Direct Staffing vs Employer of Record – A Complete Guide (Free Template)

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Growing your business comes with its pains, whether expanding your workforce or setting up larger operations. Both require a game plan and adopting a suitable staffing model to fast-track your success – but how do you decide which model works for you – Direct Staffing or Employer of Record? Here is a function-by-function breakdown to help you understand which service suits your business growth needs.

What is Direct Staffing?

When businesses need to hire a new employee, they handle the recruitment, talent acquisition, and interviews in-house and hire the employees directly onto their own payroll. This model allows businesses to handle every aspect of hiring and employee management, including HR, payroll benefits administration, tax, and labor law compliance. Direct staffing is one of the most common ways businesses acquire new talent, as it allows them to stay in control and navigate their employee/employer relationships more efficiently.

What is an Employer of Record (EOR)?

An EOR, or Employer of Record, is a third-party service provider that assists companies in seeking and hiring talent. They act as the legal employers of record for the company’s employees and handle all employee-related responsibilities. Think of an EOR as a bridge between a business and its employees. They hold various tasks like payroll, benefits, tax, and compliance while the company maintains control over employee performance and assignments.

Download our Free Employer of Record (EOR) RFP Template

Managing Business Functions – Direct Staffing vs Employer of Record

While each staffing model allows you to acquire quality talent, they do differ in employee management and how they handle essential business functions. Here is a side-by-side comparison of how each model navigates staffing and operations.

Each business functions differently, and based on its objectives, it can choose how much control it wants over its workforce and operations. The decision to choose direct staffing or an employer of record depends on the breadth of its operations, business strategy, and workforce management goals.

It is up to you to allot specific resources to one part of your business to free up decision-making and implementation time – but before you decide about employment staffing, consider some essential factors that can help you decide in favor of direct staffing or employer of record services.

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Essential Factors to Consider for Quality Staffing

What is more important to you? Hiring an employee yourself to have more control over their performance, or freeing yourself from the lengthy processes of hiring and letting someone else handle the headache? This fundamental question determines which staffing model works better for you.  Ask yourself how each of these aspects impacts your operations.

Talent Quality and Skills Shortage

When it comes to hiring top talent in employment staffing, companies are competing for a small pool of candidates. Direct staffing is less ideal for seeking talent, especially in high-paced industries that demand specific skill sets, because of limited talent acquisition and recruitment capacity. As an employer, your talent search is limited to your vicinity and finding passive, but skilled candidates can become challenging.

Employer of record services have access to a wider pool for competitive positions like accounts receivable or accounts payable specialists, collectors and digital marketers, because they have elaborate systems in place. They tap into a larger radius, going offshore and remote to find certified and experienced experts to meet your skills shortage. Another upside to partnering with an employer of record is their continued support in managing that talent, to ensure high performance from your chosen employees.

Turnaround Time

Does your hiring process prioritize finding an employee faster or matching one to your required skills and expertise?

• Suppose you decide to go with direct hire staffing. In that case, you will control the decision-making process from A to Z. This approach will allow you to manage recruitment, screening, and onboarding in-house and establish a more personal relationship with your employees.
• Some businesses consider this a better model because it fosters trust and authority. It pays to know the boss – but the boss also benefits from knowing their employee.
• The only downside is the time it takes to find the ideal candidate, especially if you do the legwork yourself.

If you choose an employer of record service, you can free yourself from the entire hiring and employee integration process.

• They handle recruitment, screening, interviewing, and onboarding for your company. More importantly, they know how to hire diverse candidates, which is harder for independent firms to do independently.
• Almost 52% of recruiters have faced the challenge of hiring top talent before their competitors this year, so choosing an employer of record allows them to reduce turnaround time by hiring quicker and better, especially when other avenues are comprised like freelance sites, and you need alternatives for temporary staffing, fast.

Scalability

If you are a growing business that plans to expand its operations and profitability, you must rely on scalable talent that grows with your company.

