Hiring independent contractors allows you to fill urgent gaps, source specialized skills, and build a more dynamic workforce. But it only offers these benefits if your contractors are, in fact, contractors and not employees in the eyes of the countries where you hire them.
An Agent of Record helps you avoid the fines, wage audits, and legal disputes that can come with this issue of employee misclassification. But how exactly does the solution work?
In this guide, we’ll take a closer look at the question of what is an AOR, exploring the advantages of using the solution as well as addressing common misconceptions. You’ll find insights from Shalini Sugumaran, Head of Legal & Compliance at Multiplier and a comparison of AOR against other global hiring solutions.
What is an AOR?
An Agent of Record is a third-party service that helps you correctly classify your contractors in line with the local laws where you hire/have hired them. Armed with local legal experts, AORs have an extensive understanding of worker classification laws in different states and countries, ensuring that businesses don’t engage a contractor in a way that constitutes an employee-employer relationship.
When you consider that there can be a multitude of intricate factors that can lead a worker to be classed as an employee or contractor, the importance of this becomes clear. As Sugumaran identifies “It is a misconception to think that just one factor may cause a risk. You have to consider the role that is performed by the contractor. Will they be managing a team? How embedded is the contractor in your internal systems and performance management processes?” There are lots of questions to consider.
Let’s say you’re hiring a contractor in Spain. According to local employment laws, you shouldn’t set their working hours or give them company equipment as this would classify them as an employee. You also shouldn’t ask them to directly report to a manager… And it gets more complicated. In Spain, if your contractor spends 70% of their time working for you, they may be classed as a “dependent contractor,” a type of contractor that earns particular employee-like privileges.
An AOR will help you overcome these intricacies and more, helping you manage compliance over time and then drafting contracts to take admin off your plate. They also manage payments to make sure your contractors get paid on time and in their currency of choice.
The benefits of an AOR
Here’s a closer look at some of the crucial aspects an AOR will take care of.
1. Independent contractor classification
As we’ve already explored, employee misclassification is a huge legal minefield that governments dedicate extensive resources to pursuing. In part, this is because they need to chase missing taxes and in part, it’s because they want to ensure employees are treated fairly. As Sugumaran says, “If a worker is providing services more suited to an employee role but is marked as a contractor and is not entitled to employee benefits and protections under the law, this is something that governments and regulatory authorities take seriously.”
As a result, organizations that incorrectly classify employees may be held accountable for unpaid wages, overtime, and benefits, including healthcare and retirement plans. Additionally, they may face penalties for unpaid taxes, workers’ compensation, and unemployment insurance and wage audits where authorities scrutinize the employment terms and payment records to identify discrepancies.
An AOR helps an organization avoid all of this risk and legal hassle by helping you classify your workers correctly. This applies to new hires, old hires, and workers who you have an evolving relationship with.
2. Compliant contracts and agreements
As part of the onboarding process, an AOR takes on the responsibility of collecting essential documents from your contractor, including personal details, bank information, and tax reference numbers. They then help you create contracts that are compliant with the local laws where you are hiring and clearly lay out the terms of the contractor engagement. This may include clauses outlining working hours, taxes, and worker autonomy, for example.
3. Flawless cross-border payments
Paying contractors in other countries can be complicated. You have to pay in their chosen currency which can fluctuate rapidly, making it difficult for you to predict your expenses. It can also be hard to ensure that neither you or the contractor gets stung by transfer fees and exchange rate issues; payment delays are common.
An AOR streamlines the entire process. With Multiplier, for example, when you approve an invoice from a contractor, you make a payment to our solution and we pay your contractor in their local currency. This ensures a great experience for your contractors and allows you to budget more accurately with payments in your local currency. You’ll also get access to detailed reports and analytics that help you evaluate historic contractor-related expenses.
Avoid fines and lawsuits with our misclassification quiz
AOR vs. global hiring solutions
When understanding what an Agent of Record is, it helps to compare it to other solutions on the market. Here’s a quick comparison of AOR and other global hiring partners:
- Freelance/contractor management. These solutions do not help with compliance, but can help you onboard and pay your contractors.
