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AOR vs. EOR: Everything You Need To Know

Agent of Record (AOR) vs. Employer of Record (EOR): Everything You Need To Know

Content: 

  1. So what went wrong?
  2. What is an Agent of Record (AOR)?
  3. What does an AOR do?
  4. What is an Employer of Record (EOR)? 
    AOR vs. EOR: the key differences
    The TalentDesk advantage 

A few years back, a popular US-based ride sharing app made the headlines after being pulled up for misclassifying workers. 

This company leveraged the gig economy to engage their team of drivers. The drivers had the freedom to log in and accept tasks whenever they were available, so they were classified as independent contractors. However the company still retained certain rights over these workers that made the authorities take a second look. 

The drivers had to adhere to certain protocols about maintaining their vehicles, and were not allowed to work beyond a certain number of hours for safety reasons. This is the kind of control that only an employer is allowed to have over employees. Additionally, the drivers fulfilled a core function of the company’s business. 

The case snowballed into a very expensive lawsuit – and the brand ended up having to pay millions in settlements. And they are not the only ones in this situation. The last decade saw many such instances of misclassification.

So what went wrong?

Unfortunately, these complications arise because the different kinds of workers (freelancers, contractors, gig workers, remote employees etc.) are still fairly new in the economy, so the associated laws and rules are not always crystal clear. Moreover, these laws are updated to evolve as new nuances of contract, freelance and contingent work emerge.

Additionally, these laws differ from country to country – and even state to state. This adds a new layer of complexity because a key benefit of having a mixed workforce is that businesses get to work with experts from all over the world. But this also means that employers need to be extra vigilant about the terms of work every time they engage someone in a new location.

So how can you, as an employer, stay ahead of this while avoiding unintentional yet costly missteps? That’s exactly where services like Agent of Record (AOR) and Employer of Record (EOR) come in.

What is an Agent of Record (AOR)?

An Agent of Record (AOR) helps you ensure compliance as you work with independent contractors. Independent contractors (or 1099 workers) are professionals who work with you on contract – either on a temporary or a recurrent basis. Unlike an employee, they remain in control of when, how and where they work, and are responsible for requirements like getting the right licenses, filing their own taxes and so on. As you may have already realized, the differences are not always obvious. These days, many organizations allow their employees to work remotely and choose their own flexible schedules.

An Agent Of Record takes over the responsibility of helping you classify independent workers correctly, and acts on your behalf to engage, onboard and pay them compliantly. It conducts all the back-office activities that are required to ensure smooth functioning of the engagement and provides best practise tips to help you remain compliant throughout the engagement and as rules change. Essentially, they bear the liability of compliance, thus giving you back your peace of mind as you engage independent contractors.

What does an AOR do? 

Let's take a detailed look at the roles and responsibilities of an Agent Of Record.

  • They ensure correct classification of workers. Their expertise in the field ensures that they stay abreast of the varying nuances of worker classification in different states and countries. This lets you rest assured that you are engaging an independent contractor – and not unwittingly hiring a remote employee. Moreover, an Agent Of Record ensures you stay ahead of laws and rules as they evolve.

  • They help with contracts and agreements. They ensure you sign the right contracts, non disclosure agreements, confidentiality clauses and more, as per the laws in different countries. An Agent Of Record goes over your paperwork and makes sure that all the terms outlined are legal and valid, and that nothing invites scrutiny.

  • They help with onboarding. There are certain other documents that you need to gather as you onboard your independent contractors. This includes their personal details, bank information, tax reference numbers and so on. An AOR assumes the liability on your behalf, in getting these right. Some AOR services also carry out background checks and reference reviews to help you verify the qualifications of your contractors.

  • They act as an intermediary throughout your engagement. An Agent Of Record doesn’t just assist at the time of onboarding – their services extend through the engagement. This is useful because once you find a good independent contractor, you may want to work with them on other projects and requirements in future. Your AOR ensures you do this in a compliant way, so that the engagement doesn’t inadvertently veer into an employer-employee relationship.

