It cannot be a lot of stress and pressure for a small business owner to deal with responsibilities like payroll, human resources, worker’s compensation, taxes, etc. Handling accounting and taxes can be particularly difficult if the business owner does not have much experience with financial bookkeeping.
Employer of record services or professional employer organizations can actually handle all of these responsibilities for you. An employer of record actually hires all of the client company’s employees, thereby making the EOR the official employer for tax and insurance purposes. They serve as human resources and payroll solutions for small business, which frees up the business owner to focus on the core of their business.
For freelancers and independent consultants, there is what’s called a portable employer of record. A portable employer of record acts as an umbrella employer for self-employed professionals, in return for a small percentage fee on revenues earned. Busy freelancers can benefit from a portable employer of record helping ot manage their back-office tasks, but as with any business decision, there are professional employer organization pros and cons to consider.
Advantages
- Helps reduce administration burden for growing independent business practices
- Helps manage compliant taxation collection
- Helps (in certain cases) with required insurances to do business with large companies and government organizations
- Helps provide benefits under a group structure at a more reasonable cost
- Helps with expense recording and management to offset billable income
- Helps (in certain cases) with contractual obligations for obtaining new business under a corporate structure
- Can show income history and stability (in certain cases)
Disadvantages
- A percentage of billings are taken, reducing a portion of income
- Does not necessarily remove the burden of paying self-employment taxes, though offsets are available
- Requires prompt and appropriate payment of taxes against all earned income
- Does not usually allow an independent business corporate structure (there are exceptions)
- Requires some form of steady work/income to offset any purchased benefits (e.g. retirement, health, dental)
- Requires strict adherence to expense management and processing rules, creating oversight of expense management