EOR vs. HR outsourcing: Key differences and applications

When it comes to international hiring, EOR (Employer of Record) is a much more convenient and beneficial option compared to HR outsourcing. The problem is that many people confuse EOR with HR outsourcing and PEO (Professional Employer Organization) because the former is a comparatively new concept that has gained massive popularity in recent years. 

In this guide, we will discuss key differences between EOR and HR services (OR vs. HR outsourcing), along with their best applications. EOR vs. HR outsourcing

Key Differences Between EOR and HR Outsourcing Services

 

	EOR	HR Outsourcing
Definition	Legal employer hiring and managing your international employees, and business compliance abroad	Manages HR functions, but not as a legal employer
Scope of services	Full HR services	Full or partial HR services
Legal employer	Yes	No
Legal entity required	No	Yes
Control	Less HR control but full operational control	Full control over HR decisions
Cost	Cost-effective	Expensive in the long run
Convenience	High	Low
Employment contract	Handled by the EOR	Handled by the client company
Employee termination	Handled by the EOR	Handled by the client company
Best use case	International hiring while ensuring efficiency and compliance	Streamlining HR functions  and reducing workload

 

Understanding EOR (Employer of Record) vs HR outsourcing model

The idea of HR outsourcing is simple—you delegate entire or specific HR responsibilities to an external third-party service provider. HR outsourcing services enable companies to focus on other business activities and growth. Because the HR partner can take care of routine administrative tasks like employee onboarding and payroll processing, as well as more strategic operations like compliance management.

EOR services, on the other hand, also involve delegating your HR responsibilities to a third-party company. Here comes the difference between an EOR provider and HR outsourcing—EOR agencies often operate in a foreign country where you want to hire international workers. Unlike the HR outsourcing model, EOR companies act as legal employers for your EOR employees abroad. 

Being the legal employer, EOR services take care of global talent acquisition while ensuring compliance with local employment and business laws. However, HR outsourcing partners don’t become legal employers to your EOR employees, though they may take care of compliance management.

Outsourcing HR vs EOR responsibilities

When it comes to outsourcing HR, the scope of services depends on your choice. Businesses may choose to delegate entire or specific HR tasks to their external partner. Typically, they provide services including employee onboarding and offboarding, employee benefits administration, performance management, compliance, payroll management, etc. 

On the other hand, an EOR assumes full employment services, from hiring and managing your global workforce to handling compliance responsibilities, contract management, employee benefits administration, and others, as a legal employer to your international employees.

Setting up a legal entity

EOR agencies act as legal employers on behalf of your company. So, you do not need to open a separate business entity in a foreign country where you want to operate. You can hire international employees and operate your business under the name and license of your EOR partner.

However, an HR outsourcing provider does not enjoy the legal employer status on your behalf. This means you have to open a business entity in the country of operation. 

This is the key advantage that makes EOR (Employer of Record)a popular choice among businesses looking for global expansion. EOR companies take out the pain involved in understanding and navigating the process and regulations around opening a legal entity overseas. This is a big point in terms of saving time, money, and hassles.

Hiring Internationally via EOR vs HR outsourcing

While both HR outsourcing and EOR services might know the local market, have access to the best talent, and can manage global employees hired, EOR stands out for legal responsibilities.

By drawing on their local presence and reputation, EOR services can hire top talent for your company. More importantly, they own the compliance with complex local employement laws and other regulatory requirements. 

Being a legal employer to your international workers, an EOR provides support with managing employee benefits, employement contracts, compliance with local labor laws, and more. HR outsourcing partners do not assume the legal employer status, leaving your business exposed to non-compliance risks.

Role of EOR in global expansion

Let us understand this with an example. Suppose you are planning global business expansion in the Middle East, let’s say, in Dubai. Although the UAE region offers a strong economy and tax advantages, it is also very strict with corporate laws. 

So, you need to get familiar with Dubai’s rules and regulations around foreign businesses. Even a minor non-compliance can lead to severe consequences like reputation damage, lawsuits, hefty fines, or even an operational ban. But understanding and navigating local laws in any foreign country is indeed a big challenge. 

This is where EOR agencies in Dubai step in.

Your global EOR partner can draw on its solid local presence and expertise with local employment laws, business rules, and cultural practices. With all this, EOR companies simplify and expedite faster entry to a global market.

Although you can also hire global HR outsourcing partners to streamline HR tasks, they may not be able to remove the legal and administrative barriers that EOR provides as a legal employer.

Cost of hiring EOR vs HR outsourcing

The cost of hiring an HR outsourcing service might seem a cheaper option, but you may end up paying surprising costs in the long run. In comparison, EOR is always a more cost-effective option than HR outsourcing.

First of all, you do not need to open a legal entity in a foreign country when hiring EOR services. However, using HR outsourcing services requires you to create a legal business entity in the country of operation. Of course, the process of setting up a business entity in a foreign country jurisdiction is tricky and requires financial investments. This is where EOR saves not only money but also time and hassles.

Beyond the initial setup, businesses also save costs associated with business registration and compliance, insurance costs, office space and infrastructure, business maintenance, and more.

In addition, EOR agencies offer multiple pricing models, including a monthly flat fee, a percentage of payroll, or custom pricing. You can choose whichever option fits you the best.

Applications of EOR vs HR outsourcing

EOR (Employer of Record) services are the most suitable option when your company wants to:

• Hire the best international employees
• Expand globally in a hassle-free and 100% compliance manner
• Test new markets before setting up a legal entity on a full scale
• Enter the market without opening a legal business entity

HR outsourcing services are useful in the following situations:

• Growing your internal HR operations without added burden
• Want to reduce the costs of your HR functions
• Improve the overall efficiency of your HR activities
• Want to have fully equipped and knowledgeable professionals to handle your HR functions

Most people also confuse EOR with EOR services. But like HR outsourcing, PEO is also different from EOR. Let us understand how:

EOR vs PEO (Professional Employer Organization)

While EOR acts as a legal employer, a PEO works as a co-employer for your business. Your EOR partner offers complete support for payroll, taxes, and compliance management. On the other hand, your PEO partner will share responsibilities with your company, serving as a strategic partner in global workforce management.

But again, PEO requires you to set up a legal business entity like HR outsourcing. You first need to register your business in the foreign jurisdiction to be able to hire global employees in that particular country.

In addition, PEOs handle compliance responsibilities on your behalf. But being a co-employer, you are equally legally responsible for everything.

Choosing your option: EOR vs. HR outsourcing

By now, you should be able to decide which of the two options—an EOR partner or an HR outsourcing service—is suitable for you. But if you are looking for a smooth and efficient entry to a global market for business expansion, we suggest employing EOR services.

This is where we help. Based in the UAE, Connect Resources has been helping businesses enter, expand, and thrive in the Emirates. Plus, our solutions like PEO services, HR consultancy, and payroll outsourcing give you everything required to thrive in the ever-evolving and fastest-growing landscape of the Middle East.