What is an Employer of Record (EOR)?
Employer of Record (EOR) is a service for you to hire individuals or employees on behalf of another business, usually, these employees will fall under the auspices of the Employer of Record (EOR) Service.
For example, you currently want to expand your business to Indonesia and use Abhitech’s Employer of Record (EOR) services. So Abhitech will help companies employ local residents without having to set up a PT (Perusahaan Terbuka) or Entity in Indonesia and remain fully compliant.
Learn more: Employer of Record (EOR) services from Abhitech in our detailed overview.
You can imagine the convenience, right? Companies that do not yet have a local entity can operate normally, can have full-time employees and are assisted in remaining compliant with Indonesian regulations.
This is also in accordance with what was said by Weforum.org If an employer does not yet have a stable business in Indonesia, or just wants to enter to expand there often their only choice is to hire freelancers or contract employees.
Companies cannot hire full-time employees because they are hampered by regulations. Which results in not being able to provide health insurance, pensions, and other benefits. This also makes them vulnerable to the risk of misclassification.
Employer Of Record (EOR) addresses this problem by allowing companies without an entity to employ people full-time and provide benefits according to their rights.
Many companies already use Employer of Record (EOR) services when quoting Business Research Insights
“Global employer of record market size was USD 4299.1 million in 2021. And the market continues to grow so that, it is estimated that in 2031 it will reach 8045.3 million.”
Top 6 Benefits of Using an Employer of Record (EOR) Services
1. Quick Market Entry
Is the most frequently needed benefits of using Employer of Record (EOR) By using the Employer of Record (EOR) service you will be able to enter the market faster. In fact, it can be much faster than it should be because there is no need to wait several months to set up a local entity in Indonesia.
With Employer of Record (EOR) you can start expanding your business before even having a local entity in it.
2. Reduced Overhead Costs
Apart from taking a long time, setting up business registration in Indonesia also makes you incur unexpected costs such as office space, registration fees, visas, etc.
Discover comprehensive insights on starting a business in Indonesia.
If you use Employer of Service (EOR) you don’t need to pay these costs upfront. You can focus on marketing, product development, and customer service first.
3. Pain-free Compliance Monitoring
Source image: Freepik
A country’s compliance can feel confusing if you are not from that country, at least it will take longer to learn. Imagine the wasted time just to learn compliance.
Even when the business is running, monitoring your business is still in compliance will take up time and you should still focus on expansion.
4. Simplified Multi-Currency Payroll
Multi-currency payroll will present new problems for your business.
Forbes in one of the articles says that Risks With Multicurrency Accounts provide at least 3 risks from multi-currency payroll:
- Transaction Risk: When a company purchases goods or services from a foreign supplier, using the supplier’s currency. When the currency gains strength against the buyer’s currency, then the buyer has to pay more in his own currency to complete the transaction.
- Translation Risk: Currency volatility can affect your company’s financial reports. When a company has subsidiaries in different countries that use their respective local currencies, the parent company must translate the financial statements of those subsidiaries into its own currency for reporting.
- Economic Risk: This risk is experienced by multinational companies. Unexpected fluctuations in currency exchange rates can have a major impact on a company’s overall market value, future cash flows, foreign investments, and earnings.
If you use Employer of Record (EOR) then this risk can be mitigated because of several things
- Local Transactions: Employer of Record (EOR) can help companies conduct transactions in the local currency of the country where they operate, reducing transaction risk because companies do not need to worry about fluctuations in foreign exchange rates for payment of local salaries and services.
- Financial Report Management: By using Employer of Record (EOR), companies can more easily manage financial reports from various countries. Employer of Record (EOR) will assist in reporting and translating financial statements into the parent company’s currency, reducing translation risk.
- Operational Stability: Employer of Record (EOR) can help companies reduce economic risk by providing stability in international operations. For example, an Employer of Record (EOR) can help a company understand and mitigate the impact of currency fluctuations by providing advice on hedging strategies or other financial risk management.
- Administrative Efficiency: The Employer of Record (EOR) takes care of all administrative and legal needs, ensuring the company complies with all local regulations without having to worry about sudden changes in exchange rates affecting operating costs.
