EOR in Canada.
Ready to discover what is an EOR so you can determine if employer of record services are right for your business? Let’s get into it!
What is an employer of record?
EOR MEANING: An employer of record (or EOR) is a third-party company that helps other organizations hire employees in foreign countries. An EOR is legally responsible for the employees it hires on behalf of an organization and manages employer-related tasks and responsibilities.
EOR EXAMPLE: Suppose a small U.S.-based tech company wants to hire employees in Canada. However, the company does not own a legal entity in the country. In this case, working with a Canadian EOR is the best option. With the help of an employer of record, the company can legally hire top talent. And, rather than being burdened with the legal requirements and administrative tasks associated with hiring directly, it can focus on business operations and expansion.
RELATED TERMS: The following terms can be used interchangeably with employer of record.
- GEO (Global Employment Organization)
- International PEO (Professional Employer Organization)
- GPEO (Global PEO)
Now, let’s examine the key responsibilities of an employer of record vs the client company.
What is an employer of record responsible for?
While EOR services vary, most employer of record companies handle the following employment-related management duties.
- Regulatory compliance
- Assistance with immigration requirements (including work permits in Canada)
- Locally compliant employment agreements
- Onboarding
- Talent retention
- Contract terminations
- Payroll and payroll deductions (e.g., employment insurance, CPP deductions, etc.)
- Taxes
- Employee benefits
- Worker’s compensation claims
- Continued support with local regulations and labor laws
What is the client business responsible for?
While the EOR is the legal employer, the client business has complete managerial control and manages day-to-day operations. For example, the client business makes decisions about:
- The nature of each role
- Compensation
- Projects and assignments
- Timelines
- Employee performance and development
- Terminations, etc.
After learning what is an employer of record, you might be wondering - how, exactly, does an EOR work? Let’s take a look.
How does an EOR work?
An employer of record owns legal entities within a country. Hence, an EOR works by hiring employees on a client company’s behalf through its legal entities. This allows the client company to legally hire employees in a foreign country without setting up an entity of its own.
For example, Thirdsail owns legal entities in Canada through which U.S. and other international companies can hire employees. Thirdsail hires the employees and acts as their legal employer in Canada. However, the employees work for the global company as regular team members.
What is the alternative to EOR services?
Partnering with an employer of record in Canada is not the only way for U.S. and other international businesses to hire employees abroad. There are several alternatives to employer of record services, including:
- Hiring an employee as an independent contractor
- Setting up a subsidiary in the country you wish to hire employees
- Working with a staffing agency
In addition to “What is EOR?” you’d probably like to know what these EOR alternatives offer. Let’s examine the pros and cons.
What is an Employer of Record Service Substitute? EORs vs EOR Alternatives
The table below examines the key similarities and differences between an EOR and other international hiring options.
What’s the difference between an EOR and a staffing agency?
There are a few important differences between an employer of record and a staffing agency. Some of the most significant distinctions include:
- Staffing agencies help businesses find and hire employees, while many EOR companies do not participate in recruitment or vetting.
- An employer of record can help businesses hire employees in countries where they don’t own a legal entity, but staffing agencies cannot.
- Staffing agencies do not help with employee management or assume legal responsibility for employees. On the other hand, an EOR is the legal employer of the employees it hires and assumes full liability for those employees.
Thus far, in our discussion about what is an employer of record, we haven’t examined PEOs (Professional Employer Organizations). Many U.S. companies are familiar with PEOs, but how do they differ from an EOR? Here’s a brief look.
What is the difference between a PEO and an EOR?
The primary difference between a PEO and an EOR is that a PEO acts as a co-employer while an EOR assumes full and sole legal responsibility for the employees it hires on a company’s behalf. This means that, when working with a PEO, your business and the PEO share employment and employment liability.
Why use an employer of record?
Many businesses use employer of record services because EORs offer several advantages over other international hiring alternatives.
For instance, hiring employees internationally with the help of an EOR is fast and easy, ensures compliance with local labor laws, and is cheaper than establishing a subsidiary. In addition, partnering with an EOR allows a company to offer full employment benefits and protections, ensuring they can attract the most qualified candidates.
Hiring an employer of record is useful for:
- Expanding into a new foreign market.
- Minimizing the risks of hiring internationally.
- Maintaining ongoing compliance with evolving labor laws.
- Eliminating employee management burdens (e.g., payroll, taxes, employee benefits, worker’s compensation, etc.).
- Receiving ongoing advice and administrative support.
Overall, using employer of record services is beneficial because it allows you to focus on more impactful endeavors while international hiring experts manage your foreign workforce.
Now that you’re familiar with what is an employer of record and the services an EOR offers, you’re likely wondering - is an EOR right for me? Here’s what you need to know to decide.
Should I use an employer of record in Canada?
We’ll be the first to tell you that employer of record services aren’t suitable for every organization. That said, consider using an EOR if you:
- Want to hire employees internationally but don’t own a legal entity in the country you want to hire in.
- Wish to hire and retain top talent.
- Intend to hire less than 10-20 employees in a single country, and
- Want to provide the best working environment for your international employees.