- Employer of Record (EOR). Like an AOR, an EOR takes on the risk for you when you hire a global team. However, an EOR helps you onboard full-time employees, not contractors. You can use them to hire in another country without needing to set up a local office to comply with local laws.
- Global staffing agencies and freelance platforms. These solutions can help you find, onboard, and pay contractors, but they can’t support you with classification.
Common misconceptions about AOR
Now you know what AOR is, let’s explore what it isn’t by looking at some of the common misunderstandings people have about Agent of Record agreements.
AOR solutions are only for large businesses
AORs are often used to help large businesses manage extensive workforces of multinational contractors. However, they can be used just as effectively for SMEs hiring small numbers of workers. Solutions such as Multiplier start with affordable per contractor fees so that you can scale your contingent workforce while avoiding high fees.
AORs are a one-stop compliance solution
An AOR is a critical part of ensuring compliance, but it cannot do its job if you don’t provide it with accurate and complete information about your contractor relationship. For example, if you fail to disclose key details about the contractor’s working conditions, such as setting fixed working hours or providing company equipment, the AOR will not have an accurate understanding of the information it needs to assess classification.
But don’t worry — the right Agent of Record process will make it easy for you to share the necessary information to ensure that your contractor is, and remains to be, classified correctly.
Agent of Record solutions are risky to use
Some people share concerns around the financial risks of AOR, reporting fears that a particular solution might make a mistake when classifying the contractor that could reflect back onto their organization. However, the reality is that an Agent of Record shares the legal risk in these situations. Plus, as Sugumaran explains, it’s extremely unlikely that mistakes will occur. “By choosing an AOR that leverages legal expertise, the risk is very low,” she says.
Factors to consider when choosing an AOR
Before signing up with an Agent of Record (AOR), it’s essential to consider several factors. Here’s a checklist to help guide your decision:
- Fast setup. Look out for a tool that provides quick classification support and intuitive workflows for onboarding.
- Proactive compliance. Look out for a solution that automatically updates alongside changes in employment laws.
- Payment platform. Ensure the agency offers a robust payment solution so you can not only classify employees but pay them compliantly in the same tool. Look out for a platform where you can store and locate contractor invoices easily to save even more time.
- Automated timesheets. Look out for a tool where contractors can easily log hours and timesheets are generated automatically for approval.
- Pricing. Understand the agency’s pricing structure. Make sure it fits within your budget and provides value, but remember to compare this to the misclassification penalties you would face if you were to misclassify an employee.
- Data security. Given the sensitive nature of contractor data, the agency must have robust data security measures in place. Look out for GDPR compliance and SOC 2 Type 1,2 certification.
- Customer support. Choose a solution with effective human support so you can navigate compliance queries with ease.
Unlock global workforce potential with Multiplier’s AOR
If you want the benefits of working with contractors without the hassle, you need a solution that makes compliance a breeze. Multiplier provides a leading AOR solution, with proactive compliance guaranteed. That means we use in-house legal expertise, a network of lawyers, and compliance partners across the globe to ensure that we classify your workers correctly.
We also streamline timesheets and reporting, collect contractor invoices for you, and send payments in 120+ currencies to help you seamlessly pay your global workforce. Get started with the fastest setup time on the market and continue to scale, without the administrative hassle.
Want to hire with confidence? Learn more about our AOR.
FAQs
Q. What does AOR stand for across industries?
AOR stands for Agent of Record, but its meaning depends on the industry. In employment, an AOR is a service provider that ensures compliance when you’re managing independent contractors whereas in marketing AOR refers to an agency responsible for handling advertising efforts for a company. Meanwhile, in insurance an AOR is a broker authorized to manage and oversee an insurance policy.
Q. How does an Agent of Record help with compliance?
An Agent of Record (AOR) ensures compliance by properly classifying contractors, drafting contracts, and keeping up with regulatory changes.
Q. Which industries benefit most from AOR?
The advantages of AOR in business are far-reaching. However, the industries that benefit the most from Agent of Record services are those that rely heavily on contractors such as tech and marketing.
Learn the five steps to avoid misclassification