If you’re interested in Employer of Record (EOR) services, contact Abhitech to learn more.
5. Access to Talent Pool
Employer of record (EOR) services help companies find suitable local talent. Even though Indonesia is a country with the largest population number 4 in the world, it must be admitted that not all of them are suitable for your company.
If you work with an Employer of Record (EOR) service that really know the Indonesian market. This will really help you to filter and qualify which talents are suitable for your company.
Read more: Effective Strategies for Hiring Local Talent.
6. Flexibility
Employer of Record (EOR) services offer flexibility for companies of all sizes and industries. Whether you’re a startup looking to test the Indonesian market or a multinational corporation expanding your presence, Employer of Record (EOR) services can scale to meet your specific needs and adapt to changes in your workforce requirements.
Learn how you can maintain full control of your employees in our detailed article.
How Can an Employer of Record Help Expand Your Business to Indonesia?
Source: Freepik
If you already understand what Employer of Record (EOR) service is, of course, you can already imagine how Employer of Record (EOR) can help you enter Indonesia.
Additionally, quoting from People Managing People Employer of Record (EOR) services include:
- Employee onboarding
- Background checks
- Payroll processing
- Employment contracts
- Compensation benchmarking
- Payroll taxes
- Employee benefits
- Termination of employees and offboarding.
If I simplify it, if your company collaborates with an Employer of Record (EOR) agency like Abhitech, it will work like this:
1. Initial Consultation and Planning
Source Freepik
The first step involves identifying your business needs for expansion to Indonesia. Define your expectations, the talent you require, and other relevant details. This will help the Employer of Record (EOR) service tailor their support to your specific needs.
2. Legal and Compliance Assistance
Abhitech will provide navigation of complex Indonesian employment laws such as
- Law Create a Job or Law Number 11 of 2020 concerning Job Creation (abbreviated UU Ciptaker or UU CK)
- Law No. 13 of 2003 on Manpower: Governs employment contracts, wages, working hours, and termination.
Abhitech will ensure your company remains compliant with local regulations.
3. Recruitment and Onboarding
Abhitech will recruit local employees through Employer of Record (EOR) according to your needs and applicable regulations.
In Indonesia, there are several types of work contracts:
- Permanent Employment Contracts (PKWTT)
- Fixed-Term Employment Contracts (PKWT)
- Freelance or Outsourced Contracts
- Many more
Explore Abhitech Knowledge Base on PKWTT and PKWT for detailed information.
4. Payroll and Benefits Management
Once you find suitable talent and they start working for you, an additional benefit that Employer of Record (EOR) service can offer is doing Management of salaries and allowances in accordance with Indonesian standards.
The job of Employer of Record (EOR) service is not only to ensure employees are paid on time but also to take care of several other benefits such as:
- Health Insurance (BPJS Health): Employers must register employees with the national health insurance program.
- Social Security (BPJS of Employment): Covers work-related accidents, old age benefits, pensions, and life insurance.
- Holiday Allowance (THR): Employees are entitled to a religious holiday allowance, usually one month’s salary, paid before the major religious holiday.
5. Ongoing HR Support and Employee Management
You’ll get help with ongoing HR, this includes performance management and training to assist in handling employment issues and conflict mediation if necessary.
6. Risk Mitigation
Points 1-5 above make you avoid risk protection from potential legal issues and employment disputes.
Conclusion
There are many benefits if you use Employer of Service (EOR). Basically the Employer of Record (EOR) service helps with all things HR for your business.
However, you must pay attention to Employer of Record (EOR) partners in Indonesia.
When a company is seeking to expand into new markets, manage compliance risks, hire remote teams, or streamline HR processes, partnering with an Employer of Record (EoR) can be the most advantageous hiring option. By utilizing an EoR’s expertise and infrastructure, businesses can concentrate on their core activities while ensuring legal compliance and operational efficiency.
With over 30 years of experience assisting companies in Indonesia, Abhitech is your trusted partner for Employer of Record (EOR) services. Contact us to find out how Abhitech can help.
