Employer of Record ("EOR") 

1) Introduction

Employer of record arrangements enable companies to outsource employment responsibilities such as payroll, benefits, and compliance to a third-party organization, while maintaining control over their workforce. EORs act as the legal employer of the workers, but day-to-day work is managed by the contracting company.

However, such arrangements could potentially trigger a PE for the end user. Failure to take care over the PE consideration can result in tax exposure, as well as penalties for non-compliance.

       2)   Indicators of PE Risk

The individuals engaged under the EOR arrangement -

• Works from an office setup by the end user in the local jurisdiction.
• Undertakes core income generating activities of the end user.
• Habitually concludes contracts in the name of the end user.
• Plays a key role in negotiating the contract.
• Plays a senior role in the business of the end user.
• Sources and negotiating with the leads.
• Provides services to the customers on behalf of the end user.
• Routinely secure orders or negotiate contracts on behalf of the end user.
  
  

        3)   Key considerations

• Regular review of EOR arrangements to assess the tax risk.
• Keeping track of the headcount of employees under the EOR.
• Assessing the duties and obligations of the individuals working under the EOR.
• Proactively assessing the need for setting up a legal entity depending on the business growth.
  
  

       4)   How can Crowe help?

• Conducting a thorough risk assessment to identify the potential PE risks associated with EOR arrangements.
• Reviewing the contract between the entity and the EOR to ensure compliance with local laws and providing recommendation to minimize the PE risk.
• Ongoing review and providing recommendations to ensure tax compliance.