Key Takeaways
- Lack of control: Using an EOR means giving up control over your HR functions, which can be a major issue for some businesses.
- High costs: EORs can be expensive, with additional fees and markups adding up quickly.
- Legal risks: Working with an EOR can expose your business to legal risks and liabilities, so it’s important to carefully consider the potential consequences.
Picture this: you’re the CEO of a growing business, and your team is expanding faster than you can say “performance review.”
You’ve heard about Employer of Record (EOR) services and are considering outsourcing your HR responsibilities to free up some much-needed time.
It sounds too good to be true, doesn’t it?
Well, I hate to be the bearer of bad news, but it just might be.
Don’t get me wrong, I understand the appeal of an EOR.
Who wouldn’t want to hand over the daunting task of managing payroll, compliance, and legal issues to someone else?
But before you sign on that dotted line, let me tell you why I won’t be recommending an EOR for your business.
And take this from someone who is running an EOR company for years now.
Now, I know what you’re thinking – “Great, another boring HR lecture.”
But fear not, because we are here to make this as entertaining as possible.
We’ll cover all the reasons why using an EOR may not be the best fit for your business, but I’ll also sprinkle in some humor to keep you awake.
So, grab a cup of coffee (or tea, if that’s your thing), sit back, and get ready to laugh and learn.
And just before we delve into the dark sides of using an EOR, we like to have a disclaimer that generally using EOR has several benefits and we highly encourage all companies and startups to consider using and taking advantage of EOR to expand their teams overseas.
If you like to know more about how to use EOR strategically in Vietnam to expand your team then read our article on how to use EOR to expand your business in Vietnam.
Because let’s be real, HR can be a bit of a snooze-fest, but it doesn’t have to be.
What is an Employer of Record (EOR)?
Let’s start with the basics: What exactly is an Employer of Record (EOR)?
Is it some kind of superhero who swoops in and takes care of all your HR needs? Well, not quite.
An EOR is a third-party organization that handles all the administrative tasks associated with employing workers. This includes things like payroll, benefits administration, and compliance with employment laws and regulations.
Similar to a Professional Employment Organisation (PEO), the EOR helps a company handle all HR matters in an overseas expansion.
But wait, there’s more.
An EOR can also act as the official employer of your workers, which means they take on all the legal responsibilities and liabilities associated with being an employer.
This can be a major advantage for businesses, especially those operating in multiple states or countries.
Think of it this way: when you work with an EOR, they become the legal employer of your workers, but you still retain control over the day-to-day activities of your employees.
It’s like having a partner who takes care of all the back-end stuff, while you focus on growing your business and keeping your employees happy.
Working with an EOR is kind of like having a personal assistant for your HR department.
They handle all the nitty-gritty details, so you don’t have to. It’s like having someone who does your laundry, cooks your meals, and cleans your house – but for your business.
But before you get too excited about the prospect of having your own HR assistant, there are some things you need to consider.
While an EOR can be a great solution for some businesses, it’s not without its drawbacks.
For one thing, you’ll be giving up a certain amount of control over your HR functions.
While the EOR will handle all the administrative tasks, you’ll still need to communicate with them regularly to ensure that everything is running smoothly.
This can be a challenge for some businesses, especially those that value having complete control over their operations.
Another potential drawback is the cost.
EORs can be expensive, with additional fees and markups adding up quickly.
This can be a major issue for small businesses or those operating on a tight budget.
Lastly, working with an EOR can expose your business to legal risks and liabilities.
While the EOR will take on the legal responsibilities associated with being an employer, you’re still ultimately responsible for the actions of your employees.
This means that if something goes wrong, you could still be on the hook.
So, while an EOR can be a great solution for some businesses, it’s important to carefully consider the potential drawbacks before making a decision.
It’s like getting a new pet – sure, it may seem like a great idea at first, but you need to make sure you’re ready for the responsibility and commitment that comes with it.
Before we venture further into this article, we like to share who we are and what we do.
About 9cv9
9cv9 is a business tech startup based in Singapore and Vietnam with a strong presence worldwide.
With over six years of startup and business experience, and being highly involved in connecting with thousands of companies and startups, the 9cv9 team has listed some important learning points in this overview of the cases in which you should not be using an Employer of Record.
