An Agent of Record (AoR) for international business
You may know what an Employer of Record is, but what about an Agent of Record? Discover the differences and how each can contribute to international HR and business expansion.
The explosion of the gig economy in recent years, accelerated by the work culture of the post-pandemic era, has introduced a number of key changes to the way we conduct business internationally in 2024 – making the job of an Agent of Record all the more important.
Indeed, 12% of the world’s labour market is currently accounted for by freelance and independent contractors, while a record 43-46% of Gen Z and Millennial professionals in the US identify as freelancers.
The benefits of working with independent contractors overseas cannot be overstated – from near-instant access to a global talent pool of experts in niche areas, to improving the cost-effectiveness of your operations and gaining access to new, previously untapped markets.
And yet, given the rapid rate of evolution in both work culture and international labour and tax law standards, hiring independent contractors abroad can come with challenges and potentially prohibitive financial, legal, and reputational risks.
In this article, we define the role of an Agent of Record (AoR) in comparison to the more familiar responsibilities of an Employer of Record (EoR). We discuss the importance of engaging an AoR’s services in pursuit of compliant business expansion, and explain how an Agent of Record can help you to safeguard your business practices for the future.
What is an Agent of Record (AoR)?
An Agent of Record assumes responsibility on your business’s behalf for the compliant classification, engagement, onboarding, and payment of independent contractors living abroad.
Working with an AoR mitigates the various risks associated with hiring independent contractors abroad, so that your enterprise can enjoy the benefits of engaging freelance expertise risk-free.
Every independent legal jurisdiction around the world - countries, states, autonomous regions, territories or provinces - has its own rules governing the classification of full- and part-time employees versus contractors. This makes navigating the nuances of these distinctions, for purposes of international compliance, something of a minefield. An AoR takes the responsibility for compliance out of your hands.
Exploring the responsibilities of an AoR
Many Agents of Record offer additional business expansion solutions to help you expand internationally in a compliant and cost-effective manner. However, your chosen partner’s responsibilities will likely encompass six key tasks.
1) Contractor classification
Inarguably the most important responsibility assumed by an Agent is to ensure the proper and compliant classification of any contractors you choose to engage. Worker classification is increasingly important in the gig economy so as to preserve and protect the rights of both the employer and the worker.
It is usually the responsibility of the employer to correctly define each worker they engage with as either an ‘employee’ or ‘independent contractor’, yet the definitions of each can vary from country to country. An Agent of Record takes this responsibility out of your hands, and as such should have the legal training and know-how to ensure watertight classification.
2) Contractor labour law compliance
Similarly, the local and international labour laws governing the rights of independent contractors are liable to differ from place to place. For example, the legalese contained within the contracts you offer contractors - AKA freelancers or 1099 workers - must adhere to the laws of the worker’s country of residence. An AoR can help you ensure that each contract you offer a freelancer is 100% compliant with local labour laws.
3) Contractor onboarding
When onboarding independent contractors, there are a number of key documents you must acquire from the freelancer to assist with their compliant classification, payment, and more.
These include the contractor’s banking information, personal details, national insurance, and tax numbers, to name a few. An Agent of Record will help gather these documents for you and can even offer additional onboarding services such as background checks and reference reviews.
4) Contractor communication
Another core responsibility of your chosen Agent is to act as a go-between for you and your contractors. Not only can an AoR assist in communication with your team of freelancers, but it will continue to ensure compliance as your relationships develop.
For example, if you wish to continue working with a contractor after the completion of their initial contract, an Agent can ensure that this evolution does not stray into the territory of an employer-employee relationship.
5) Contractor payment
The manner in which you pay international independent contractors is also both important and challenging to get right. Outsourcing payroll to an Agent of Record guarantees that contractors are paid fairly, on time, via a cost-effective payment method, and in compliance with the labour and - most importantly - tax laws of the freelancer’s resident jurisdiction. Compliance here could save you untold costs in legal fees and financial penalties.
6) Risk mitigation
A final, overarching responsibility of the AoR is to minimise and ultimately mitigate the many risks you face when engaging the services of independent contractors abroad.
In addition to employee misclassification risks, plus tax and labour laws, working with an AoR can also help to protect your international corporate and brand reputation by ensuring fair and transparent treatment of workers.
