Global Employment & Expansion — 9 min

Why should EU companies use an EOR when hiring across the EU?

Written by Paula Dieli

July 31, 2024

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If your business is based in the European Union (EU) and you want to hire team members in other EU countries, you may be asking yourself: why do I need an employer of record (EOR)?

After all, as an EU-based employer, the freedom of movement principles enable you to hire freely in other EU countries.

However, hiring abroad — whether in the EU or beyond — is often a complex and time-consuming process. Each country has its own employment and tax laws, and there are cultural differences to account for, too.

In this article, we’ll look more closely at these factors, and explain how using an EOR can save you time and money — and give you peace of mind.

Jump straight to a key chapter

What are the benefits?
How does it work in practice?
Hiring across the EU with Remote

What are the benefits?

When hiring in other EU countries (or indeed any other country), there are several ways an EOR can help, such as:

Adherence to local employment laws

Although EU laws supersede national laws, each member state still has its own local employment laws — and when you hire in those countries, you will need to navigate them.

For instance, while EU law stipulates that each member country must provide at least 4 weeks’ paid leave each year, the full number of minimum paid holidays can differ by country.

An EOR — like Remote’s — provides invaluable guidance in this regard, providing expert knowledge and advice on all relevant local employment laws and regulations. This expertise helps ensure that your company remains compliant, avoiding potential legal issues and costly penalties.

As your team member will be hired through Remote’s local entity, this also applies to your employment contracts (which are drafted by us). Moreover, Remote provides guidance on — and handles the execution of — terminations and redundancies, ensuring a seamless and fully compliant process at every stage of the cycle.

Crucially, we also keep abreast of any changes to local legislation, ensuring that you remain compliant. All of this can save you considerable time and resources, whether you manage compliance internally or through local third parties.

Adherence to local payroll tax laws

In a similar vein, each EU country has its own tax and payroll tax laws, including differing tax rates, filing requirements, and reporting obligations. Failure to comply with these laws can result in severe penalties, reputational damage, and legal complications.

Again, an EOR provides invaluable expertise, enabling you to manage payroll processes in accordance with local tax laws. In Remote’s case, our local, in-house team of experienced professionals stay on top of all changes and updates, while our automated, easy-to-use platform ensures accurate calculation and withholding of taxes, timely filing of tax returns, and compliance with employer contributions. This significantly reduces your administrative burden, and frees up your internal resources to focus on more strategic priorities.

As well as reducing administrative costs, improving accuracy, and enhancing efficiency, EORs can be a game-changer when it comes to managing international payments and currency exchanges. With established connections to local banks and financial institutions, Remote’s EOR can facilitate secure and efficient cross-border payments in multiple currencies, saving you the hassle and costs of juggling various bank accounts and currency conversions.

The need for a local tax representative

As mentioned, each country has its own tax laws — and they change regularly. As a result, having a local tax representative — in this case, Remote — is crucial.

Through our local entities and in-house experts, we know the local tax landscape intimately, including all the tax treaties and deductions that can potentially save you and your team members money. We can help you register for local taxes, file your tax returns, and even represent you in front of the tax authorities.

Without a local tax representative, you may find it difficult to meet your tax obligations, potentially leading to penalties and legal consequences.

It’s also important to note that, in some EU countries, appointing a local tax representative is a mandatory legal obligation. If you are a German company and you hire in the Netherlands, for instance, you must appoint a tax representative in the hiring country.

By enlisting the services of a local tax representative, you can confidently navigate the intricate web of EU tax regulations. This not only ensures compliance but also opens the door to potential tax incentives. With the burden of tax matters handled, you can direct your resources to other core business activities, propelling growth and success.

Access to local expertise

As well as providing compliance, tax, and legal guidance — and carrying out core HR processes such as payroll — your EOR acts as your on-the-ground expert.

This means it can provide valuable cultural insights that help you communicate effectively, build relationships, and integrate seamlessly into your new business environment. This reduces the chances of costly misunderstandings, ensuring a smoother cross-border expansion.

In addition to cultural expertise, EORs can also provide strategic guidance on local labor market conditions. They can offer insight into competitive salary structures, popular benefits packages, and how to stay compliant with local employment laws. This knowledge can help you build a strong, motivated team that will drive your success in the new market.

