Employers with employees across Canada could benefit from being aware of labour laws in the provinces and territories where they operate. Understanding the detailed aspects of these regulations can be time-consuming and errors can lead to costly penalties. To conserve valuable resources and prevent any breaches of compliance, employers might consider managed services. Managed service providers specialize in managing payroll, HR, and other services on behalf of the employer. This external support helps in maintaining compliance effectively without the employer having to delve into the complexities of employment regulations themselves.

Table of Contents

Employer of record vs. Professional employer organization vs Managed service providers

The key distinction between an Employer of Record (EOR) and a Professional Employer Organization (PEO) is that the EOR is the formal employer for a company's remote employees, whereas a PEO serves as a co-employer with the company.

Managed service providers (MSPs), on the other hand, contrast with both EORs and PEOs by involving a partnership between a company and a third-party provider for handling HR and payroll needs. Unlike EORs, which serve as the legal employer, and PEOs, which operate under a co-employment model, MSPs offer a wide range of specific services that can help a company manage its HR function.

What are managed services?

Essentially, managed services consist of collaborating with an external provider to handle businesses’ HR and payroll needs either fully or partially. The scope and nature of support businesses can get may vary with each vendor. It typically includes assistance with HR technology but can extend to areas such as HR processes, talent management, payroll, compliance advice, and more.

Some employers may find that their internal resources are stretched thin by the demands of administrative HR and payroll tasks or the need to stay current with laws that affect their business and workforce. Engaging in these activities can divert attention from more strategic goals or the day-to-day running of operations. Given that HR, payroll, and compliance might fall outside employers’ primary expertise, they may find value in collaborating with a vendor that specializes in these domains. Such partnerships can significantly lighten the load on employers, enabling a stronger focus on strategic and impactful work.

What do managed services include?

Payroll and tax administration:

Providers of managed services can take over payroll duties and might also extend tax and compliance aid. This can include refining payroll workflows with standardized procedures and best practices, along with payroll-related assistance to streamline operations and conserve resources. Furthermore, providers may also facilitate the integration of HR and time and attendance systems, ensuring a seamless computation of wages for hourly employees according to applicable laws.

Human Resources support:

Beyond aiding with everyday HR administrative tasks through technology, certain managed services providers may supply tools and resources for compliance management, employee onboarding, training and development, workplace safety, and drafting of employee handbooks and policies.

Handling compliance:

Some providers may possess dedicated systems aimed at ensuring compliance, helping employers remain up-to-date with alterations in HR and payroll regulations at all levels. They may offer counselling on adapting to these changes and maintaining adherence to tax laws, healthcare mandates, safety guidelines, unemployment insurance, reporting for new hires, and more. They can also assist in proactive strategy development for compliance management, thereby reducing organizational risk.

Talent management:

Beyond recruiting and training, some managed services providers can assist in the overall talent management process. They can help create an effective strategy for attracting, engaging, and retaining employees. While some may offer technological solutions for use in talent management, others may provide a more interactive approach that could help execute strategies for talent acquisition, onboarding, leadership training, employee satisfaction, compensation analysis, and performance management.

Specialist advice and guidance:

Certain providers may extend their support directly to employees for HR, payroll, or other queries through a mobile application or a dedicated hotline, providing access to live help. This facet of support enriches the employee experience, while simultaneously allowing HR departments to allocate more focus to strategic projects. It should be noted that some managed services providers might delegate this aspect of support to external centers.

Benefits of managed services

  • Growth and adaptability
    Managed services are designed to be flexible, ensuring that as businesses scale, the infrastructure and support scale with it. This adaptability means that no matter the pace or direction of growth, the business will have the resources needed to support it efficiently.
  • Expert support
    Access to a pool of dedicated experts in various fields such as HR, payroll, and compliance, means employers can rely on professional guidance. This may enable them to navigate the complexities of the modern workplace with confidence, knowing they have seasoned professionals backing their decisions.
  • Technological integration
    Using managed services can grant employers access to the latest technologies and tools without significant investments in hardware or software. This integration can help streamline operations, improve efficiency, and help businesses stay competitive in a technologically advancing landscape.
  • Data-driven insights
    Managed services can make the power of data analytics readily available. Harnessing insights from extensive data sets may allow businesses to make informed decisions, strategize effectively, and identify opportunities for improvement and growth that might otherwise remain unnoticed.

