Do you need to hire staff in Spain but don’t yet have the necessary accreditation? Expanding your business to another country means complying with labour and tax regulations that can slow down recruitment. To facilitate human resources management without the need to create a legal entity from the outset, there are solutions such as Employer of Record (EOR).
This option is ideal for expanding companies that need to operate immediately without incurring the costs and time of incorporation. Other models, such as the Professional Employer Organisation (PEO), are not suitable for these cases.
Both options facilitate human resource management, but have key differences. The choice depends on the needs and objectives of each foreign company that wants to operate in Spain.
Below, we will analyse in detail what an EOR is, and how it differs from a PEO.
What is an Employer of Record (EOR)?
Firstly, an Employer of Record (EOR) is a perfect solution for foreign companies wishing to expand their presence in Spain without the need to set up a local legal entity. This option allows them to hire talent in an agile manner and comply with all the country’s labour and tax regulations. In addition, all this is done without the complex costs and formalities associated with setting up a subsidiary or affiliate.
In practice, the EOR becomes the legal employer of the employees in Spain. In this way, it assumes the management of payroll, benefits, regulatory compliance and all tax and labour obligations. The foreign company, on the other hand, maintains control over the day-to-day functions and performance of the employee. It does not have to worry about legal and regulatory issues.
What are the main benefits of choosing an EOR?
- Global expansion without a local entity: One of the biggest advantages of working with an EOR is the ability to expand a business internationally without having to create a legal entity in each country. This allows for rapid and flexible expansion, without the administrative barriers that normally accompany the creation of a new subsidiary.
- Risk-free compliance: The EOR takes care of compliance with all local tax and labour regulations. This means that the company does not have to worry about complex laws in each country. This not only saves time and resources, but also eliminates the risk of penalties for non-compliance.
- Reduced legal and tax risks: By using EOR, the company transfers the legal responsibility for the employment relationship to the EOR provider. That is, any legal disputes related to the employee will be handled by the EOR, reducing the risk of legal and tax problems for the contracting company.
- Simplified payroll and benefits management: The EOR takes care of payroll, taxes, benefits and other administrative aspects related to employees. This allows the client company to focus exclusively on the operation and growth of its business.
- Flexibility in hiring and termination: Importantly, companies have the flexibility to hire and fire employees quickly in any market. This eliminates the hassle of legal termination procedures and the complications of local employment contracts.
- No administrative hassle and no additional costs: Through the EOR, companies eliminate all administrative formalities related to international recruitment, which significantly reduces operational costs and administrative burden. This is especially advantageous for companies looking to quickly enter new markets without complications.
A more practical example would be the following: An entrepreneur runs a software company in the United States and wants to open a market in Spain. To do so, he could set up a subsidiary, but that would involve months of paperwork, opening bank accounts, registering with the tax authorities and social security.
In contrast, with an EOR, the same entrepreneur can hire a team in a short period of time. They would work for the company, but without having to manage contracts, payroll, taxes and social security. Importantly, if in a year’s time you decide to expand into another market or readjust your team, you can do so without the costs and restrictions of having a legal entity in Spain.
And what is a Professional Employers’ Organisation (PEO)?
Another recognized outlet is a PEO, which, although feasible for foreign companies, already requires the entity to have a legal entity in the country where it operates.
On the other hand, a PEO is still an entity that establishes a co-employment relationship with a company, sharing the management of employees in administrative and legal aspects.
Unlike the EOR, the PEO is not the legal employer of the employees, but acts as a strategic partner that optimizes human resources management.
In which situations is an EOR or PEO preferable?
While both solutions aim to facilitate the management of employees and reduce the administrative burden on companies, there are fundamental differences that can determine which is the best option in each case.
EOR is the best option in the following scenarios:
- Expansion without a legal entity in Spain: If you are a foreign company that wants to hire talent in Spain without the need to open a subsidiary or branch. The EOR allows you to do this quickly and in compliance with all the necessary regulations.
- Market testing or temporary projects: If you want to evaluate the Spanish market before committing to a long-term investment, the EOR gives you the flexibility to hire employees without taking on the administrative and tax burden of setting up a company.
- Agile hiring and regulatory compliance: If you need to hire employees in Spain immediately, without worrying about legal formalities or the complexity of Spanish labour regulations, the EOR offers you a turnkey solution.
- Reduced legal and tax risks: As a legal employer, the EOR assumes responsibility for regulatory compliance in Spain, avoiding penalties or problems arising from a lack of knowledge of local legislation.
- Scalability and flexibility: If your company plans to grow in Spain without a fixed structure, the EOR facilitates expansion without being tied to a local entity, allowing you to hire and operate with greater freedom.
How to make the right choice?
The choice between an EOR and a PEO depends on the specific objectives and needs of each company.
If you are a foreign company that wants to hire talent in Spain without establishing a legal entity, the EOR is the most efficient solution. With the EOR, you can operate in Spain immediately, without worrying about the legal formalities and costs associated with setting up a local structure.
On the other hand, if your company already has a legal entity in Spain and needs support in human resources management without ceding legal control of employees, a PEO may be an alternative. However, the PEO is not a solution for companies that have not yet established a subsidiary in the country.
In which case, LEIALTA helps such companies to structure their expansion in Spain in a strategic manner.
Before making a decision, it is essential to evaluate these favours, but, above all, it is important to be advised by professionals.
