In Part One of this ongoing series, we examined the important distinctions between contractors and independent contractors in the contingent workforce management industry. That post helped clarify labor types. Today’s post examines a pair of services/service providers used in contingent workforce management that are often mistaken for one another but are not the same, despite some similarities. What is the difference between a Payroller and an Employer of Record (EOR)? Here’s what you need to know.
These two terms, often used interchangeably, have a distinct difference. All Employer of Record services are Payrollers but not every Payroller could be considered an EOR service. A Payrolling service typically only handles the compensation portion of the HR process. That is, they assume responsibility for collection and remittance of payroll taxes. They also pay all the taxes an employer normally pays such as FICA, FUTA, SUTA, Workers’ Compensation and any local payroll taxes. Many contingent workforce management programs rely on Payrollers to serve their temporary employees, seasonal workers, and project-based or SOW resources. A Payroller may be considered a “co-employer” to the hiring organization.
It is important to note, that Payrollers are, in a legal sense the employer of record for the workers they pay on behalf of the hiring organization. However, an Employer of Record service provider delivers a more complete outsourcing arrangement to hiring organizations that wish to relieve themselves of the burden of an internal HR function. An EOR service becomes the primary employer in a legal sense.
The full service EOR provider is sometimes referred to as the Professional Employer Organization or PEO model. In this model, the entirety of a company’s HR function – both compensatory and benefits – are outsourced to a provider. A primary benefit of an EOR is a reduction in the complexities associated with HR and specialized contingent workforce management functions. EOR services help improve market access to employees in other states and countries and ensure the hiring organizations is compliant with all relevant labor laws and regulations. This can be especially challenging during international expansions where regulations surrounding benefits and taxes are more complicated. An EOR service helps unlock access to new markets and drive better rates for benefits.
Commonly, organizations using a Payroller to manage compensation of the contingent workforce still maintain internal HR functions to handle onboarding, employee issues, benefits administration, etc. Whereas those that have decided to pursue an EOR strategy have determined there were sufficient cost savings and efficiencies to be gained by outsourcing the bulk of their HR and in some cases even the contingent workforce management function. Determining the best type of model and service provider to address every organizations’ need is different. There are many considerations to weigh when building a strategy in this regard which is why nextSource stands ready to answer your specific questions.