Think an EOR is right for your business? If so, the next step in your international hiring journey is to choose an employer of record company.
How do I choose an EOR?
Numerous employer of record companies exist in Canada, making it difficult to choose an EOR. To help simplify your decision, here are some tips for selecting the best EOR in Canada.
- Look for an EOR with extensive experience in the market(s) you want to expand into. This will ensure the company has in-depth knowledge of local employment regulations and laws and can guarantee compliance.
- Contact the EOR for a demo. This will help you better understand their services and allow you to evaluate the company’s responsiveness and communication style. Use this information to determine whether the employer of record meets your needs and expectations.
- Look for an EOR with a client list that includes reputable businesses or companies similar to yours.
- Find an employer of record that provides software solutions (preferably that integrate with your existing tools). This will ensure efficient and streamlined processes and communication.
- Ensure the employer of record has robust data security measures in place and can guarantee the safety of your sensitive information.
- Examine the EOR’s online reviews to see what others say about working with them.
- Examine the company’s pricing and fees. Keep in mind that choosing the lowest-cost EOR isn’t always the best idea—look for a mix of experience and value. Most importantly, the company should have transparent pricing so you know what you’re getting and how much you’ll pay.
Questions to Ask When Choosing an EOR
Before you choose an EOR, you’ll want to know more about their team, services, and processes. Asking a potential EOR company the following questions will help you determine which employer of record in Canada is best for your business.
• In which countries do you operate?
Ensure the EOR owns a legal entity in the country (or countries) you wish to hire in.
• What is the experience level of your team members?
It’s crucial to ensure that the EOR you choose has an experienced team of employment, immigration, and compliance experts with location-specific knowledge.
• Are you an indirect or direct EOR?
You’re familiar with what is an employer of record but did you know that several types of EOR services exist? This includes direct and indirect EORs.
An indirect employer of record does not own the legal entity they use to hire your employees. Instead, they partner with a third-party organization (that owns the entities) to offer legal employment. In contrast, a direct EOR, like Thirdsail, owns the legal entities through which it employs top talent.
In most cases, U.S. and other international businesses that want to hire employees in Canada prefer to work with a direct EOR. That’s because a direct employer of record can provide immediate, local assistance when needed. On the other hand, working with an indirect EOR means adding another layer to the relationship. Often, this can make communication and processes more challenging and time-consuming.
• What employee benefit packages do you offer?
Before hiring an EOR, you’ll want to know what benefits they provide so you can determine if these benefits will meet the needs of your employees. For example, does the EOR offer employee health benefits and insurance, retirement plans, Canadian parental leave, paid time off, etc.?
Also, be sure to ask whether the EOR’s benefit packages are customizable!
• Do you offer learning resources?
The best EORs in Canada, including Thirdsail, offer learning resources to help you better understand employment laws, regulations, compliance requirements, and effective methods for hiring and managing international employees.
Start by checking the company’s website to see what resources it offers and whether these resources are easily accessible.
• What support do you offer employees, and who is responsible for what?
It is essential to clarify the details of a potential EOR’s services before hiring them. You’ll want to know what support they’ll offer your employees, which employer responsibilities they’ll manage, and what is required of your business. For example, does the employer of record provide local, in-house support for your employees? If an employee is ill, who do they call—your business or the EOR? Clarifying these details is important so you can ensure you receive the services and support you require.
• Do you have success stories or case studies you can share?
You want to make sure you choose an employer of record with a history of success, preferably with businesses similar to yours. Examining success stories and case studies can help determine their relevant experience.
The most common question we hear, besides “What is an employer of record service?” is - “How much does an EOR cost?” Here’s what you need to know.
How much does an employer of record cost?
The cost of an employer of record in Canada varies depending on several factors, including provider, location, and required services. That said, EOR pricing typically ranges from under $400 per month per employee (i.e., less than $4,800 per year per employee) to $800+ per month per employee (i.e., approximately $9,600+ per year per employee).
The pricing structure can also vary. However, most EORs in Canada charge on a per-employee basis - either a flat-rate fee or based on a percentage of payroll.
EORs like Thirdsail are very competitively priced, offering high-value services at a reasonable cost in order to help businesses grow. Thirdsail’s pricing starts at $350 per employee per month.
What is the best employer of record in Canada?
Some of the best employer of record companies in Canada include:
- Thirdsail
- Canadian Payroll Services
- Deel
What makes Thirdsail one of the top employer of record companies in Canada?
Thirdsail provides customization and practical advice at a cost-effective price (especially compared to other EORs). Most importantly, the Thirdsail team is highly experienced and has expertise in Canadian employment, immigration, and compliance.
Hire Top Talent in Canada with the Help of Thirdsail
Are you looking to hire talented employees in Canada without setting up a legal entity? Thirdsail can help!
Our reliable and cost-effective EOR services will allow you to hire employees in Canada quickly, easily, and legally. As the legal employer of your Canadian workforce, Thirdsail will take on all legal responsibilities. Plus, we’ll manage the monotonous employment-related administrative tasks while you maintain complete managerial control and manage day-to-day operations.
