We’ve discussed Professional Employer Organization (PEO) and Employer of Record (EOR) services and the benefits they offer many times before. Still, typically these services are best suited to companies wanting to hire or transfer employees overseas. For those wishing to deal mainly or exclusively with independent contractors, Agent of Record (AOR) services provide a specialized yet similar service.
Here, we explore the definition of an AOR, its benefits, and how you can ensure you’re getting the best deal.
What is an Agent of Record?
An Agent of Record (AOR) service is where a third-party provider hires and takes care of all administrative and regulatory requirements relating to independent contractors for a client. These tasks can be done locally or globally, with the AOR services provider acting as a go-between for the client and contractor.
An AOR is used because independent contractor regulations may differ a lot between states or countries. The AOR can also provide specialized expertise and experience when providing compliance assurance.
Compliance errors when dealing with contractors are a severe issue, and mistakes such as misclassification can lead to costly fines or legal investigations, which may damage your ability to operate, thus threatening your expansion strategy.
Like an Employer of Record (EOR), Agents of Record offer HR outsourcing services that ease your administrative burden and streamline your interaction with contractors. The enhanced protections of the AOR acting as an intermediary gives you reduced liability and less chance of errors, as well as offering the contractor peace of mind and the potential for enhanced benefits.
The term AOR is more commonly used in this context in the US, although it is becoming more popular worldwide. Like many business acronyms, several definitions are found online as companies define the service differently.
The range of services typically offered by an AOR includes:
- Compliance assurance
- Work agreement formation and management
- Onboarding administration (setting up bank payments, preparing W-9 forms, etc.)
- Payroll and invoicing
Sometimes, an Agent of Record can mean an insurance agent contracted through an AOR letter only to act as a go-between for a client company and an insurance companies. However, this definition may be covered by the separate Broker of Record (BOR) to avoid confusion. Because of this, it’s always best to check the exact nature of a company’s AOR services.
Why Use an AOR Service?
There are many reasons to seek the advice or partnership of an Agent of Record provider like INS Global. Companies that stand to benefit the most are those who:
Work in multiple countries or regions
An independent contractor’s legal definition differs significantly from country to country. That’s why keeping up with the variations in requirements, as well as all changes to local or national laws, can seriously strain your HR and legal departments. An AOR services provider has the best employment law specialists and recruitment guides to keep you compliant at all times while keeping you on track with local best practices in each of your target markets.
Have different ongoing projects or expansion plans that require contractors
Organizing accurate payments and managing the needs of contractors for different projects at once may be too much for SMEs to handle in-house, especially when going through periods of transition or growth.
An AOR allows you to leave the administrative tasks to a professional services provider. At the same time, you focus on the day-to-day management of your staff. That way, you can leave the hassles to those with experience dealing with these matters, and your team can follow your global expansion strategy goals.
Are unclear on local regulations relating to contractors
In some states or countries, the laws surrounding independent contractors and their work status are unclear at best. In many countries, independent contractors require a specific work agreement and do not require companies hiring contractors to file taxes or make social security contributions on their behalf. They may need to complete detailed paperwork such as a W-9, W-8BEN, or 1099 NEC, or national equivalents.
In other countries, independent contractor status is not formally recognized, and all agreements are made as business-to-business agreements. The legal employer must closely monitor these agreements to avoid misconduct that could lead to allegations of misclassification.
Agent of Record: The Pros and Cons
CON: An may not handle every process involved in working with contractors (finding and dealing with the Agent of Record, interviewing contractors, etc.)
PRO: You still save time by outsourcing all day-to-day or repetitive administration tasks that aren’t directly related to growth or profit goals
CON: Another monthly fee
PRO: You only have to deal with a single fee that relates directly to the number or quality of contractors you hire, plus your employees remain focused on more essential jobs
CON: You may feel a sense of disconnect from the workers you are hiring
PRO: The presence of an intermediary removes any chance of liability errors and reduces management time
CON: A lack of transparency with some providers
PRO: Providers with a guaranteed track record like INS Global offer the expertise you need with as much or as little communication as you like
How to Choose an Agent of Record
Your Agent of Record needs will relate directly to how contractors are defined and protected in your target market or industry. That’s why you want to find an AOR with the right expertise in that chosen market with solid connections to your chosen industry. More than this, the AOR should be aware of current trends and how to efficiently adapt their compliance assurance procedures to adapt to new requirements effortlessly.
The right AOR provider for your work needs proven experience offering their services in your chosen market. The proper experience here means you can hire or manage contractors safely, knowing that the AOR’s network of support and connections in your chosen market is sufficiently well-developed before you begin.
All of this can be checked through reviews and testimonials by an AOR’s previous clients. These should be freely available upon request or available on the AORs website. At the same time, you can use unbiased third-party sites like G2 to discover a greater range of testimonials.
The Steps Involved in Appointing an Agent of Record
First, meeting with the Agent of Record before you decide on any arrangement is important. The AOR should be able to discuss your specific needs and then formulate an individual plan of action. This may involve talking about the specific services you need, the length of your project, and the AOR offering guidance on local benchmarks or best practices when hiring contractors.
Sign an AOR agreement with the provider that lays out the responsibilities of both parties.
Now, the AOR can begin the search to find suitable independent contractors or make contact with those you have already found. This will be based on your needs, and you can take interviews or review a shortlist of candidates.
The AOR then forms work contracts with the contractors on your behalf, taking care of all administrative tasks involved with onboarding.
The contractor can work begin work on your project. The AOR provides ongoing support like accurate payroll, and you simply pay according to the terms of both work contracts and your AOR agreement.
Agent of Record vs. Employer of Record: Understanding the Differences
Simply put, Agents of Records and EORs are similar HR solutions in that they offer many of the same worker administration services. You can see the exact definition of an EOR (and a PEO) in this article.
Where they differ is that while EORs provide these services to employees by becoming your employees’ official employer of record, AORs specialize in the administration and compliance assurance of independent contractors.
An EOR handles all the HR tasks related to employment contracts, including payroll processing and employee benefits administration. Employer of Record services are more commonly used by companies looking to expand overseas while managing HR in an unfamiliar regulatory system without needing to set up a new entity.
This is an essential difference as employees and contractors require very different skill sets and knowledge to manage them properly. Misclassification can lead to serious fines or penalties, depending on your area of operation.