AOR vs EOR: Key Differences Explained

Did you know that since 2019, small businesses have created over 70% of net new jobs. As a small business owner, you probably recognize the vital role you play in economic growth and job creation. As your business matures, you may consider scaling your business beyond local borders.

While exciting, global expansion comes with challenges, from navigating foreign labor laws to ensuring compliance with international regulations. That’s where a trusted third-party partner can help lighten the load. In this guide, we’ll break down the key differences between an Agent of Record (AOR) and an Employer of Record (EOR) to help you decide which is the right fit for your small business expansion.

What is an AOR?

An Agent of Record (AOR) is a third-party organization, commonly a broker or consulting firm, appointed by an employer to manage specific aspects of its human resources (HR) operations worldwide. This role typically includes the legal authority to manage and negotiate employee benefits and insurance while ensuring regulatory compliance. As the company’s official representative, the AOR is an intermediary between the employer and external partners, such as insurance carriers, benefits providers, and government agencies.

What is an EOR?

An Employer of Record (EOR) helps employers hire and manage employees worldwide without establishing a legal entity in the country. A global EOR provides all the benefits of a Professional Employer Organization (PEO) while legally employing workers and assuming full compliance liability on behalf of your company. This makes it an ideal solution for small businesses aiming to scale internationally, helping them avoid the time-consuming process and complexities of setting up a foreign entity.

What is the Key Difference Between AOR and EOR?

The primary distinction between an AOR vs EOR lies in their roles and legal obligations.

An AOR serves as an intermediary for your company, typically focusing on negotiating employee benefits and managing claims. Sometimes, AORs also handle additional programs such as Workers’ Compensation or 401(k) plans, overseeing plan administration, and managing relationships with carriers directly.

An EOR, by contrast, takes on full legal responsibility for your employees and acts as their official employer. With an EOR, your business can outsource HR and administrative functions, including benefits administration, while you manage your employees’ day-to-day work. This is one of the key EOR benefits, especially for companies looking to scale globally while reducing compliance risks. Here is a breakdown of the key differences:

AOR

• Serves as a conduit or facilitator on behalf of the company.

• Does not employ workers but helps manage certain HR functions.

• Employer is still ultimately responsible for ensuring full compliance.

• Doesn’t handle payroll but coordinates benefits administration, impacting payroll deductions.

• Manages administrative tasks such as negotiating insurance rates and managing benefits carrier relationships as well as local compliance.

EOR

• Acts as the sole legal employer.

• Takes on all legal employer responsibilities.

• Takes on full legal liability for employees.

• Handles payroll processing, tax withholdings, and filings.

• Handles HR and employer tasks such as:

  • Employee benefits and insurance administration.

  • Compliance with global labor laws and regulations.

  • Onboarding and offboarding employees.

Determining Whether You Need an AOR or an EOR

Like most services, choosing between an EOR vs AOR for your small business depends on your specific goals and operational needs:

• An AOR is ideal if your primary focus is negotiating and managing employee benefits like health, dental, vision, life insurance, and disability plans. If you seek expert help with improving or administering your employee benefits package, partnering with an AOR could be the right solution.

• An EOR, on the other hand, is best suited for businesses planning to expand internationally, manage remote teams, or reduce the administrative burden on their team. An EOR allows you to hire employees in other countries without establishing a local legal entity. Therefore, it’s a valuable resource for scaling quickly while avoiding regulatory hurdles and expensive legal fees.

Key Benefits of Using an EOR

By outsourcing HR, payroll, and compliance tasks, you can focus on growing your business without getting bogged down by the complexities of global operations. Here are some of the top EOR benefits to consider:

• International Payroll Management: An EOR manages payroll across multiple countries, ensuring timely payments in local currencies and compliance with local tax laws, thus minimizing financial and legal risks.

• Local Compliance: An EOR ensures that your company remains compliant with the local labor laws and employment standards in each region you hire, reducing your exposure to legal issues.

• Smoother Remote Onboarding: A global EOR streamlines remote onboarding by automating essential steps and providing local HR expertise. This allows your new hires to get up to speed faster and enables you to grow your team without delays.

• Competitive Benefits: EORs often have access to competitive, large-group benefits plans, such as health insurance, paid leave, and retirement options, allowing you to offer attractive benefits to employees at a more affordable rate.

• Access to Global Talent: Your EOR handles the complexities of international hiring so you can confidently expand your search beyond borders and tap into a wider, more diverse talent pool.

How Justworks Helps with Global Expansion

Growing your company internationally can be exciting yet daunting for a small business owner with big global dreams. Justworks makes hiring and managing your growing global team easy without any business disruptions. Its EOR services are designed to scale alongside your business, stateside and abroad. Ready to learn more about how Justworks can help you grow your small business globally? Contact Justworks today to get started.