EOR vs. IC: What’s the Difference?

Learn whether to choose Employer of Record or Independent Contractor arrangements

When hiring overseas talent in the Philippines, businesses can choose between Employer of Record (EOR) or Independent Contractor (IC) arrangements. Before you proceed with hiring overseas, it is imperative to gain a clear understanding between EOR and IC setups. This understanding will allow you to make informed decisions and ensure compliance with local regulations.

The right business structure helps you maintain compliance with international laws

By exploring the distinctions between EOR and IC options, you can choose the most suitable approach for your business needs, reduce legal risks, and enhance global workforce management efficiency.

Hiring remote workers brings unique challenges in employment compliance, especially when considering overseas talent. Aside from the garden variety of tax forms and employment contracts, employers will work with either an Employer of Record (EOR) or Independent Contractor (IC).

Each of these options take a different path to hiring success—let’s compare.

Understanding Employer of Record (EOR)

An Employer of Record (EOR) is an entity that allows companies to outsource their employer responsibilities, such as hiring, to a third party.

The EOR bears the responsibility of maintaining compliance and regulations so the employer can focus on their core business.

By using an EOR, businesses can:

  • Quickly hire overseas talent without navigating complex legal requirements
  • Reduce time-to-hire and related expenses
  • Mitigate risks associated with international hiring
  • Simplify payroll and tax processes
  • Comply with local labor laws and regulations

Essentially, EORs give you turnkey expertise in international hiring. Businesses can accelerate growth while maintaining compliance and reducing administrative costs.

Exploring Independent Contractors (IC)

The other option for onboarding international talent is to hire them on a contract basis. An independent contractor is someone who works for themselves. They provide services to clients or companies on a contract basis.

Characteristics of an IC arrangement include:

  • The IC negotiating their own contracts
  • Working their own hours
  • Providing their own equipment
  • Managing their own taxes

There’s a great deal of flexibility and cost-effectiveness in hiring ICs. However, potential challenges with legal compliance and labor laws could leave your company vulnerable.

Keep in mind there’s less accountability when working with contractors since technically they’re not employees. It can also be more challenging to integrate contractors with your company culture since contractors typically work with multiple businesses at a time.

Key Differences Between EOR and IC

EOR and IC offer businesses an “in” to global hiring, but choosing one or the other isn’t a decision to take lightly. Here’s a quick comparison between the two.

Employment relationship

EORs have a formal relationship with employees, meaning overseas talent is a bona fide employee. ICs are independent and typically work with multiple businesses on a per-project basis

Legal and Compliance Responsibilities

EORs assume legal and compliance responsibilities as the employer of record. They handle entity setup costs in overseas countries and assume the risks you’d face if you were to hire ICs.

When hiring ICs, you assume responsibility for legal compliance. Different countries have varying labor laws, tax regulations, and employment standards that can create a minefield of potential legal issues, including but not limited to:

  • Worker’s comp
  • Benefits eligibility
  • Overtime and hours worked
  • Misclassification of employment
  • Non-compliance with tax obligations
  • A lack of proper contracts

A single misstep could open the door to costly fines, lost productivity, and a damaged company reputation, all of which can negate any savings you incur by hiring overseas talent

Tax and Payroll Implications

EORs handle payroll and taxes for employees. Essentially, they’re employees of the EOR, which relieves you of these duties.

ICs are responsible for managing their own taxes and payments. However, similar to sending 1099s to domestic contractors, you’ll need to understand how to report the IC’s wages to their local tax authority.

Which Option is Right for Your Business?

When it comes to choosing how to hire globally, there is no single best answer for businesses. When choosing between EOR and IC, keep the following in mind to make an informed decision:

  • Nature of the work: Consider how company culture and team integration will impact the work performed.
  • Long-term vs short-term: Long-term work is better suited for EORs, while one-off projects may benefit from ICs.
  • Compliance: Explore your comfort level in navigating complex foreign employment laws.
  • Cost-effectiveness: Think about short-term gains and long-term goals; EORs are more cost-effective when you need to hire multiple employees or long-term talent.
  • Level of commitment: If your position necessitates full-time work, an EOR might make the most sense. For projects that might only require a few hours a week, ICs might work better because they typically work with multiple companies at once.

It’s not a matter of right or wrong, as both are viable options. However, you may find that one makes more financial and operational sense based on your business needs.

Working with the Experts at Halo Recruiting

Both EOR and IC offer a path to global hiring. EOR is less hands-on for businesses, allowing them to skip right to interviewing, hiring, and onboarding, while IC requires more knowledge, legwork, and risk. However, ICs can be more cost-effective when you have one-off projects or otherwise don’t need a long-term employee.

If you’re thinking of outsourcing to overseas workers in the Philippines, we encourage you to consult with experts like Halo Recruiting for personalized advice and support. We specialize in hiring global talent, including bringing them into your company culture and setting them up for Day 1 success. Learn more about the benefits of an EOR and how to start hiring smartly.

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