This is the second part in a series with Baruch Swinkin. Baruch Swinkin is the Co-Founder and CFO of Route 38 Professional Services LTD. In the first part, we discussed how he established Route 38. In this part, we will discuss an overview of the Employer of Record service.
What services does Route 38 offer?
We offer various consultancy services for veteran olim, people in the middle of their Aliyah journey, or even just beginning to consider their potential options. The Employer of Record Service is our flagship service.
We will discuss the Employer of Record Service in detail soon. What other services do you provide?
We also assist businesses outside of Israel who would like to dip into the Israeli resource pool. We work with people who have been in Israel for thirty years, as well as people who are just beginning their journey.
Suppose you are starting a new business or job opportunity. In that case, you want to educate yourself as much as possible, specifically regarding the accounting and tax reporting requirements and obligations relating to earned income.
Suppose you have any questions regarding opening an individual tax file (tik atzma’i) or a company or want to understand the benefits of working with our solution or whether there are other options. We offer consulting services for all of those requests, and if we feel that you need specific guidance from an expert in the field, we will refer you to our vast network of expert professionals. You will walk away with a wealth of information and resources to make the best possible decision for you.
Additionally, we also help open up companies (LTDs) for people here in Israel and manage them with the same care and exactness, just under a different umbrella. This allows you to focus on building your business and to save money over the long term, while we take care of all the corporate management and accounting needs of the company.
Lastly, we can open up an independent tax file for those in start-up business mode or just earning NIS 7,500 or less per month and offer guidance along the way. And there are many more services and offerings that we plan to roll out over the next couple of years.
What is an Employer of Record?
An Employer of Record, or EOR, is an organization that overtakes the legal responsibilities of employing your employees to decrease complexities associated with HR functions, market access, and paying employees internationally. The EOR becomes the primary employer of a client’s employees on paper.
Does the employer of record benefit the individual and the company?
An employer of record service benefits both the individual and the company.
Companies who do not want to hire an employee for various reasons but want to engage them in work want to keep the substantive framework of the employer-employee relationship intact, without the legal designation. In addition, they may be operating either in the same country or possibly in different countries or have headcount or other budgetary concerns to contend with.
Suppose the company does not want to take on the liabilities or risks associated with employment. In that case, a third-party company will come in and employ the individual that the company is looking to hire. This third party takes on all the employment liabilities, risks, and responsibilities for a fee.
There can be a couple of different frameworks that this service can build upon. First, it can come from the hiring company that is happy to take on the responsibility but doesn’t want the employee on their books. Second, it can come from the individual who wants the protections afforded by having employment status and receiving a pay stub. These are the classic cases of when an employer of record service can benefit either or both parties.
What are the advantages of an Employer of Record service for individual employees?
There is a massive advantage for the individual, the employee who is signing up for the service. They may have lived here for twenty years, or they may have just gotten off the plane. Either way, the laws in a new country can be challenging to comprehend, and it can be hard to find reliable resources to ensure compliance. There could be language issues, bureaucracy, culture issues, and nuance issues; they may have to hire and rely on an accountant who doesn’t speak their language. When you move to a new foreign country in general, you have enough new challenges to deal with. An employer of record service will take that off of your shoulders and allow you to get a pay stub right away, which will help you in many ways.
This, of course, applies to Israel, but it also applies to most places around the world. When a person goes to a bank or is trying to get a mortgage or car loan, having a pay stub with proof of employment shows consistency. It shows that there is money coming in every month. It demonstrates a level of responsibility. It shows that there is a level of safety involved. As opposed to operating your own business as an independent contractor, as a freelancer, where incomes tend to fluctuate, and loan officers and bank managers are less likely to give out loans in those situations. So having a pay stub is a terrific bonus.
What are the advantages for the company?
The company can hire an individual without raising their headcount, and they can hire an individual in a foreign country without creating nexus, a tax footprint, in that country. It’s an excellent protection for them. They don’t have to learn the tax laws, employment laws, and regulations themselves. This is because the employer of record service in the foreign country will take care of them. Hopefully, they will educate themselves in a language they understand in a nuance they know, thereby decreasing the amount of work and research they need.
It allows them to reach new markets that they would not be able to touch, or think about before, to expand their reach, and expand the horizons of what they can accomplish in a very affordable fashion.
What are the disadvantages for the company?
They are few. In my experience, some of the concerns that I have heard from managers and owners, and C suite executives in foreign companies hiring someone in this process, are that they lose their employee-employer relationship. You do create some level of a 1099 contractor relationship. There is a concern of just what that means emotionally. That means that both sides are technically free agents. And one of the reasons for establishing an employee-employer relationship is to create a bond. While the intent is certainly that that bond is there, the reality is that there is a 1099 relationship.
Do employers of record save companies money?
Of course, that depends on the fee structure and competency of the service that you engage. There are, of course, costs associated with the service. Some employers of record services charge a tremendous amount of money. It’s also supposed to save time and energy. If the service that has been hired is inefficient or unknowledgeable, then the hiring company will end up spending more time than saved. At Route 38, our objective is to save time and money and ensure timely, accurate tax reporting for both companies and individuals while mitigating any exposure for either party.
Are there risks to the hiring company?
For the company, it could get in a lot of hot water. Suppose it doesn’t research correctly. Suppose the company chooses an employer of record service that is not firmly planted in the foreign country they are looking at and is not as experienced or knowledgeable of its regulations and labor laws. In that case, they could find their tax positions very vulnerable. The “employer” needs to select a provider that knows what they are doing. There is much trust placed in them. Therefore, it’s imperative to do significant research ahead of them.
The next part will discuss the kinds of companies that use Employers of Records and their emergence on the global stage.