Tasks outside the Agent of Record’s responsibility
Before we move on to discussing the differences between an Agent and Employer of Record, it’s important to note that an AoR does not assume total responsibility for the engagement of contractors. As the employer, you will remain in charge of the elements of the relationship key to your projects’ success.
- Recruitment: Whilst AoRs help with onboarding and contractor verification, the responsibility for sourcing and hiring freelancers remains yours.
- Project management: Similarly, though an Agent can streamline communication between the business and its contractors, you are responsible for overseeing the projects you assign to each.
- Auditing: Lastly, any auditing of freelancers would typically be conducted by the employer and not the AoR.
The key differences between an Agent of Record (AoR) and Employer of Record (EoR)
Many of you reading this may well have heard of an Employer of Record (EoR) before. As an Agent of Record assumes responsibility for the globally compliant engagement of freelance services, an Employer of Record takes responsibility for the compliant hiring of full- and part-time employees – especially those living abroad. Below, we compare the two.
AoR | EoR | |
Purpose | To help you compliantly hire independent contractors, freelancers, and 1099 workers, anywhere in the world. | To help you compliantly hire employees (part- or full-time), anywhere in the world. |
Responsibilities |
| |
Employment type | You retain responsibility for the ‘employment’ of contractors. | The EoR assumes responsibility for the employment of employees in their host countries. |
Risk management | The AoR mitigates risks associated with engaging international independent contractors. | The EoR mitigates risks associated with hiring employees abroad. |
Suitability (present) | An AoR is useful if you already engage the services of several overseas contractors. | An EoR is useful if you already have, or have identified, employees who are or will be working remotely. |
Suitability (future) | An AoR could be useful in future if you have diverse projects and tasks which could benefit from the quick, expert execution of freelance workers. | An EoR could be useful in future if you wish to expand your business into new markets overseas. |
Why is hiring an AoR important?
We hope it has already been made clear just how valuable an Agent’s responsibilities can be. Nevertheless, it is worth taking a moment to explore the most fundamental reason that working with an AoR is important to the success of international businesses. Namely, avoiding the misclassification of your contractors.
The challenges of contractor misclassification
It is the employer’s responsibility to correctly classify their workers as either employees or independent contractors. Whilst this may seem straightforward, the challenges presented by misclassification are heightened for two reasons:
- Rules and definitions around worker classification are constantly evolving, as the world of remote work and the gig economy continues to evolve.
- The same rules and definitions can vary greatly from country to country.
- For example, the UK employs a specific ‘Off-Payroll’ policy called ‘IR35’ for classifying workers – a policy which is in use nowhere else in the world.
An Agent of Record takes the responsibility for classification out of your hands.
The risks of triggering misclassification laws
There are a great many risks associated with taking classification into your own hands. Failure to correctly classify your contractors and employees - an action known as ‘misclassification’ - can result in lawsuits, financial penalties, and the back-payment of taxes owed to the authorities, as well as employee benefits owed to the misclassified freelancer.
All of these consequences are in addition to the reputational damage which misclassification can cause to your international brand -both on an employee and customer level - ultimately affecting your bottom line.
A real-world example of the risks of operating without an AoR
Not too long ago, Uber, one of the world’s most successful ride-sharing service providers, faced, rather than employees.
Though the relationship between Uber and its drivers shared characteristics similar to those of an employer-contractor relationship, ultimately the company was found to have retained certain rights over its workers which pointed to an employer-employee relationship.
As a result, Uber was ordered to pay millions of dollars in compensation to its misclassified employees. The news story also made headlines, alerting potential Uber customers all around the world to the company’s unfair treatment of its drivers.
How to grow your business with Mauve’s global expansion solutions
For anyone planning to expand their business internationally, the benefits of hiring freelance talent will undoubtedly be attractive. Independent contractors are experts in their field, living all anywhere in the world, and able to assist you efficiently and cost-effectively with projects central to your business’s global growth.
Engaging those contractors compliantly, however, is another matter entirely. Few businesses - even large multinationals - have the know-how, resources, or patience necessary to ensure proper classification, onboarding, contracting, engagement, and payment of freelancers, while remaining 100% compliant with all applicable laws and regulations.
If these scenarios describe your own situation, then we would highly recommend engaging the expertise of an Agent of Record (AoR) today. Talk to Mauve, and find out how the services we offer could help you to mitigate risk and hire freelance talent compliantly, anywhere in the world.
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