If you are a contract professional or a business that uses contract professionals — and more people are these days — chances are you have been asked to engage the services of a third-party employer of record (EoR). In this post, I explain the profound advantages of a premium employer of record over an ordinary EoR and why a premium employer of record is always your best choice.
What is an Ordinary Employer of Record?
An Employer is a person, business, organization or government agency that is legally responsible for paying people who work for it. Responsibilities of an employer include withholding and paying mandated taxes, providing required insurance coverage and, optionally, providing employee benefits.
An Employer of Record (EoR) is a special class of employer that typically employs people working on a temporary assignment for a third-party client under the terms of a contract between the EoR and the client. You might say, an employer of record is an employer for the record, filling in as the legal employer at the convenience of the client for which the work is done.
Common names for an EoR include: temporary help agency, contract recruiting firm and staffing vendor. The businesses recruit individuals whose skill sets and experience match temporary job assignments advertised by client companies.
EoRs generally employ a worker only for the duration of the contract assignment and then terminate employment when the job is done or the contract is up. Because employment is usually short-term there is little incentive to provide more than the most basic of employee benefits, if any at all.
Many recruiters and contract staffing vendors find it convenient to outsource their back-office responsibilities to a specialized back office provider. Back-office providers become the EoR. As with most other EoRs, back-office providers typically fire the worker when they are no longer needed by the client.
I call EoRs that routinely fire their employees ordinary EoRs to distinguish them from premium employers of record.
The Characteristics of a Premium Employer of Record
You can distinguish a premium employer of record from an ordinary EoR by these key features:
Continuous, Uninterrupted Employment
Contract professionals employed by a premium employer of record enjoy continuous, uninterrupted employment over a succession of contract assignments and multiple clients. Ordinary EoRs automatically fire their contract workers when the current contract assignment is up.
Detailed Cash Flow Reporting
A premium employer of record provides a complete cash flow report, essentially a profit and loss statement, to the contract professional, including the billing rate to the client, the gross revenue stream to the contract professional, as well as a full accounting for how collected revenues are spent to arrive at the employee’s gross pay. An ordinary employer of record typically hides the billing rate, calling it “proprietary and confidential information”, thereby denying the contract worker access to the fate of their own cash flow, which includes their true value to the client and the true cost of using a recruiter to locate contract assignments.
Tax-Free Write-Offs Same as if Self-Employed
A contract professional employed by a premium employer of record enjoys the same tax-free write-offs as a self-employed professional. This includes tax-free reimbursement for out-of-pocket business and medical expenses. The employee can save thousands of dollars in taxes, thereby increasing their total compensation. Ordinary EoRs deny their contract employees this tax benefit, potentially leaving thousands of dollars unnecessarily “on the table”.
401(k) With IRS Maximum Employer Match
A premium employer of record offers a premium 401(k) plan with both employee-side voluntary deferral and employer-side match, allowing a total tax-deferred contribution for 2015 and 2016 of $53,000 ($59,000 if over age 50). Ordinary EoRs — if they offer a 401(k) at all — generally do not offer an employer match. This means the employee of an ordinary EoR can save no more than the maximum voluntary deferral from gross wage of $18,000 ($24,000 if over age 50), costing the employee of an ordinary EoR as much as $35,000 per year — or more! — in tax-deferred retirement contributions and compound growth.
Executive-Level Benefits Package
A premium employer of record offers a comprehensive employee benefits package comparable to the executive-level benefits that elite corporations offer to their own employees. Ordinary EoRs typically offer only the most basic of employee benefits, if they offer any benefits at all.
Generally speaking, a premium employer of record will have ALL of these features. An ordinary EoR will have NONE.
The Innovative Solo Workforce Business Model
One notable example of a premium employer of record is Solo Workforce (SoloWorkforce.com). What makes Solo Workforce stand apart is its innovative, tax-advantaged, business model. They have created what is arguably the nation’s most powerful employer of record platform, designed specifically for highly skilled contract professionals.
When a contract professional joins Solo Workforce they become the manager of their own one-person business unit, called a division. There are as many divisions as there are Solo Workforce employees. Each division operates like a separate one-person business. Each contract professional operates like a self-employed independent contractor. In this regard, contract professionals enjoy all the freedom, independence, flexibility and tax advantages of self-employment.
Additionally, as an employee of Solo Workforce, contract professionals qualify to receive the executive-level benefits and personalized administrative support of elite corporate employment. Solo Workforce employees receive higher tax-advantaged income, better benefits and greater independence than they could possibly receive through self-employment, temporary employment or traditional employment. In other words, “Solo Workforce employees enjoy the best of both worlds.”
