Any sizeable modern business cannot function effectively without relying on independent contractors in some capacity. However, regulatory compliance issues when hiring, administrating, and paying independent contractors can quickly become messy, especially when international contractors and cross-border payments are involved. Here, Agents of Record come to the rescue.
What is an Agent of Record?
An Agent of Record (AOR) is a company that connects businesses and independent contractors, taking over all the administrative tasks, from hiring and classification to paying for contractors’ work. This, however, is specific to the HR industry — in the worlds of marketing or insurance, the meaning of Agent of Record is completely different, so don’t be confused.
In this article, we will talk in detail about AORs, the benefits of using their services, how to pick the right AOR partner, the future of the industry, and many other aspects so that you’ll have a full understanding of the matter.
How AOR Works
The general process of working with an AOR is rather straightforward:
- Screening AOR
You pick your AOR partner. We will talk about this in detail further down the line. - Selecting AOR
You meet with your AOR and discuss your business’s specific needs. When you prepare your action plan with the AOR, you should discuss your budget, the length of your project, specific benchmarks, the contractors you need, and all other important aspects of your cooperation. - Agreement
You sign the agreement with the AOR. Ensure that both parties’ responsibilities are clearly laid out in this agreement. - Sourcing contractors
Your AOR starts searching for suitable contractors or contacts the ones you have already found on your behalf. You can conduct interviews, review contractors’ data, or offload the entire process to the service provider. - Hiring contractors
Your AOR recruits contractors on your behalf, including contract drafting and all administrative tasks associated with the onboarding process. - Onboarding
Contractors start their work on your project. AOR is responsible for smooth onboarding of new contractors and their management. - Operations
AOR conducts all administrative tasks, including accurate billing and payroll. You only need to provide payments according to work contracts and the AOR agreement. - Control
Throughout the entire process, the AOR provider ensures compliance with all the relevant regulations.
AOR vs. EOR vs. PEO
Agent of Record isn’t the only form of outsourcing HR solutions currently available on the market. Two similar but distinct solutions are Employer of Record (EOR) and Professional Employer Organisation (PEO).
AOR handles independent contractor engagements, while EOR and PEO handle more traditional employer-employee relationships. EOR and PEO are quite similar worldwide, with the exception of the United States.
PEO handles HR tasks, payroll, compliance with local regulations, etc. However, the client company retains full control over the workers, from hiring to termination, and is fully liable as their legal employer.
EOR becomes the legal employer and takes over the employer’s liabilities. In this case, the client company only controls things like the work schedule and tasks given to workers.
We’ve prepared a chart so it is easier for you to see all the major differences between AOR, EOR, and PEO.
| Criteria | AOR | EOR | PEO |
|---|---|---|---|
| What workers the organization helps engage | Independent contractors | Fulltime and part time workers | Fulltime and part time workers |
| Functions fulfilled | Independent contractors onboarding, drafting of contracts, worker classification, payroll, regulatory compliance | Hiring employees, handling termination protocols, paying employees, managing HR operations, filing taxes, and complying with regulations in different countries | Local regulations compliance, payroll, benefits administration, HR operations |
| Key advantage | AOR is tailor-made to assist companies relying on independent contractors from different states and different countries | Reduces legal risks and takes over employer liabilities while also reducing costs and administrative burden | PEO is the most effective at cost reduction because services are provided on a larger scale compared with AOR and EO |
| Key disadvantage | AOR only focuses on independent contractors and does not handle all the HR tasks | Lack of control over employee connections since the EOR handles all the HR functions | Increased legal risks compared with EOR |
The more the business relies on independent contractors, especially international ones, the more it needs AOR services. It is also worth mentioning that AOR and EOR\PEO are not mutually exclusive. It is possible to employ both types of HR service providers. Moreover, some HR companies offer AOR and EOR\PEO services, albeit usually in different packages.
The choice between EOR and PEO is more complicated and will be discussed in a separate article.
The Benefits of Utilizing AOR Services
The most obvious benefit of utilizing Agent of Record services is ensuring regulatory compliance. Different countries, states in the United States, and regions in other countries have different labor laws. It is paramount for businesses to comply with all these regulations since failure to comply can incur hefty fines and even more serious legal trouble. The task is rather difficult, even for huge corporations with extensive legal departments.