  • They assist with the payment process. Paying international freelancers and contractors might get complicated as you engage workers across countries. That again, is where the services of an Agent Of Record prove invaluable. They manage everything from payroll, expenses, invoicing and maintaining records.

Thus an AOR’s services are valuable in hiring, onboarding, managing compliance and paying independent workers. 

Do note – there are some tasks that do not fall within an Agent of Record’s purview. This includes functions like recruitment, project management, auditing etc. As the employer, you would still need to find the right people for the job, and brief, manage and guide them once they are on board – unless your AOR has separate service offerings, providing these advantages.

What is an Employer of Record (EOR)?

An Employer Of Record (EOR) is a service similar to an AOR – but for full-time or part-time employees. 

Given the easy access to talent from around the world, it doesn’t always make sense to restrict your recruitment efforts to your geographic location. You might want to consider international employees as you grow your team. However, you will still need to account for different labor laws and tax regulations as you do so. 

An Employer Of Record enables you to hire compliantly in different countries, without having to set up a legal entity in every new location. The EOR acts on your behalf to function as an employer for the people you hire internationally. Any agency that fulfils this function is essentially an EOR – for example, think of an employment agency that staffs out your team with temporary workers or an umbrella agency that manages contractor tax withholdings and payments.

AOR vs. EOR: The key differences

There are obviously many similarities between these services, so it can be difficult to identify which one you need. Understanding the key differences between an AOR and an EOR will help you make your decision. Take a look.

AOR vs. EOR

 

Agent Of Record (AOR)

Employer Of Record (EOR)

Type of worker it helps you engage

Independent contractors / 1099 workers

Full-time and part-time employees / W-2 workers

The functions they fulfil

Compliant onboarding and payment of independent contractors.

This includes worker classification, contracts, invoicing and payroll, and continued compliance.

Apart from hiring and paying employees, an EOR will also help you fulfil the specific responsibilities you have towards your W-2 employees.

This includes carrying out HR operations, offering employee perks and benefits in different countries, filing taxes and handling termination protocols.

Based on the makeup of your current team

AOR services would be valuable if you already have several independent workers operating across different states and countries.

EOR services would be valuable if you have already identified key employees who will be working remotely. An EOR will help you put compliant hiring, management and payment processes in place.

Based on the nature of your needs in future

If you have greatly fluctuating volumes of work and want to execute projects quickly without making permanent hires, you can use the services of an AOR to engage independent contractors.

If you are looking to expand your business, with a more permanent presence in new markets, you would need to hire employees in those geographies. That’s when the services of an EOR would be valuable.

Key advantage

An AOR service assumes the responsibility of the time-consuming tasks that do not generate revenue, but are a necessary part of working with contractors. This includes things like time sheeting, invoicing, processing expenses and more.

An EOR saves you the cost and effort of setting up legal entities in every country where you want to have an employee presence. This gives you a head start in your expansion plans.

The TalentDesk advantage

With over a decade of experience in the freelancer and contractor space, we at TalentDesk, have developed in-depth knowledge about the legalities of working with 1099 workers and W-2 employees. We know the ins and outs of worker classification, and are deeply familiar with the hiring, onboarding and payment processes.

That’s why, we offer AOR services that enable our clients to engage freelancers and independent contractors globally.

Through a trusted partner, we're now also able to offer EOR services, for businesses that wish to engage full-time or part-time employees in different jurisdictions. 

This gives you the unique advantage of working with a truly hybrid workforce, made up of distributed employees, remote teams, freelancers and contractors. It allows you to initiate any kind of worker engagement that makes sense for your current needs, upcoming projects or long-term goals. Since we act as the legal authority on your behalf, you need not worry about the changing labor laws and regulations as you do so – you can rest assured that we’ll stay one step ahead, and make sure that you remain compliant.

Additionally, TalentDesk also fills the gaps that you would typically experience with AOR and EOR services. TalentDesk is an end-to-end freelancer and contractor management platform, so we also offer you the tools to find talent, recruit the best professionals, navigate projects and deadlines, and manage your hybrid teams.

Speak to us to find out how we can help you avoid employee misclassification