At People2.0, one of the most common questions we’re asked is, “What is the difference between employer of record (EOR) and agent of record (AOR) services?” This question often comes from ambitious businesses in our industry looking to expand.
In order to improve efficiency and compete at a higher level in the global talent marketplace, these businesses often seek to cut down on administrative work so they can focus on revenue generating activities. To do this effectively while maintaining rigorous compliance standards, they often turn to specialized services to streamline workforce management and mitigate risk.
One of the most common and effective solutions is to partner with a provider like People2.0 for EOR or AOR services. While both types of services play crucial roles in outsourcing the back office, they are not the same. Each carries unique benefits, and understanding their distinct attributes is key to making an informed decision that best suits your business.
People2.0 has over 20 years of experience partnering with and advising businesses in the global talent marketplace, and we want to help you choose wisely. In this blog post, we will define each service, delve into the distinctions, and highlight the unique advantages of EOR and AOR services so you can confidently choose the right path for your organization’s success.
Employer of Record (EOR) Services
An EOR serves as the legal employer for administrative purposes while a worker carries out their duties for an end-hirer. People2.0’s EOR services, for example, encompass a wide range of personnel functions, including:
- Timecard management and expense reimbursements
- Payroll funding, payroll processing, and tax withholding
- Worker onboarding, offboarding, provisioning, time sheets, background, and drug screens
- Worker benefits distribution and administration
- Subject matter expertise on employment laws in each geographic market
Benefits of EOR Services
Because an EOR handles so many of the time-consuming back-office functions, businesses that employ their services experience a wide range of benefits including:
- Risk Mitigation: EORs assume legal and financial liabilities associated with employment, protecting your organization from compliance errors, misclassification issues, and related penalties.
- Business Expansion: Leveraging an EOR allows your company to engage eligible labor categories across various geographic markets, opening up new growth opportunities.
- Organizational Efficiency: With a single point of contact for managing your workforce and access to technology-enabled platforms, your internal resources can focus on core activities that drive revenue and strategic objectives.
Agent of Record (AOR) Services
While an EOR takes responsibility for the worker, an AOR acts as a third-party intermediary between a talent supplier and their independent contractors (ICs) and does not take on legal or financial liability. Nevertheless, what AORs lack in liability offerings they make up for in cost and flexibility. Services provided by an AOR include:
- Documented contractor education
- Documented contractor survey
- Contract outlining independent relationship
- Business registration and tax ID verification
- Proof of insurance
- Proof of investment in the business
- Proof of marketing for the business
- Compliance with all federal and local labor laws
Benefits of AOR Services
Companies using an AOR benefit from similar advantages as those using an EOR, but for different reasons:
- Risk Mitigation: AORs help organizations navigate the complexities of engaging independent contractors, ensuring compliance with regulations and mitigating legal and financial risks. While the AOR does not assume legal or financial liability, it does alleviate your business of time-consuming tasks, costs, and liabilities associated with engaging ICs across multiple jurisdictions.
- Business Expansion: With the support of an AOR, businesses can tap into a broader pool of independent contractors, enabling them to engage specialized talent and expand into new markets.
- Organizational Efficiency: By entrusting back-office functions to an AOR, companies can streamline administrative tasks, optimize processes, and enhance overall operational efficiency. With a single point of contact for managing your workforce and technology enabled platform, your internal resources can focus on high-priority and revenue-generating activities.
Distinguishing Between EOR and AOR Services
In summary, the most notable difference between EOR and AOR is that while EOR serves as the employer for tax purposes while a worker carries out their duties for another company, an AOR acts as an administrative buffer between a staffing company or employer and independent contractors.
Nonetheless, when making such an important decision, it helps to break down the options into comparable categories. To better understand the specific differences between EOR and AOR services, let’s compare their key features:
|Liability||Assumes legal and financial liability||Does not assume legal and financial liability|
|Range of services||Broad, encompassing all personnel functions associated with employment||Narrow, focused on administrative support for engaging independent contractors|
|Cost||More expensive||Less expensive|
|Flexibility||Less flexible: EORs typically require long-term contracts with workers||More flexible: AORs can be used to hire workers on a project-by-project basis|
|Benefits||Risk mitigation, business expansion, organizational efficiency||Risk mitigation, business expansion, organizational efficiency, flexibility, and cost-effectiveness|
|Best for||Companies that need a partner to assume legal and financial liability for their workers.||Companies that need a partner to provide administrative support for their independent contractors.|
Which Do I Choose?
Choosing between EOR and AOR services depends on your organization’s specific needs, including type of worker needed and the employment laws in the region(s) where you intend to hire. While EOR services offer a comprehensive solution for managing workers across jurisdictions and assume legal and financial liabilities, AOR services cater to the engagement of independent contractors and provide administrative support without assuming legal liabilities. Both services focus on risk mitigation, enable business expansion, and create greater organizational efficiency.
No matter what your needs, People2.0 can help. We are industry leaders with over 20 years of experience partnering with talent suppliers. We offer comprehensive EOR and AOR solutions, enabling businesses to mitigate risks, expand their operations, and enhance organizational efficiency. If you’re looking to expand into new markets, create greater enterprise value, and streamline your administrative processes, contact us today to find out more about our custom-tailored solutions.