That said, if you like to prove us wrong, we are happy to offer our Employer of Record Services to your company.
If your company needs Corporate Services or Recruitment services, you can use 9cv9 headhunting and recruitment and EoR services to hire top talents and candidates in Vietnam. Book a consultation slot here, or send over an email to [email protected].
Why We Won’t Recommend Using an Employer of Record (EOR) for Your Business
1. Control
Ah, control.
We all love it, and we all want it, but unfortunately, when it comes to an EOR, we can’t always have it.
One of the biggest downsides to using an EOR is the lack of control you have over your employee management.
And let’s be honest, as a CEO or business owner, that can be a tough pill to swallow.
When you work with an EOR, they become the legal employer of your employees, which means the EOR is responsible for all HR-related tasks.
You probably have minimal involvement in it, which can be good, or bad, depending on the situation.
Sure, this may seem like a dream come true – no more HR headaches, no more compliance worries, and no more employee disputes.
But here’s the thing: you lose control over how your employees are managed, which can lead to problems down the line.
For example, let’s say you have an employee who isn’t meeting expectations.
With an EOR, you can’t just pull them aside and have a one-on-one conversation about their performance.
You have to go through the EOR’s HR team, which can take time and may not always result in the outcome you want.
And that’s why 81% of business owners still primarily handle core HR functions at their company.
This lack of control can also impact your company culture and values.
After all, your employees are a reflection of your business, and you want to make sure they’re representing your brand in the best possible way.
Now, I know what you’re thinking – “But, 9cv9, I’m a control freak. How am I supposed to give up control like that?”
Trust me, I get it.
But before you sign on with an EOR, consider this: Do you want to sacrifice control for convenience? Are you willing to let someone else manage your employees for you?
If the answer is no, then an EOR may not be the best fit for your business.
But don’t worry, there are other employment solutions out there that give you more control.
From PEOs to in-house HR teams, you have options.
So, before you throw in the towel and hand over the reins to an EOR, consider your options and make sure you’re comfortable with the level of control you’ll have over your employees.
After all, as a CEO or business owner, you should have the final say over how your business operates.
2. Cost
Let’s talk about everyone’s favorite topic: money.
When it comes to using an EOR, the cost is a major factor that shouldn’t be ignored.
Sure, outsourcing your HR responsibilities may seem like a cost-effective solution, but there are hidden fees that you need to be aware of.
First off, EORs charge a percentage of your employee’s wages for their services.
This fee can range from 2-10%, depending on the EOR and the services they offer.
And let’s not forget about the setup fees, termination fees, and other hidden charges that may pop up along the way.
These fees can quickly add up and eat into your budget.
For those charging fixed fees, you are looking at anywhere from $300/employee/month to $599/employee/month.
Huge cost outlay.
However, 9cv9 charges lower at around $199/employee/month with additional recruitment benefits as well. Book a consultation slot here, or send over an email to [email protected].
But wait, there’s more.
When you work with an EOR, you may also be responsible for providing additional benefits to your employees, such as health insurance, retirement plans, and paid time off.
This can be a significant cost that you may not have budgeted for.
Now, I know what you’re thinking – “But 9cv9, what about the money I’ll save by not having to hire an in-house HR team?”
It’s a fair point, but keep in mind that using an EOR is not a one-size-fits-all solution.
Depending on the size of your business and the services you require, an EOR may not be the most cost-effective option.
But let’s not get too serious here.
You know what they say – you get what you pay for. And when it comes to using an EOR, you may not be getting the best bang for your buck.
After all, do you really want to trust your employees’ well-being to the lowest bidder?
So, before you jump on the EOR bandwagon, make sure you do your research and fully understand the costs involved.
Consider all of your options and make an informed decision that is right for your business and your budget.
After all, as a CEO or business owner, it’s your job to make sure your finances are in order, and using an EOR may not always be the most cost-effective solution.
3. Legal Risks
Ah, legal risks.
It’s the phrase that every CEO and business owner fears.
Unfortunately, when it comes to using an EOR, there are legal risks that you need to be aware of.
When you work with an EOR, they become the legal employer of your employees, which means they’re responsible for all HR-related tasks, including compliance with labor laws and regulations.
While this may seem like a weight off your shoulders, it doesn’t mean you’re completely off the hook.
