Direct EOR vs Aggregators 🥊

Is the EOR you hired the one actually employing your employee? The answer may surprise you.

Author

Moshe Ohana
September 02, 2024 

EOR (Employer of Record) 101

Wholly Owned Entities vs Aggregator Strategies

Now that you know the difference between a local EOR and a global EOR, it’s time to talk about the different business strategies of an EOR provider.

As a disclaimer, most of this only applies to global EORs because local EORs, by nature, are more likely to own the entities they employ employees through.

What does that even mean?

There are 3 ways an EOR provider can deliver its service (yes, all EORs are service companies no matter how hard they all try to be tech or SAAS companies):

  1. Owned Entity Strategy

  2. Aggregator/Partner Strategy

  3. Mixed Strategy

The short and sweet is as follows:

You have an employee you want to hire in a country that your company has no legal presence (read: entity) in. You find an EOR who says they can hire this person for you. The idea is that this EOR provider has their own entity in that country that they’d use to employ this person but this isn’t always the case. Very often, EOR providers will need to leverage a 3rd party partner to act as the legal employer of record. These 3rd party partners are often local EORs themselves even.

I want to dive into each of these a bit more.

Owned Entity Strategy

The first approach would be an approach in which the EOR itself owns all entities it uses to employ the employees of its clients. For example, Remote is one of two mainstream global EOR that leverages this strategy to deliver its service (Atlas is the other). If Remote doesn’t have an entity in a certain country, they will not support a customer looking to hire an employee in that country.

There are certain advantages and disadvantages to this strategy.

The clear disadvantage is that you are limiting the scope of your support as an EOR. If a client comes to Remote and says they want to hire 5 employees in 5 countries but 1 of those countries is one in which Remote does not have a legal entity, would the prospect turn around and seek out a new provider? Maybe.

There are clear advantages as well.

  • Full control over the end to end solution

  • Cost control

  • Full ownership of legal issues (the EOR can’t push off any legal issues onto the 3rd party partner)

  • Confusion on who is delivering the service

You can read more about Remote’s thoughts on the matter here but to my best estimate it looks like they only support 88 countries (less than half of what VG, GP, and many other Global EORs claim to support).

Partner Strategy

There is one mainstream global EOR that will tell you about the benefits of a partner only strategy until they are blue in the face and that is Papaya Global.

Papaya Global is the only mainstream global EOR that leverages partners in all of the countries they support their clients in. Just like Remote wrote about the advantages of using an EOR’s own entities, Papaya Global wrote a similar blog post touting the advantages of leveraging partners in each country they support clients in.

And just like Remote, Papaya Global makes some fair points.

Firstly, your scope of countries isn’t limited to the countries you set up entities in. You can provide your consolidated EOR services in as many countries as you want as long as you can identify a local partner who can support clients in that country.

Another issue with working with an EOR with their own entities is that you are stuck with them. You can’t just "switch partners” on the back end if things aren’t going well for the employee.

Mixed Strategy

The final and most common approach global EORs take is a mixed strategy. This is where they start by offering EOR via local partners and slowly build up their own legal entities globally to support their clients.

My research tells me that Deel is the furthest in terms of owned entities globally with over 100 local entities.

The advantage here is that the EOR has full control of the service in countries in which they are direct (entity strategy) but still lack that control in countries in which they are indirect (partner strategy).

There is no “best practice” here. There is the common practice and the few outliers. To me, as long as you are getting the service you are paying for, and you can’t tell the difference from a delivery perspective, who cares what legal entity’s name is at the top of the employment contract and payslip? 

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Thanks for reading.

Speak soon,

Moshe