When expanding globally or managing remote teams, two options often come up: using an Employer of Record (EOR) or hiring through a staffing agency. While both models help businesses expand their workforce, they differ significantly in how they operate and the value they provide. So, how do you decide which solution is right for you?
In this blog, we’ll dive into the key differences between an EOR and a staffing agency and help you determine which model aligns better with your hiring needs.
What is an Employer of Record (EOR)?
An Employer of Record (EOR) is a third-party entity that handles the administrative, legal, and compliance aspects of employment for businesses operating in foreign countries. The EOR acts as the legal employer, managing payroll, benefits, taxes, and compliance, while the client company manages the day-to-day work of the employee. The EOR is responsible for employment-related tasks and obligations such as payroll, taxes, benefits, and compliance with labour laws. In short, the EOR assumes its employer's administrative and legal responsibilities.
By partnering with an EOR, companies can hire employees internationally without setting up a legal entity in the country. This greatly simplifies the global hiring process, offering a cost-effective solution for companies looking to expand quickly and compliantly.
Let's look at the key features of an EOR:
- Payroll: EORs are responsible for payroll calculation, processing, deducting taxes, and administering benefits.
- Compliance and legal: Ensure workers' employment arrangements adhere to local labour laws and mitigate the risk of legal issues for client companies.
- Tax management: Withhold and remittance of taxes on behalf of the employees, including income tax, social security contributions, and unemployment taxes.
- Benefits and insurance: Ensure that employees receive the necessary coverage for benefits, including health insurance, retirement plans, and other perks.
- Global workforce management: Streamline the process of employing by managing local employment requirements, including onboarding, compliance, and payroll.
For a deeper understanding of EOR services and global hiring, check out our global hiring guides or chat with our team!
What is a staffing agency?
A staffing agency primarily focuses on temporary or contract hires. Staffing agencies source and recruit workers for a company, often handling short-term or specialised job placements. While they do take care of payroll for the workers they place, staffing agencies usually don’t cover compliance, benefits, or long-term employee management in the same way an EOR does.
Typically, a company contacts the agency and informs them what kind of workers they need. The agency then uses that information to source quality candidates and make the best matches possible between clients. For businesses that need comprehensive employment solutions beyond temporary placements, staffing agencies might fall short.
Staffing agencies act as an intermediate between companies and job seekers. They work with employers to source potential candidates by utilising their networks, databases, job boards, and other resources. They also conduct screenings of candidates to assess their qualifications, skills, and suitability for the job and shortlist candidates.
Staffing agencies establish relationships with job seekers. They collect resumes and relevant documents through online portals, email, or in-person meetings. When suitable job opportunities arise, staffing agencies match qualified candidates to available positions. f a job offer is extended, the staffing agency assists with the negotiation process, ensuring the interests of both parties are considered.
Pros and cons of a staffing agency
Pros:
- Access to a diverse talent pool: Staffing agencies have extensive networks and resources to tap into a broad range of job seekers.
- Time and resource-saving: Staffing agencies handle the time-consuming tasks of candidate sourcing, screening, and initial interviews, saving employers significant time and effort in the hiring process.
- Hiring on demand: If you're in a crunch, a staffing agency can often fill a need within one business day. Compare this to how long it would take you to find and hire a contractor or employee.
- Reducing overhead costs: The staffing agency does all the work associated with finding suitable talent for your company. This reduces overhead costs on the employer side since staffing agencies pay temporary hires themselves.
Cons:
- Limited Employer Control: Employers may need more direct control over recruitment when working with a staffing agency.
- Not knowledgeable on local labour laws: Typically, staffing agencies need more knowledge of the labour laws of different countries, making them not ideal for global hiring.
- Cultural Fit Challenges: Staffing agencies may require an in-depth understanding of the employer's organisational culture, which can result in potential mismatches between candidates and employers.
Key differences between EOR and staffing agencies
While both an Employer of Record (EOR) and a staffing agency serve as intermediaries between employers and workers, there are critical differences between the two:
Compliance and risk management:
One of the biggest differentiators between an EOR and a staffing agency is how they manage compliance. EORs are responsible for ensuring that all legal and regulatory requirements are met in the country where the employee is based, reducing risk for your company.
Staffing agencies may handle some legal aspects, but they usually don’t cover the full spectrum of compliance requirements, particularly when it comes to international hiring.
EOR: An EOR acts as the legal employer of a group of workers, assuming the associated legal and administrative responsibilities. They handle payroll, taxes, compliance, benefits, and other employer-related obligations. The workers are assigned to and work at a client's worksite, but the EOR remains the formal employer on record.
Staffing Agency: A staffing agency focuses on sourcing and matching job seekers with employers' job openings. They connect employers with potential candidates, who are then directly employed by the employer once hired. The staffing agency's role typically ends after the placement process is complete.
Learn more about compliance challenges and how EORs solve them in our contractor or employee and employee misclassification blogs.
Legal and administrative responsibilities:
EOR: As the legal employer, an EOR assumes all legal and administrative responsibilities associated with employment. This includes payroll processing, tax withholding and remittance, benefits administration, compliance with labour laws and regulations, and managing employment contracts.
Most countries have certain mandatory benefits that most be given to employees. As an EOR Teamed can help to advise on these and ensure you are compliant in alll you hiring. For example, Sweden offers a generous amount of parental leave. Each parent is entitled to 240 days of paid parental leave. And this law should be taken seriously by all companies.
