Employers of record: a global review of Immigration, Employment and Tax issues

In an increasingly interconnected world, multinational companies face the challenge of managing their labour operations in multiple jurisdictions. The recent panel discussion organised by the International Bar Association (IBA) addressed the complexities of the Employer of Record (EOR) model, an approach that allows companies to operate without the need to establish local entities in foreign countries.

With the participation of legal experts from Latin America and Europe, the panel explored the legal, tax and operational implications of this model, as well as the challenges that arise when navigating international labour regulations. In a context where legislation varies significantly from country to country, the importance of having local advice and understanding the particularities of each market to ensure compliance and minimise risks was highlighted. Through case scenarios and discussions on alternative strategies, valuable insights were offered on how companies can optimise their approach to global talent management.

Session Chair

Adrian Ojeda Cuevas, Ojeda Ojeda Asociados Abogados, Mexico City, Mexico

Panelists:

Maria Alexia Aurelio - Aresco Abogados, Buenos Aires, Argentina
Jutta Schneider, Germany
Daniel Francisco - Rodrigo, Elias & Medrano Abogados, Lima, Peru
Adrian Ojeda Cuevas - Ojeda│Ojeda Asociados Abogados, Mexico City, Mexico

Reporter

Daniel Addo Asiedu – Head Counsel, People & Corporates, Consolidated Bank Ghana Ltd., Accra, Ghana (Daniel.Asiedu@cbg.com.gh)

Introduction

The panel discussion at the International Bar Association (IBA) aimed to examine the complexities associated with the Employer of Record (EOR) model in global employment contexts. As businesses expand internationally, understanding the employment laws across various jurisdictions becomes essential. The panel featured legal experts from different regions, who shared their insights on the challenges, limitations, and operational strategies associated with EORs. Key topics included potential liabilities, diverse regulatory frameworks, and the importance of consulting local legal counsel when employing individuals abroad.

Panel Discussion

a. The Concept of Employer of Record (EOR)

Daniel Francisco began by defining the EOR model, wherein a third party acts as the legal employer of a worker in a foreign country while the worker remains under the direction of the client company. This approach allows multinational corporations to avoid establishing local legal entities. EORs manage compliance with employment laws, payroll, and tax obligations.

b. Hypothetical Case Presentation

Adrian Ojeda Cuevas introduced a fictional scenario involving Martian Company, which entered a service agreement with a fictitious location, Flower Country. This scenario presented unique challenges, as employment laws from Argentina, immigration regulations from Peru, and German tax laws were applicable. Martian Company aimed to send various employee groups for short-term projects but preferred not to establish a local entity, opting instead for an EOR to manage employment logistics.

Maria Alexia Aurelio outlined the implications under Argentinian law, suggesting two options: employing an EOR based in Argentina or establishing a local entity. She noted recent legal changes in Argentina that shifted some liabilities away from the EOR, enhancing their role in compliance with labour and tax obligations.

Key Discussion Points:

1. Alternatives to EOR: The panel discussed service or work agreements as alternatives to EORs, especially if workers could be classified as independent contractors.
2. Territoriality Principle: The principle of territoriality was emphasized; local laws apply if work is conducted in Flower Country, necessitating careful navigation of local labor laws.
3. Opening a Branch: Jutta Schneider cautioned against establishing a branch in Flower Country due to potential permanent establishment issues and tax liabilities.
4. Reality Principle: This concept highlighted that local authorities might view the operational control of Martian Company as creating a direct employer-employee relationship, imposing additional obligations.
5. Tax Implications: Jutta explained that local taxation applies to Martian employees working in Flower Country. The discussion included potential double taxation treaties that could mitigate tax burdens.
6. Tax & Employment Obligations: The importance of complying with local social security regulations was stressed, alongside the administrative burdens this compliance may impose.

c. Use of an Employer of Record (EOR)

The panel suggested that using an EOR could relieve some administrative burdens, allowing Martian Company to focus on its core activities.

• Immigration Issues: EORs can facilitate obtaining the appropriate work visas for employees, ensuring compliance with local immigration laws.
• Legal Risks: Potential employer liability in the event of workplace accidents was discussed, noting past legal repercussions faced by companies in Mexico for improper use of EORs.
• Social Security Regulations: Understanding the interplay between local and EU social security laws was deemed critical to avoid double taxation.
• Tax Strategies and EOR Limitations: EORs must be evaluated strategically, as their tax status may result in liabilities in Flower Country.

d. Challenges Related to EOR Models

1. Legal Recognition and Jurisdictional Differences: The panel noted the lack of uniformity in legal frameworks supporting EORs, with client companies retaining responsibilities even when outsourcing employment management.
2. Employment Rights and Benefits: Employees under EORs may claim entitlements comparable to directly employed workers, leading to disputes over wage parity and treatment.
3. Termination Complexities: Termination procedures can be arduous in jurisdictions with strong labor protections, posing risks of legal claims against client companies.
4. Regional Variations and Case Studies: The discussion highlighted challenges specific to Latin America, particularly in Peru, where strict labor laws complicate EOR arrangements and communication hurdles may exacerbate legal risks.

e. Potential Alternatives to the EOR Model

The panel concluded with a discussion of alternatives to EORs, including digital nomad visas that permit remote work without establishing local employment relationships. The idea of a government authorization system for foreign employers was also proposed, which could clarify legal standing and compliance requirements, reducing risks associated with EORs.

Conclusion and Final Remarks

The panel underscored that while the EOR model offers practical solutions for international employment, it presents significant legal and operational challenges. The varying levels of legal recognition for EORs highlight risks related to employee rights, wage equality, and termination processes.

Companies must consult local counsel to navigate the complexities of regulations and compliance obligations in each jurisdiction. There is no universal solution for managing global employment relationships; each case requires a tailored approach that balances the benefits of utilizing EORs against the associated risks. The panel emphasized the importance of understanding the legal landscape in each country where business is conducted to devise effective employment strategies.

ibanet.org