What is an employer of record?

A third-party provider known as an employer of record (EOR) takes on legal responsibility for employees of another company. This entity can operate either in the same province or country as the company or in a different one.

The EOR manages employment-related tasks, including payroll and compliance with regulations, while the client company retains control over its employees and their specific job duties. This setup enables businesses to expand into new regions without being bogged down by administrative responsibilities.

What does an employer of record do?

Employing an employer or record can enable corporations to hire employees worldwide without the necessity of establishing a business entity abroad or the danger of breaching local labour regulations.

Here are some functions an EOR may offer:

  • Compliance with local labour legislation
  • Onboarding new hires
  • Handling international payroll, or of other provinces/territories
  • Overseeing compensation and benefits
  • Executing termination of agreements

Explore ADP Canada’s HR outsourcing solutions:

  • ADP HR Assist®
    A self-service HR software solution where you can access HR resources and tools to help you navigate through HR challenges and manage risk for your business. Learn more
  • ADP Workforce Now® Comprehensive Services
    An advanced, all-in-one software platform with dedicated specialists in HR and payroll, who will partner with your team to offer strategic guidance, best practices, process efficiencies and more. From compensation to employee engagement, our experts can help elevate your HR strategy. Learn more

Frequently asked questions

What is the difference between managed services and HR outsourcing?

Managed services might occasionally be labeled as “HR outsourcing”. However, HR outsourcing generally implies a partnership for HR-related duties only, potentially excluding payroll processing, benefits management, and talent development. Managed services tend to provide a broader scope of support, targeting business outcomes rather than merely handling administrative roles.

Can you employ international workers without an EOR?

Certainly; however, embarking on such a venture may require establishing a legal entity within the nation or engaging the workforce as independent contractors. Each choice may have its own advantages and disadvantages.

By setting up your own legal entity, you take on the responsibility of overseeing your operation in the new country. This includes recruiting legal counsel, payroll experts, and personnel to oversee benefits, among other specialists. This approach might be justifiable if your aim is to recruit a large workforce in the new locale. However, for smaller teams, opting for an employer of record is a more economical choice.

On the other hand, opting for the contractor model requires vigilance. The issue of misclassifying international contractors is a significant one and may potentially result in substantial fines and legal consequences. Using an EOR can mitigate these compliance concerns by ensuring that workers are employed correctly.

How much does an employer of record cost?

Employer of record pricing structures generally come in two types: a flat rate or a percentage-based model. With a flat rate, companies are billed a consistent fee per employee, regardless of the employee's position or salary. With the percentage model fees are calculated based on a portion of the employee's salary; thus, costs fluctuate based on the employee's role and pay.

It can be wise to exercise caution with the EOR fee structures that leverage the percentage model. The costs associated with global employment can vary widely; however, a proficient EOR should be able to provide a clear upfront cost.

What are the responsibilities of an employer of record?

The main duty of an employer of record is to serve as the official employer for your workers in global or interprovincial regions. By lawfully employing individuals on your behalf, you effectively shield your company from legal and compliance liabilities.

An EOR tackles the challenging HR responsibilities associated with recruiting employees. Different regions have various regulations regarding payment frequencies, mandatory paid leave, severance pay and more. EORs navigate these complexities for you, allowing you to spend less time on tedious administrative tasks and more time on expanding your team and focusing on your business goals.

It should be noted that EOR does not oversee the day-to-day tasks or performance of the employee. Your interaction with employees hired through an EOR remains the same as with all other employees.

This guide is intended to be used as a starting point in analyzing what is an employer of record and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.