Navigating EOR Options: Isolating the Differences between Indirect, Direct, and Hybrid EOR Systems
Selecting an EOR option that’s best for you:
Most businesses utilize an Employer of Record (EOR) service to properly employ, manage, and support their global teams. An EOR is an extremely helpful tool that can save your company lots of time and money on global workforce management by handling bureaucratic processes for you. Companies usually utilize an EOR when they have employees spread across multiple countries and find it too burdensome to establish their own corporate entities in each location. Thus, through a streamlined EOR, you can easily pay and provide benefits to your international employees without having to handle the messy HR tasks associated with doing so.
Once you’ve decided that an EOR is the best tool for your organization, navigating the types of EOR products on the market may seem like a daunting task. There are multiple different types of tools you can use and it can be initially confusing when trying to differentiate between each one. This blog seeks to break down the current EOR options on the market – direct, indirect, and hybrid – and simplify any misconceptions associated with them.
A Direct EOR operates through entities managed on the ground by the service provider. In other words, the company that provides the EOR runs direct on-site entities in each country and manages themself.
- Centralized Employee Management - the main advantage of a direct EOR system is that the service provider manages everything by themself – meaning that if they offer services in a country, they will take care of all the HR tasks without the assistance of a local third-party partner.
- Limited scope - the main disadvantage of a direct EOR system is that the scope of service is limited to countries that the provider has sites in. For example, if a Direct EOR provider has entities in the US, India, and Nigeria, then those are the only three countries that they would be able to serve clients in.
An indirect EOR is an employee management model that operates through local third-party entities in different countries and unifies them through a single service provider.
- Broader reach - Since they are managed through leveraged external partnerships, indirect EORs tend to be offered in more countries than direct EORs. Companies looking to scale fast and across the globe may be best served by an Indirect EOR because of the broader coverage.
- Complicated process - Indirect EOR’s work through local third parties, so there are some bureaucratic delays associated with the transfer of information, payments, and documents between all of the parties involved.
Hybrid EORs are pretty self-explanatory – they are systems that merge qualities of both types of EORs. Hybrid EORs usually have entities in countries around the world managed by the service provider as well as third-party partnerships in additional countries. Here at Thera we pride ourselves on having the most affordable Hybrid EOR service on the market!
Dispelling myths about the different types of EOR systems:
Direct EOR is cheaper because they don’t work with a third-party provider?
While you may be inclined to think this, it’s not actually the case. There is no set relationship between provider type and service price. In some cases, direct EORs can be the cheapest option and vice versa.
Direct EORs provide more compliant services than other models?
This is not true. All three options will provide compliant HR management across the globe. Indirect EORs working with trusted local partners may have greater expertise on the specificities of labor and tax laws in different countries, so make sure that you do some research on who the local partners your provider is working with if you are concerned about service quality.
Indirect EORs offer worse services because they are outsourced?
Quality differences between EORs on the market are more dependent on the service provider itself rather than the type of EOR model in use. In other words, if a company is skimping on the local partners it enlists to offer coverage in certain countries, then quality may decline. However, this issue can apply to Direct EORs as well who aren’t properly investing into their services. It’s more of an issue with provider ethos rather than model type. Make sure to check that your provider is working with reputable third parties and is also investing properly in their own employees.
Indirect EORs are less secure than Direct EORs?
Employee data and IP is transferred in the same way through both Indirect and Direct EORs. Both systems are extremely secure ways to manage your global teams and allow you to effectively support your employees without any unnecessary headaches.