When a business hires an employee, it is responsible for paying the employee for their labor and services. But just as important are the often overlooked responsibilities, liabilities, and labor compliance issues that go along with making that hire.
An employer of record is a third-party service that can save you time, money, and more than a few gray hairs by taking on some payroll and compliance responsibilities for your company.
What is an employer of record?
Simply put, an employer of record is a company that administers payroll taxes, workers compensation insurance, and other employee benefits while employees perform work at a different company.
Think of it as an outsourced payroll and compliance department.
Employer of record companies are responsible for managing payroll and taking on many of the responsibilities that an employer traditionally would. This includes ensuring compliance with federal and state labor laws for payroll, workers compensation, and other benefits.
With an EOR, the terms of who is responsible for what are delineated in the contract between the contract employer and the and the EOR. However, EOR services typically include:
PROCESSING AND DISTRIBUTING PAYMENTS
Employer of record companies manage payroll and related administrative tasks like disbursing payments.
FILING TAXES
Employer of record services calculate and withhold taxes for employees and payroll taxes for businesses.
COLLECTING AND ISSUING RELEVANT FORMS INCLUDING W2’S AND 1099’S
As part of the withholding and reporting process, companies are responsible for collecting and furnishing relevant tax documentation. Employer of record companies handle all state and federal documents including W2s and 1099s.
Some employer of record services also have additional support for things like documenting and issuing reimbursements to employees, such as kit fees.
WORKERS’ COMP AND OTHER BENEFITS
Many employees are entitled to benefits like workers’ compensation and unemployment insurance. Employer of record services administer workers’ compensation insurance and claims when they arise.
ONBOARDING NEW HIRES
When hiring a new employee, it’s important the employee be properly entered into your payroll system. It is also sometimes necessary to conduct background checks and drug testing. Employer of record companies can do both.
Why use employer of record services?
Employer of record services can free up valuable time a business would normally have to dedicate to managing payroll and human resource responsibilities.
These responsibilities are absorbed by the employer of record meaning you can dedicate your time and attention to more important aspects of your business’s operation.
Wrapbook acts as a digital employer of record and administers payroll compliance and workers compensation insurance on behalf of employers while ensuring workers are paid on time.
Employer of record services also can help ensure compliance with labor and tax laws across multiple states. An employer of record in California stays updated on changes in state and local laws across the country and helps ensure compliant payroll processing so you don’t have to.
EOR vs PEO?
There is another category of third-party employee management services known as professional employer organizations, or PEOs.
Employer of record services and professional employer organizations are similar but provide different services to clients, and so the distinction between an EOR vs PEO is important to understand.
Especially when managing employees across multiple states and in situations where employment regulations become more complex. A few things to consider when comparing an EOR vs PEO…
Wrapping Up
Managing a business can be headache enough, without also worrying about the tedium of payroll processing and complex compliance issues that come with paying a staff of rockstar professionals.
Employer of record companies can save you time and money while helping ensure you remain compliant with federal, state, and local labor regulations.
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