A textbook example of possible legal issues is misclassifying workers. For example, Uber and Lyft classified their team of drivers as independent contractors while still having control over them only a legal employer can have, such as protocols for maintaining their vehicles, pre-determined working hours, and so on. Corporations had to pay huge fines and made many negative headlines.
AOR providers ensure that your workers are classified correctly and handle all the paperwork, including contracts, agreements, NDAs, etc. They also gather necessary information from contractors, such as tax reference numbers, bank details, and personal information, and, most importantly, assume the liabilities related to paperwork and data.
Utilizing Agent of Record services enables companies to delegate compliance to professionals specialized in this field. This reduces legal risks and costs since there is no need for an in-house compliance specialist.
However, Agent of Record benefits are not limited to compliance. For example, providers can conduct background checks and verify contractors’ qualifications on your behalf.
In addition, AOR services manage the payment process, which can get complicated, especially if cross-border payments are involved. Your AOR partner ensures that payroll, invoicing, expenses, and maintaining records are managed effectively and compliantly. This lessens your company’s payroll burden and greatly increases cost efficiency.
The final major AOR benefit is increasing your company’s operational efficiency. AOR providers take over time-consuming tasks that carry a lot of liabilities while not generating any revenue. Thus, by utilizing AOR services, you can focus your resources on achieving your business goals.
Choosing the Right AOR Partner
Your choice of an AOR partner determines whether you’ll actually be able to enjoy all the AOR benefits.
First, the AOR provider should have proven experience, solid expertise, and connections in your specific industry. For example, the maritime and software industries are regulated very differently, and a company experienced in one won’t be able to help you very much in the other. Expertise in your chosen market will ensure that the AOR provider can adapt their compliance assurance procedures to your specific needs and change regulations efficiently and promptly.
The second key aspect is the AOR provider’s reputation. A company that has been providing high-quality services for quite some time is obviously a safer bet than a newcomer, let alone a company that harmed its previous clients. The best option to verify the AOR provider’s reputation is to check reviews and testimonials of the AOR’s previous clients. Most providers have such reviews available on their websites or can provide client testimonials upon request. However, such reviews are curated, so doing your research and trying to obtain unbiased testimonials from third-party platforms or via your networking connections is worth it.
AOR in Different Industries
AOR providers tailor their service to the needs of the industry they are specialized in. Thus, their business practices can differ drastically since different industries have different regulations, needs, and “customs.”
For example, in the tech industry, virtually any role can be given to an independent contractor. It is considered normal in the industry to outsource even core components of the project.
In healthcare, on the contrary, AOR services are primarily focused on connecting healthcare institutions with independent consultants and contractors, providing supporting services, such as waste management or maintenance. Core healthcare specialists are usually employees.
AOR is evolving and we will soon see new trends in contractor management. Therefore, GEOR monitors the current situation and introduces new services according to the market needs.
The Future of AOR
The ever-changing modern environment necessitates constant adaptation from companies providing Agent of Record and other HR services. Currently, three main trends are influencing the AOR market.
Proliferation of Remote Work
Remote work isn’t a new phenomenon in general – software development has been outsourced for decades already. However, recently, especially during and after the Covid pandemic, remote work has become normal for many industries. Thus, AOR providers specialized in various industries adopt practices used in tech-oriented HR companies.
Proliferation of Freelance Marketplaces
Freelance marketplaces have become a key aspect of modern work environments. Never before had businesses had easier access to contractors from all over the world. However, while convenient, freelance marketplaces create new challenges regarding compliance. Modern AOR providers not only handle work with such marketplaces and all the relevant paperwork – some providers have proprietary marketplaces with curated pools of verified contractors that help to make the workflow smoother and more efficient.
Digitalization of the work environment
It is virtually impossible to imagine a modern business without a CRM and a set of business software and reporting tools. However, such software solutions are often out-of-date or proprietary, developed without provisions for easy integration with other systems. Thus, establishing effective digital communications with the client company and integrating CRMs has become an ongoing challenge for many AOR providers, especially outside of the tech industry.