All of this gives your company a strategic advantage when expanding into new countries, allowing you to unlock their full potential and drive success.

Improved employer branding

A strong employer brand is crucial for attracting and retaining top talent, and an EOR can significantly help in this regard.

When people see that you're committed to playing by the rules and respecting local labor laws, they're more likely to see you as a responsible and dependable employer. This, in turn, boosts your employer brand, making you more appealing to top talent.

EORs also streamline the onboarding process, ensuring that your new hires are set up for success from day one. This can lead to increased employee retention and loyalty, which in turn reduces the costs associated with recruitment and training.

Moreover, a robust employer brand is vital for attracting investors and partners. When you showcase your commitment to responsible employment practices and EU regulations, your company becomes more attractive, leading to valuable collaborations and partnerships.

"Our investors are really excited about our international presence. Having a strong EOR partner in Remote allows us to expand internationally at a faster rate than we would have been able to by ourselves. That is a huge, huge benefit."
Luke McKinlay, VP of Finance at Fountain

How does it work in practice?

Using an EOR also gives you the option to be more flexible. For example, if you plan to hire in more than one country — whether or not it’s in the EU — an EOR enables you to hire, pay, and manage all those team members through one service on one platform.

This can save you significant amounts of time and resources, and can give you more wiggle room in different circumstances. Take the following scenarios, for instance:

Scenario one

As a German company, you opt to hire a software engineer in Romania. You take the time to find and establish relationships with local third parties to handle compliance, payroll, and other HR processes. However, after two months, it quickly becomes clear that your hire is not a good cultural fit, and that the relationship is not beneficial for either party.

You want to terminate the employment relationship, but you’re not sure whether it is legal to do so. You’ve also identified a suitable replacement, but they are based in Portugal.

Without an EOR: You would need to seek local legal advice to establish the legality of the termination. You would also need to terminate the agreements with all local third-party providers, which may be costly and complex. Finally, you would need to set up new local third-party partnerships in Portugal.

With an EOR: The EOR would advise on the legality of the termination in-house. There would be no need to set up or cancel third-party partnerships, as the EOR handles everything in-house (in Remote’s case, through our own local entities). You would be able to onboard your new Portuguese hire in days.

Scenario two

As a Belgian company, you have sales associates in your core product market, Poland. As your business grows, you identify the need to hire more salespeople in other key markets, including Slovakia, Greece, and Cyprus.

Without an EOR: You would need to find and hire third-party partners in those countries, which can be time- and resource-intensive. This can impact your time to market, enabling your competitors to gain a foothold. You would also need to pay and manage your team members in those countries using multiple local platforms.

With an EOR: You would be able to hire new team members in those countries in days, without having to set up any third-party partnerships. Despite being in different countries, you would be able to pay and manage all your team members on one platform.

Hiring across the EU with Remote

While hiring local advisors may seem like a good idea, it often comes with significant challenges and drawbacks. For one, it can be a costly endeavor, especially for small businesses or startups with limited resources. Local advisors may charge high fees for their services, and these costs can quickly accumulate when hiring multiple advisors in different countries.

"If we coordinated everything in-house, I’d have to hire an extra four people to manage the entities, local solicitors, tax firms, accountants, payroll, and translation services. It would cost upwards of $500,000 extra per year. Remote’s EOR takes that burden off of our plate."
Luke McKinlay, VP of Finance at Fountain

In addition, local advisors may not offer the full range of services and support provided by a global EOR provider. They may lack the infrastructure and technology to efficiently handle payroll processing, tax compliance, HR administration, and other essential employment-related tasks. This can result in fragmented and inefficient operations, making it difficult to scale and manage a growing workforce across the EU.

In stark contrast, Remote delivers a streamlined, cost-effective solution for team members in every EU country (and beyond). This includes:

Full compliance with employment laws
Payroll
Tax compliance
Benefits management (including equity incentives)
Onboarding and termination
Access to expert guidance and support
Day-to-day HR support
Contractor management

With Remote, you can confidently navigate the complexities of cross-border EU employment, saving you time, money, and resources, and giving you peace of mind.