The revenues Solo Workforce collects on behalf of each contract professional enters the employee’s division as a pre-tax revenue stream. These pre-tax funds cover the very small administrative service fee, purchase the employee’s benefits, pay the employer’s share of payroll taxes, reimburse the employee for out-of-pocket business and medical expenses and contribute the employer’s match to the employee’s 401(k) account. The remainder of the revenue stream makes up the employee’s taxable gross pay. With every paycheck, the employee receives a cash flow report with a full accounting of their division’s financial activity.
Solo Workforce Employees Earn Higher Tax-Advantaged Income
The tax-advantaged business model of Solo Workforce enables higher total compensation than the traditional business model of an ordinary employer of record. In fact, the Solo Workforce business model is so powerful that Solo Workforce employees typically earn higher tax-advantaged income than a self-employed independent contractor with the same gross receipts.
An ordinary EoR cannot offer its employees a tax-advantaged income because an ordinary EoR has no tax advantages to offer.
Powered by Solo Workforce
As a premium employer of record, Solo Workforce safely and efficiently connects the consultants, companies and recruiters that comprise the contingent workforce. Solo Workforce is the engine that powers the beneficial relationships among stakeholders in the contingent workforce.
Solo Workforce Powers Consultants
Employment as a Service. Solo Workforce offers advantages to its contract professionals that are simply unavailable through an ordinary EoR. The option of continuous, uninterrupted employment, detailed cash flow reporting, tax-free write-offs of out-of-pocket business and medical expenses, an aggressive 401(k) with IRS maximum employer match and an executive-level benefits package let contract professionals employed by Solo Workforce keep far more of their revenues as tax-advantaged income.
It’s a fact, if you are a contract professional and you join Solo Workforce, you can earn higher total compensation than a self-employed professional with the same gross receipts. An ordinary EoR cannot offer its employees a tax-advantaged income because an ordinary EoR has no tax advantages to offer.
Solo Workforce Powers Companies
Compliance as a Service. Individuals, small businesses, large corporations, and government agencies demand safe and efficient engagement of their contract professionals. Solo Workforce provides the staffing industry’s strongest affirmative defense against claims of co-employment and other legal challenges to worker status.
Solo Workforce has an excellent reputation for safe and efficient engagement of contract professionals. While managing contingent workforce compliance throughout the United States since 1998, no contingent worker managed by Solo Workforce has ever been reclassified as an employee of the client. Solo Workforce compliance is 100 percent effective.
Solo Workforce Powers Recruiters
Back Office as a Service. Solo Workforce is FREE, on-demand and nationwide. The Solo Workforce premium EoR is the nation’s most powerful payroll, benefits and compliance platform, ideally designed for contingent recruiters and contract staffing professionals who place highly compensated contract professionals.
Solo Workforce safely and efficiently transforms your recruiting business into a highly profitable, more efficient contingent recruiting and contract staffing enterprise. The Solo Workforce premium employer of record platform lets recruiters and their staff focus, without distraction, on what they do best: recruiting and delivering talented contract professionals for their clients nationwide.
The tax-advantages, comprehensive employee benefits and superior back office infrastructure of Solo Workforce turns any direct-hire recruiting firm instantly into a highly efficient contract placement business, one that is highly desirable to both contract professionals who want only the best in back-office support and client companies that demand only the safest and most convenient engagement.
Summing it Up
The term employer of record (EoR) describes a special class of employer that typically employs individuals while they are working on a temporary assignment for a third party client under the terms of a contract between the EoR and the client.
A premium employer of record includes: (1) the option of continuous, uninterrupted employment, (2) detailed cash flow reporting, (3) tax-free write-offs same as if self-employed, (4) 401(k) with IRS maximum employer match and (5) executive-level benefits package. Generally speaking, a premium employer of record will have ALL of these features. Ordinary EoRs, including temporary help agencies, contract staffing firms and traditional back-office providers, will have NONE.
The innovative Solo Workforce business model lets contract professionals take home higher tax-advantaged earnings and higher total compensation than someone with the same billing rate who is employed by an ordinary employer of record.
As a premium employer of record, Solo Workforce is strategically positioned to provide premium “employment as a service” to consultants, premium “compliance as a service” to companies and premium “back office as a service” to recruiters.
Make Sure It’s a Premium Employer of Record
Whether you are a consultant, a client company or a recruiter, if you need the services of an employer of record, your best solution is a premium employer of record and, I can think of no better choice than Solo Workforce.