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Have you found the perfect lead programmer to help develop your new app only they live in Brazil? What about that entire team of brilliant Belgian marketers that can definitely help you explode onto the European market? You may even be looking for a Chinese sales professional who can help you test out the Chinese market before you jump in head-first. If you don’t already own entities in these countries, you still have an option. An Employer of Record (EOR) can legally hire employees on your behalf and manage their HR needs for you. EORs typically take care of hiring, onboarding, payroll, benefits administration, paid time off (PTO) management, and offboarding for their clients. Many also offer recruitment services.
Businesses can opt for an aggregator EOR or a wholly-owned EOR. This article explores the differences between the two models and helps companies determine which is the better fit for their global expansion needs.
What is an Aggregator EOR?
An aggregator EOR is an EOR service provider that doesn’t have any of its own entities in the countries in which it works around the world. Instead, it collects or aggregates partners, choosing third-party providers in the countries where it wants to offer EOR services.
What this means for clients is that their employees are legally employed by these third-party providers in the different countries where they work and not directly by the EOR aggregator itself. Instead of registering entities, the aggregator needs to seek out an appropriate service provider in each country. This provider should ideally have a background in payroll and HR management as well as experience working with foreign companies. It should also have staff with strong communication skills in English or any other service language offered by the EOR. As a local company, it must also have the legal right to employ workers for a third party and must have expertise in local labor law to ensure this is done compliantly.
Example of an Aggregator EOR
Papaya Global – owns no foreign entities but works with partners to provide employee hiring in over 160 countries worldwide
What is a Wholly-Owned EOR?
In contrast with an aggregator, a wholly-owned EOR (also called a Direct EOR) is one that only works with entities it owns in different countries around the world. Rather than depending on third-party companies in all of these different countries, these providers go through the challenging process of registering their own companies. This can obviously require a lot of time, effort, and resources, so you’ll often find that wholly-owned EORs support employee hiring in fewer countries than aggregator EORs do. Some choose to limit their services to several countries that they think will be most likely to be used by their clients. Others simply add countries one at a time as their resources allow them to register new entities, extending their global reach yearly.
All of the entities under a wholly-owned EOR’s umbrella are its own subsidiaries. These are companies that have been legally registered in countries around the world and are staffed by local HR and legal experts. These local staff are themselves direct employees of the EOR. They provide hiring and employee management services, speak local languages and stay informed of changes to labor and tax laws to ensure constant compliance.
Examples of Wholly-Owned EORs
Remote – owns entities in 93 countries where it provides EOR services
Atlas HXM – owns entities and provides EOR services through them in over 160 countries
What is a Hybrid EOR?
From the name of this kind of provider, you can see that a hybrid EOR is an EOR that owns some of its own entities, However, it also makes use of third-party partners in some of the countries where it works. Thus, you end with a mix of both the wholly-owned and aggregator styles.
Why would a service provider choose to use the hybrid EOR model? There could be a few different reasons for this choice, including:
- The EOR is transitioning from an aggregator to a wholly-owned model and has not yet set up entities in all the countries it wishes to service.
- The EOR has been unable to find appropriate partners in some countries or has had bad experiences, so it has decided to set up entities in a few problematic locations.
- The EOR hasn’t been able to set up entities in some countries and therefore needs to work with partners to provide services there.
- A client has requested hiring services in a country the EOR doesn’t typically work in, so it has found a partner there to accommodate the client.
A provider may have one or many of these reasons for working under a hybrid model, these types of EORs. This also means that it has to deal with the advantages and disadvantages of both the aggregator and wholly-owned models at once.
Examples of Hybrid EORs
Deel – owns over 120 entities worldwide but offers EOR services in more than 150 countries
Horizons – owns over 100 entities and provides EOR services in more than 180 countries
Globalization Partners (G-P) – owns entities in 80 countries and provides EOR services in more than 180
Aggregator vs Wholly-Owned EOR: Key Differences
The basic definitions of aggregator and wholly-owned EORs are clear. However, it’s important to drill down to the details to uncover the key differences between these types of service providers. A more thorough understanding of the implications of these models will help you make the most informed choice of an EOR to partner with.
Ownership and Control
Wholly-owned EORs own and, therefore, completely control their entities in different countries. The EOR can maintain rigorous service standards across different countries to ensure that functions are performed to a high standard and that clients and their employees receive appropriate support when they need it.
