What Is an Employer of Record?
When a business hires an employee, it assumes responsibility for all employment tasks, costs, and liabilities associated with having that employee on staff. But not all businesses want to deal with that responsibility. There is another option: using an employer of record.
What is an employer of record?
An employer of record is an organization that serves as the employer for tax purposes while the employee performs work at a different company. The employer of record takes on the responsibility of traditional employment tasks and liabilities.
The employer of record handles all personnel functions, including:
- Processing and funding payroll
- Depositing and filing taxes
- Handling unemployment
- Handling Workers’ compensation
- Issuing Forms W-2
- Collecting and processing timesheets
- Creating and maintaining employment contracts
- Employee onboarding (new hire)
- Maintaining certificate of insurance
- Completing and storing Forms I-9
- Complying with E-Verify
- Doing background checks and drug screenings
- Offering and administering benefits
- Terminating employees
Employer of record benefits
By using an employer of record, recruiters and other businesses can free up time. Not having to deal with payroll and HR issues can potentially save hours. An employer of record is a cost-effective way to outsource payroll and HR functions. The business pays the employer of record a set rate for every hour the employee works, and the employer of record handles all tasks.
Employer of record services can be especially helpful when dealing with payroll processing and employment laws for employees in multiple states. The employer of record stays updated on the state and local laws, so you do not have to worry about learning and complying with laws in multiple places.
Who is responsible?
The business and the employer of record have different responsibilities. The business where the employee works retain control over business operations. The business also is responsible for workplace safety and compliance. The employer of record is liable for employment issues along with payroll compliance and tax laws.
Employer of record in contract staffing
When applied to recruiting agencies offering contract staffing, the employer of record serves as the legal employer for contract employees. The employer of record responsibility often falls onto a third party known as a contract staffing back office. Recruiters can take on the back office responsibilities themselves, but recruiters can also outsource the responsibility to a contract staffing back office.
If you choose to add contract staffing to your recruiting business, you need to decide who will be the employer of record for your contractors.
If you decide to run the back office yourself, you need to make sure you have the time and resources to do so.
If you do not want to run the back office yourself, a contract staffing back-office provider can take the responsibility from you. The employer of record will handle staffing agency (recruiter) payroll funding, pay the workers, and handle all payroll and employment responsibilities.
Employer of record for non-recruiting small businesses
Other non-recruiting small businesses can also hire employers of record. When a small business hires an employer of record, the employee still works at the business. But the employer of record handles payroll and HR issues. This frees up time for the business, saves money, and the business does not have to worry about employment law compliance.
Getting an employer of record
Whether you are a recruiter who offers contract staffing or a small business owner, you need to make sure employees are classified correctly, paid accurately, and employment issues are handled. Otherwise, there can be consequences at the state and federal levels.
InterLoops provides an employer of record back office solution for recruiting agencies and other small businesses. Learn more about InterLoop’s Employer of Record services.