Why do some accounting firms choose to hire direct themselves with independent contractors while others bring on an Employer of Record (EOR) for compliance instead?
Both offer distinct advantages and drawbacks, and choosing which model to use can significantly impact your firm's operational efficiency.
In this article, we examine the benefits, drawbacks, and key considerations.
Note: Before we go too far, I should say that I'm not a lawyer, nor do I play one on the internet. So, I can't give legal advice. I can only offer my opinion, which after a decade of working internationally, I think is rather well-informed, if I do say so myself.
Hire as a contractor
- You write a contract with your offer and your terms along what the candidate is responsible for (taxes, health insurance). They sign it.
- When a contractor takes a role, they understand that they are responsible for paying their taxes, etc.
- Across both of my companies, my team are all contractors, and we treat them like long-term team members.
- It’s my opinion that it’s not illegal to be a contractor in The Philippines.
If you value simplicity
- As for compliance, there's not much you need to do. It's just a simple contract.
Hire through an Employer of Record (EOR)
- An EOR is a company in The Philippines that employs people for you. They do payroll, compliance, and depending on the company, a bit of HR.
- When you hire through an EOR, your team members will be employees.
- The most important difference between a BPO and an EOR is that they provide service at your discretion.
- This means if you decide you hate the EOR, you can take your team elsewhere. This is NOT true with a BPO.
- Depending on the company, you can expect to pay about $250-600 USD per month per employee. (This of course doesn't include the salary.)
Streamlined HR Processes
EORs streamline all HR processes, from onboarding to payroll to benefits and administration. This efficiency can save you time and money, allowing for a smoother operational flow.
For instance, if you want to know all of the details behind the scenes of what an EOR takes care. Here are some of the most common employee laws that an employer needs to know:
- 1. Labor Code of the Philippines: The employment practices you must adhere to in the Philippines, which includes hiring practices, working conditions, wage laws, and termination procedures.
- 2. Social Security System (SSS): A social insurance program for Filipino workers that provides benefits for retirement, maternity, disability, death, and funeral. You’re required to register and make contributions on behalf of your employees.
- 3. Philippine Health Insurance Corporation (PhilHealth): The national health insurance program that provides health coverage for all Filipino citizens. Companies have to register and contribute to PhilHealth for their employees.
- 4. Home Development Mutual Fund (Pag-IBIG): A national savings program and affordable shelter financing for Filipino workers that you’re obligated to register your employees for and pay contributions.
- 5. Tax Code: Governs the taxation of individuals and corporations, including withholding taxes from employees' salaries.
For example, say you want to bring on a new bookkeeper named Mia,
An EOR will handle her contract preparation, collection of personal documents, setting up payroll accounts, and making sure there’s compliance with local employment laws.
They’ll manage Mia's payroll, accurately calculating her salary in Philippine Pesos, deducting the correct tax and social security contributions, and making sure there are timely payments.
Through the EOR, Mia receives a comprehensive benefits package, including health insurance, Pag-IBIG, and PhilHealth contributions, which matches local practices and improves her job satisfaction.
They’ll also assist with the HR onboarding tasks, providing Mia with the necessary resources and support to integrate effectively into your remote team. And they’ll keep track of holidays in The Philippines, track her vacation days, etc.
What should you choose?
Pros of hiring through an EOR
- You don’t need to bother with setting up and running payroll
- If concerned about an unknown unknown risk, this will cover all your bases
- Takes the burden of administration and keeping track of vacation, sick leave, away
- You have someone to do light mediation with HR requests and complaints
- You’ll have someone on the ground to advise you of things like when and how much raises and bonuses are appropriate
Cons of hiring through an EOR
- It’s an additional cost - USD $250-600 per month can be a large percentage of your accountant’s salary (potentially $1000-2000)
Other considerations -
- If you have a specific reason not to use contractors, the EOR will be the right solution
- For example,
- If your lawyer advises you
- If your clients have policies that you need to abide by (for example, some public companies or large corporations might)
- The EOR will inform you of policies and procedures you'll need to be aware of, such as the process for terminating an employee
Pros of hiring as contractors
- It’s easy and simple, the fastest way to get started
- It’s flexible
- No additional expenses
Cons of hiring as contractors
- You have to do the administration of payroll, etc.
Most of TeamUp’s clients go the contractor route
- Of the firms I talk with across the US, Canada, and Australia - most hire team members as contractors.
Most people who use an EOR have a specific reason related to their company structure and compliance.
Key Takeaways
At TeamUp, we believe in the power of building your own team, your own culture, and your own relationships. That way, you can train your team your way.
If you want to learn more, you can join one of our free daily small group calls and we'll walk you through it.
