Business hire employees to perform services at a rate of pay. This is obvious and seems relatively simple, but there's a lot more that comes into play when a business has employees. Hiring employees also comes along with substantial responsibilities, liabilities and compliance issues for business owners. Larger businesses often have in-house HR and legal departments to handle everything, but small business owners can be at a disadvantage. These departments are not only expensive to employ, but also require the time to find and employ the right people.
What is an employer of record?
An employer of record is a third-party service that takes on the risks and intricacies of having employees. They can not only save you time and money, but alleviate you of the risks and liabilities by taking on on payroll and compliance responsibilities for your company. By using an employer of record, the employees are actually employed by the third party, but still act as your employees.
Simply put, an employer of record administers payroll taxes, workers compensation insurance, and other employee benefits to employees, while the employees perform work at a different company.
Employer of record companies are responsible for managing payroll and taking on many of the responsibilities that an employer traditionally would. This includes ensuring compliance with federal and state labor laws for payroll, workers compensation, and other benefits.
With an EOR, the terms of who is responsible for what are delineated in the contract between the contract employer and the and the EOR.
What Does an Employer of Record Company Do?
Payroll administration
The Employer of Record will handle payroll, time keeping and the related administrative tasks around pay disbursement.
Filing taxes
Employer of record services calculate and withhold taxes for employees and payroll taxes for businesses.
Collecting and issuing relevant forms, such as W2s and 1099s
As part of the withholding and reporting process, companies are responsible for collecting and furnishing relevant tax documentation. Employer of record companies handle all state and federal documents and filings.
Workers' comp, unemployment claims and other benefits
Many employees are entitled to benefits like workers’ compensation and unemployment. Employer of record services administer workers’ compensation insurance and claims when they arise, alleviating the business of these administrative burdens.
Onboarding new hires
When hiring a new employee, it’s important the employee be verified through documentation, such as 1-9, and properly entered into your payroll system. It is also sometimes necessary to conduct background checks and drug testing. Employer of record companies handle all of these essential tasks.
What Doesn't An Employer of Record Company Do?
Employer of record services do not control business operations. They handle the back-end as it pertains to employees and employment. The business retains all responsibility for supervision of workers and matters relating to the workplace. The business still controls who they want to hire, employ, terminate, as well as how they want to run their business. The Employer of Record handles the actual process and administrative tasks of the hiring, employing, terminating or handling an employee who opts to leave the job.
Why use Employer of Record Services?
Employer of record services can free up valuable time a business would normally have to dedicate
to managing payroll and human resource responsibilities. By offloading these necessary responsibilities to the employer of record, you free up time and attention to focus on the more important goals of your business.
Employer of record services also help businesses stay compliant with labor and tax laws across multiple states. Many states have ever changing employment laws that make it difficult for business owners to stay up to date and follow compliance rules, such as California's AB5 ruling. If and when a business owner gets audited, lack of compliance can be an incredibly costly mistake and can also put the entire business at risk. By relying on an employer of record service, business owners are relieved of these risks.
Ready to offload the burdens and keep compliant?
If you are the owner of a small business, we at Band of Hands would love to help get you set up for success. Band of Hands specializes in employer of record services for small businesses and franchisees. For only $10/employee per week, small business owners can now afford to have all of their employment needs met. Contact us at our website or call us at 858.284.3700. We take pride in helping you accomplish your business goals and being with you at every stage of your employee’s lifecycle.