• Scalability is not just about numbers. You need employees with transferable skills and a growth mindset to upskill themselves as required.
• Direct staffing allows you to seek employees who will support your growth by taking on key roles to boost your operations.
• Hiring new talent is just as time-consuming as firing existing employees, and fluctuating workloads cause delays at both ends. Imagine doing all that in addition to fulfilling your daily tasks and objectives.

Employer of Record services excel at scaling talent according to your business needs.

• They have a pipeline of qualified candidates and swift integration processes to find you a valuable employee to take over your growing workload.
• One of the most enticing aspects of engaging an employer of record is hiring experts for staff augmentation to improve crucial operations like IT, technical support, and seasonal workload.
• They also expertly handle offboarding processes and employee replacements to cater to your needs without pausing your internal operations.

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Cost

Hiring is an expensive process, from start to finish, involving multiple processes that require constant investment.

• You must pay employee compensation and benefits like health insurance and bear the overhead costs of recruitment, onboarding, training, and performance management. Add the sting of payroll taxes to that mix, and you have a hefty amount.
• Not to mention, employee replacement and offboarding are real possibilities, and that is not cheap either. As the primary employer, you are responsible for bearing these costs in direct staffing, which can eat into your bottom line.

Inversely, engaging an employer of record involves paying them a monthly or annual fee for EOR services, encompassing all the abovementioned processes.

• Additionally, EORs are responsible for payroll taxes and benefits on your behalf, taking the pressure off you.
• They provide affordable staffing solutions to positively impact your business, such as sourcing candidates from regions with lower labor costs and taxes to save you money.
• They offer discounts and incentives for long-term contracts without holding you in a lock-in agreement.

Administrative Burden

Running a team is not easy, nor is hiring one. Significant administrative processes are involved in employment staffing, especially for HR and finance departments.

• In direct staffing, you must employ HR personnel to handle recruitment, screening, and onboarding and assign payroll processing and benefits administration to additional accounting staff.
• More than that, employee engagement and performance management demand attention and drain your resources and time.

Employer of Record services take the administrative burden off you by handling recruitment, placement, compliance, employee engagement, and performance management.

• Their expertise extends to various aspects of HR, finance, employee relations, and business strategy, allowing you to grow your operations without being dragged down by daily employee management tasks.
• Employer of record services are particularly beneficial for companies that want to optimize their business with expert staffing solutions. They provide risk-free methods to expand productivity and profitability in multiple jurisdictions without taking on more administrative duties.

Employee Engagement

As mentioned earlier, hiring your perfect candidate is one part of the job; the other is keeping them engaged and managing them expertly to boost productivity.

• Direct staffing allows you to hire candidates according to your own standards and requirements and enables you to have a closer relationship with your employees.
• You are in control of your workforce and can monitor their progress closely.
• In direct staffing, you also have the responsibility of employee engagement, but it can be an opportunity for you to build lasting relationships with your employees, address their concerns, and foster loyalty, which inevitably reduces retention.

The downside of handling employee engagement yourself is the eventual distraction of administrative tasks, compliance procedures, and payroll processes that distract you from the real goal.

• Hiring an employer of record also ensures that they handle employee engagement with regular performance reviews, feedback, temperature checks, and team-building activities.
• They provide comprehensive hiring solutions to increase employee retention by handling employee relations and providing ongoing support.

So, there you have it. The next time you hire a new candidate or plan to expand your team, weigh the pros and cons of direct staffing or an employer of record to streamline your hiring processes and acquire top-tier talent.

Also read: Discover the Best Offshore Staffing Agencies in the US

Last Thoughts – Why Remote Scouts is Your Ideal Employer of Record

Despite the most robust talent acquisition and recruitment strategies, the biggest challenge for recruiters last year was tight talent pools. The answer? Find a trusted Employer of Record that can source quality talent for you and go one step further to retain it to maintain productivity and employee satisfaction.

Remote Scouts has distilled 13 years of employment staffing experience into developing its employer of record services for businesses facing skills shortages, limited talent pools and affordability issues in employing top candidates.