Aggregator EORs choose their local partners for their expertise and ability to provide adequate services. If they don’t, they can be warned and encouraged to improve but ultimately may have to be replaced. These conditions can create situations of poor communication and issues with clients being passed back and forth between the EOR and the third-party provider. If a replacement happens, service disruptions are also bound to occur.
Scalability and Flexibility
Aggregator EORs can offer more flexibility in some regards. If their partners aren’t performing well or don’t mesh well with certain clients, the EOR can contract different partners to replace them. If they run into unexpected capacity limits with one partner, they can also add another to scale up, though this could lead to differences in quality of service. Aggregators can also offer more flexibility in international coverage by finding new partners in any territory that a client requests.
Wholly-owned EORs can scale up their businesses as needed by simply hiring more staff to work in countries where their services are more popular. They can also seek out more flexibility for employee benefits, while aggregators are usually limited to what their partner’s providers can offer.
Compliance
Both types of EORs are tasked with maintaining compliance with all local labor and tax laws in the countries where they work. Both Aggregator’s local partners and wholly-owned EOR’s local entities are staffed by locals who can keep up with changing labor laws and ensure compliance with them.
However, if EOR standards in the country change, third-party partners may suddenly find themselves unable to offer their services. Owned entities, on the other hand, can more easily adapt to legal changes since their entire purpose is to provide this service.
Cost
Working with third-party providers may drive service costs up. These partners are interested in making a profit, and so is the aggregator EOR, so clients can often end up paying higher prices to fund both companies.
Wholly-owned EORs don’t need to seek profit at two different points and can normally charge lower prices for their services. At the same time, they have to recoup what they had to spend to set up their entities, so the cost savings may or may not be substantial.
Safety and Security
As they offer single points of contact, wholly-owned EORs provide less security risk for sensitive employee data. This makes it easier for them to comply with data protection rules such as the EU’s GDPR.
Aggregator EORs need to rely on the security protections of their partners, and since data has to flow between three parties instead of two, this creates greater risk. Intellectual property transfer is also smoother using wholly-owned EORs since IP is kept within one organization.
Pros and Cons of Aggregator EORs
- Pros
Local expertise through partnerships
The partners chosen are usually local companies selected for their experience in handling HR and legal compliance in each country.
Greater global reach
Since an aggregator only has to find an appropriate partner in each country or territory where it works, there’s no real limit to the number of countries they can offer services in.
- Cons
Potential challenges in service consistency
Since aggregators use many different partners, sometimes even within the same country, it’s very difficult for them to ensure an even level of service quality.
Greater security risks
Sensitive information has to be shared between three parties instead of two and this creates a higher risk of data leakage, theft, or corruption.
Pros and Cons of Wholly-Owned EORs
- Pros
Centralized control over processes
With everything owned and operated by the same provider, it’s easy to maintain consistency and provide the same services and features in all countries. Clients also have direct access to their service providers instead of having to work through multiple touchpoints.
Uniformity in support delivery
When clients or their employees need support, the EOR sets the standards and doesn’t rely on the different standards, hours, or language skills of various partners.
Cost-effectiveness
While partners looking for profits can push up EOR prices, wholly-owned EORs can often provide more affordable services.
- Cons
Less international coverage
Wholly-owned EORs usually have fewer entities and, therefore, limit the number of countries in which they work.
When to Choose an Aggregator vs. Wholly-Owned EOR
When choosing a service provider, consider factors like your company’s size, the locations where you want to hire employees, and your budget.
An aggregator EOR can be a good choice for smaller companies looking to hire employees in lesser-known countries. Aggregators can often provide services in new countries or territories when clients request them, getting boots on the ground quickly.
A wholly-owned EOR is a better choice for companies that may need to scale at any time and need service providers to accommodate them. With more consistent service and often lower prices, they’re good options for companies that want to hire and manage employees in many different countries at once.
Aggregator EOR vs. Wholly-Owned EOR: Which EOR Model Is Right for You?
Aggregator EORs don’t own entities but, instead, work with partners to provide employment services in different countries. They typically offer more countries to choose from and may even add new countries if clients request them.
Wholly-owned EORs rely on their own networks of entities to provide these services with a stronger focus on maintaining a standard of service and providing their functions consistently across all countries.
There’s a place for both of these types of service providers, and choosing between them depends heavily on your goals for partnership with an EOR.