Employer of Record

Authors: Ann Bugeja & Christine Borg Millo

An employer of record (“EOR”) is a common and valuable example of a co-employment arrangement in the evolving corporate world. In practice, it is where a third-party organisation hires employees for and on behalf of another business, company or organisation, whether located within the same country or else a different country governed by distinct employment legislation.

An EOR would take full responsibility of various activities and concerns of the client company (the “Client”) such as tax and compliance considerations, as well as employment matters. This allows the Client to focus on more imminent matters whilst ensuring that all local legislative and administrative tasks are adequately seen to by the EOR. Overall, it makes hiring across the border easier, since it eliminates geographical barriers, and makes it more efficient for the Client to quicken some of the workload. Although there are no defined laws that regulate the operation of an EOR, Malta supports the establishing and functioning of EORs in its dynamic corporate market.

By way of example, should a Maltese registered company wish to employ a worker from Italy, an Italian EOR may be requested to handle the employment process of the Italian employee. Therefore, although the Italian employee would be providing services to the Maltese company, he/she would essentially be working for the Italian employer ‘of record’.

A local EOR is responsible for recruiting employees in other countries where the physical entity of the client company is absent. This means that it acts as, and is legally considered to be, the ‘selected’ employer of the employee in question.

Similarly to an EOR, another instance of a co-employment arrangement would be the Professional Employer Organisation (PEO), which may be requested to act as a co-employer for the Client in various administrative tasks. However, a PEO can only be utilised when the Client has its offices established in the country where is it looking to hire an employee/s.

Hence, a Maltese PEO would be hired by another Maltese company to engage the service of an employee, whether foreign or local, wishing to work in Malta for the Maltese client company. Other factors are identical to the operations of the EOR.

Therefore, opting for a PEO to handle business matters and tasks for the client becomes the more reasonable option if an entity is already established in the country that the Client wants to employ in.

An EOR or PEO, as the case may be, functions as the external employer of the Client and acts as a co-employer since it takes on responsibilities that are normally taken up by the employers. Such responsibilities would normally include, but are not limited to:

1. Ensuring that all available benefits are provided to the employee;
2. Handling all administration and record-keeping of documents required to be kept at law by the employer;
3. Payroll and tax calculations, assessments and records;
4. Compliance with employment law rules and streamline HR operations;
5. Preparation and handling of the employee’s Health insurance;
6. Preparation and handling of the employee’s Pensions and other available schemes.

Engaging an EOR offers numerous advantages. It simplifies compliance, and administration, as EORs are well-versed in the legal requirements of the target market, and they assist in ongoing compliance monitoring. Additionally, the HR burden is alleviated, saving time and streamlining the hiring process, particularly in facilitating remote employment. By outsourcing to an EOR, Employer companies can concentrate on their core operations while achieving international expansion with reduced risk and lower costs.

With regards to established fees, the pricing structure of an EOR differs based on the jurisdiction, however, EORs commonly use two (2) structure models:

1.         Evaluating the percentage of the employee salary as the cost of fees; or else

2.         Calculating and establishing a flat fee for every employee being administered by the EOR.

All in all, a Client may opt for an EOR when a company is planning to expand its new business without having to establish a new legal entity in a foreign country and jurisdiction.