Staffing Agency: Staffing agencies do not act as legal employers. They assist with candidate sourcing, screening, and matching, but the employer directly employs the selected candidates. The employer manages legal and administrative responsibilities, such as payroll, taxes, and compliance.
Explore how EOR services simplify payroll management in our International Payroll Services.
Flexibility in hiring:
Best EORs offer flexibility in how you hire. Whether you’re looking for long-term employees or contractors, an EOR can handle both. This allows your company to scale globally without worrying about complex administrative tasks or compliance risks.
Staffing agencies, on the other hand, are better suited for short-term or specialised roles but may not be as effective for long-term, full-time hires.
Learn more about how EOR services provide global flexibility in our Employer of Record Services.
Control over employees and workplace:
EOR: An EOR maintains higher control over the workers' employment arrangements. They have the authority to set and enforce employment policies, handle disciplinary actions, and make decisions related to workplace rules and regulations.
Staffing Agency: Employers who directly hire workers through a staffing agency have more control over the employees' day-to-day activities, work assignments, and supervision. They are responsible for managing and overseeing the workers' performances.
Costs:
EOR: Engaging an EOR involves service fees which are typically subscription-based according to the number of employees involved. These fees cover the EOR's services, including payroll processing, benefits administration, compliance management, and assuming legal liabilities. Choosing the wrong EOR can cost a lot. The pricing of an EOR can range from $299 to $1000 per month and even above. Selecting an EOR with clear and fair pricing is important to avoid costly hidden fees.
Staffing Agency: Staffing agencies generally charge fees based on a percentage of the hired candidate's salary or a fixed price. These fees are often one-time payments incurred when a successful placement is made. Employers directly bear the costs associated with employing and compensating the hired candidates. Staffing agencies usually charge on a commission basis. They charge between 20% and 30% of the first-year salary of the placed candidate.
When to choose an Employer of Record or Staffing Agency
Depending on your requirements, budget and level of expertise, you need to choose between an employer of record and a staffing agency.
Which Option is Right for Your Business?
Choosing between an EOR and a staffing agency depends on your company’s needs. If you’re looking for short-term placements or specialised skills for a project, a staffing agency might be the right fit. However, if you need to hire employees internationally and ensure full compliance with local laws, an Employer of Record is the better option.
By using an EOR, you can hire globally with confidence, knowing that payroll, compliance, and employee benefits are all managed efficiently.
Factors that decide what you should choose
- Employment Arrangement: Consider the nature of the employment arrangement you require. If you need a long-term employment solution with full legal and administrative support, an EOR may be more suitable. A staffing agency may be a better fit if you prefer to hire directly and have greater control over the workers. This means that a staffing agency will only help you with recruiting—everything from job posting to onboarding.
- Legal and Compliance Needs: If you want to offload legal and administrative responsibilities, including payroll, taxes, benefits, and compliance management, an EOR can provide comprehensive assistance. By partnering with an Employer of Record (EOR), you can ensure that your legal and compliance needs are met, allowing you to focus on your core business activities.
- Workforce Flexibility: A staffing agency can provide the necessary flexibility if you require a temporary workforce that can be scaled up or down quickly. If you prefer a stable, long-term workforce, an EOR may be more appropriate. EOR is also a great choice if you want a combination of long-term and contract workers in your team.
- Cost Considerations: Evaluate the financial implications of each option. EORs typically charge ongoing service fees, while staffing agencies charge placement fees or a percentage of the hired candidate's salary. Usually, a staffing agency would be more affordable if you hire low-salary employees. However, if you're hiring many employees together, securing a long-term partnership with an EOR is best, as it would be more cost-effective.
Scenarios where an EOR is the better choice
Scenario 1: International expansion
If your company wants to expand into new countries and hire foreign workers, an EOR is the right choice. They can help simplify the process by managing local employment requirements, compliance, payroll, and tax obligations.
Scenario 2: Risk mitigation
Suppose you transfer employment-related risks and liabilities, such as workers' compensation or unemployment claims. In that case, an EOR can assume those responsibilities, mitigating your organisation's potential legal and financial risks.
Discover how EOR services streamline global expansion in our Employer of Record Overview.
Scenarios where a staffing agency is the better choice
Scenario 1: Direct control and supervision
Hiring candidates through a staffing agency may be more suitable if you prefer to have direct control over the workers, including their day-to-day activities, work assignments, and supervision.
Scenario 2: Temporary or Project-Based Staffing
If you have short-term staffing needs, require specialised skills for specific projects, or want to assess a candidate's performance before making a long-term commitment, a staffing agency can provide flexibility in hiring and workforce management.
Find the right match
Both EORs and staffing agencies provide valuable services, but the right choice depends on your specific needs. For companies focused on global expansion and long-term employee relationships, an EOR offers a more comprehensive, compliant solution. In contrast, staffing agencies can be a good option for short-term placements or project-based roles.
Need help deciding? Contact Teamed today to explore which solution is right for you.
Further Resources
• Global Employment: Unexpected Fees? Unlocking Global Employment Costs
• Insights: “Reduced Investment is Leading to Better Long-Term Outcomes and Improved Recruitment”
• Global Employment: Building Trust in Remote Teams
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