You see, as the client, you still have a duty of care towards your employees.
This means you need to make sure the EOR is complying with all relevant laws and regulations.
If they don’t, you could be held liable for any legal violations, even though the EOR is technically the legal employer.
Let me put it in simpler terms.
Say your EOR isn’t complying with minimum wage laws.
If your employees find out and decide to take legal action, you could be held responsible for any damages, even though the EOR is the one who’s technically responsible for compliance.
But don’t worry, it’s not all doom and gloom.
There are ways to mitigate these legal risks.
For example, you can include indemnification clauses in your contract with the EOR, which means they would be responsible for any legal costs or damages that arise from non-compliance.
Additionally, you can also conduct regular audits of the EOR’s compliance with labor laws to ensure everything is up to par.
Or, if you feel that EOR is not for you, then consider registering a company. For example, in Vietnam, 9cv9 Corporate Services can help you set up a company fast quick, and easy.
Now, let’s add a little humor to the mix.
You know what they say – ignorance of the law is no excuse.
And when it comes to using an EOR, you can’t just stick your head in the sand and hope for the best.
After all, legal violations can be costly and damaging to your business’s reputation.
So, before you sign on with an EOR, make sure you fully understand the legal risks involved.
Do your due diligence and make sure the EOR is complying with all relevant laws and regulations.
And if you’re not comfortable with the level of risk, consider other employment solutions that give you more control over compliance.
After all, as a CEO or business owner, it’s your job to make sure your business is operating within the bounds of the law.
4. Limitations on Scalability
Scalability.
It’s the magic word that every business owner dreams of.
But when it comes to using an EOR, scalability may not be as easy as you think.
You see, EORs typically have a limited number of employees they can manage at any given time.
This means that as your business grows and you hire more employees, you may quickly outgrow the EOR’s capabilities.
And if that happens, you’ll either need to find a new EOR or bring your HR functions in-house.
But that’s not the only scalability limitation.
When you work with an EOR, you may also be limited in your ability to customize your HR functions.
This can be a major issue if you have unique HR needs that aren’t covered by the EOR’s standard services.
And if that’s the case, you’ll either need to find a new EOR or bring your HR functions in-house.
You know what they say – “one size fits all” rarely fits anyone perfectly.
And when it comes to using an EOR, that couldn’t be more true.
After all, every business is unique, and your HR needs may be vastly different from other businesses.
So, before you jump on the EOR bandwagon, make sure you consider the scalability limitations.
Think about where you see your business in 5 or 10 years and make sure the EOR can grow with you.
And if you have unique HR needs, make sure the EOR can accommodate them.
After all, as a CEO or business owner, it’s your job to ensure your business is set up for long-term success.
Conclusion
There are many positives in using an Employer of Record as elucidated in our previous article here.
That said, while using an Employer of Record may seem like an attractive solution for your HR needs, there are some serious drawbacks that you need to consider.
From the lack of control over your HR functions to the high costs, legal risks, and scalability limitations, it’s important to weigh the pros and cons before making a decision.
While EORs may work for some businesses, they’re not the right fit for everyone.
But don’t worry, there are plenty of other options out there.
You can bring your HR functions in-house, which gives you complete control over your HR operations. Alternatively, you can work with a PEO (Professional Employer Organization), which is similar to an EOR but offers more flexibility and customization options.
Or you can just simply create a company in a foreign land and go through the whole process to obtain control. Read our top article on how to create a company in Vietnam as a foreigner.
You know what they say – there’s more than one way to skin a cat.
And when it comes to HR solutions, that couldn’t be more true.
After all, every business is different, and what works for one may not work for another.
So, before you jump on the EOR bandwagon, make sure you do your research and consider all your options.
Talk to other business owners, consult with HR experts such as the 9cv9 Corporate Service Team, and think about your long-term goals.
And if you do decide to go with an EOR, make sure you understand the limitations and risks involved.
Remember, as a CEO or business owner, it’s your job to make the best decisions for your business.
And while using an EOR may seem like an easy solution, it’s important to consider all the factors before making a decision.
So, take your time, do your due diligence, and find the HR solution that’s right for you.
If your company needs HR, hiring, or corporate services, you can use 9cv9 corporate services. Book a consultation slot here, or send over an email to [email protected].
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