What is an AOR and Who Needs One?
Recently, we published a very similarly titled post, What is an EOR and Who Needs One? Today’s post provides the same high-level definition of, and insight into agency of record (AOR) which is similar to an employer of record (EOR) but different in a number of significant ways. In the interests of understanding more about AORs and how they are effectively leveraged as part of a diversified contingent workforce strategy, we recommend you read the earlier piece on EOR and then this document on AOR. Knowing about both will be to your ultimate benefit.
Let’s start with the definition of per the Staffing Industry Analysts’ lexicon. SIA says AOR (agency of record) is, “A term used in the US to describe a service whereby the provider acts as a third-party intermediary between a staffing firm or client and one or more independent contractors, administering the back-office functions related to engaging independent contractors, including payroll and government reporting requirements.”
In essence, the AOR does for independent contractors (1099 workers) what an EOR does for contingent labor and other supplemental/temporary, W-2 wage-earning labor. While utilizing independent contractors can drive enormous value and benefit to a hiring organization, there are significant compliance risks involved. Unlike the tax laws and other regulations governing wage earning workers, those governing ICs are different and potential far more complex. Further, there are significant penalties associated with improper IC classification. As the utilization of ICs is a more recently developed trend in the annals of workforce management, the laws and regulations governing their use are less well-established and more prone to change than those applied to wage earners.
This is why, for many organizations, it is a prudent step to seek expert help in sourcing ICs and administering the appropriate tax and benefits structures involved. The ongoing value of an AOR is that these services maintain the relationship with the ICs they place within a hiring organization, instead of leaving the process to be addressed by the client. The AOR controls the dynamic so that the client does not inadvertently change the nature of the relationship or take other actions that could potentially push the arrangement with an IC out of compliance with IRS regulations. In short, the AOR provides an added, extra layer of protection for the client to utilize 1099 contractors, secure in the knowledge that IC experts are ensuring compliance on an ongoing basis.
A truly effective AOR knows that an educated IC who understands the requirements of IC status will be more comfortable and effective in situations where there is active management in effect to ensure mutual protection for both the contractor and the client. By providing guidance and expertise to the IC community, an AOR protects contractors’ classification as a business and ensures they’re not being mis-utilized as employees. Providing compliance and oversight to the client, the AOR also ensures the client is protected from creeping changes to the engagement that might jeopardize the veracity of their IC classification. The AOR is a win-win for hiring organizations as well as the communities of independent contractor resources they develop for clients.
Interested in engaging the services of a proven-effective AOR? Contact us today! to learn more.