Why You Need an Employer of Record to Manage Your Small Business HR

Jul 28, 2023

Why do you need an Employer of Record? Because figuring out small business HR isn’t easy. If you have few employees, what’s the best way to pay them? Beyond that, how can you provide health and other benefits so that your employees will stay? And what about the complicated federal and state taxes you have to account for?

It may be tempting for small business owners to use a payroll service and stop there. But there are important reasons you should partner with an Employer of Record to provide for your employees and protect your company. With an Employer of Record, the workers are legally employees of the partner company. They are then assigned back to your business for their day-to-day management. Read on to learn how partnering with an Employer of Record might be the best way forward for your small business.


Human Resources is Time-Consuming

Most small business owners have specific interest areas that they are best at. Human resources is rarely one of them! Covering all small business HR functions—including developing an employee handbook, handling employee relations issues, and compiling and sending out W-2 forms—is a full-time job. An Employer of Record that specializes in these HR functions can handle all this for you, allowing you to focus on what you do best.


Top Talent Expects Top Benefits

How strong is your recruiting? The best candidates are not likely to leave their current jobs to accept a role with your company if they aren’t provided benefit options. Healthcare, dental, and vision plans are the basics that most employees depend on. Optional benefits like life insurance, 401(k) programs, and flexible spending accounts make your offer more attractive. A payroll company can’t provide these benefits for your employees because you are the employer. By choosing an Employer of Record partner with a wide range of benefits available, you’re providing for your workers even if they’re not legally your employees.


Sick Leave Regulations Vary by State and Locality

If you happen to have remote employees, you don’t have control over where they live. What happens if they move to another state? Or a metropolitan area with different laws? At Checks and Balances, Inc., HR specialists monitor the ever-changing paid sick leave regulations that vary so widely by location. We also watch for changes in federal employment laws so that every employee is covered per their rights.


International Business Is Even Trickier

What if an employee moves to another country? Or you want to hire someone who is already living abroad? If you want to do business internationally, you may be required to set up a local legal entity wherever your employees are. An Employer of Record will be able to employ your workers wherever they are without setting up another entity. (Or if they’re US-only, the likely have international partners to work with for these scenarios.)


Are They Contractors or Employees?

Maybe you’ve engaged with an independent contractor (IC) to do some work for you. Are you certain that your relationship follows the requirements to operate that way? There are specific factors that indicate whether a worker is legally an IC or an employee—and employers are charged major fines if they get it wrong. An Employer of Record not only helps you with proper classification, they also handle payments to ICs on your behalf and send each a Form 1099 at the end of the year.


What Is the Difference Between a PEO and an Employer of Record?

A professional employer organization (PEO) provides many similar services to an employer of record. However, a PEO is typically a co-employer, meaning you share the responsibility and burden of liability. To help mitigate the risk of misclassification, mishandling taxes, and missing other key regulations, an Employer of Record is your best choice.

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