As global firms want to expand into emerging regions, India remains a hub for acquiring top talent. However, navigating India’s complicated legal and regulatory structure can be difficult, particularly for enterprises without a local legal organization.
Using an Employer of Record (EOR) has serious legal ramifications for both the employer (client company) and the employee. As the employees’ legitimate employer, an EOR is in charge of a variety of employment-related responsibilities. Here are the main legal issues for both parties:
Legal Implications for the Employer (Client Company)-
Compliance with Labor Laws
EOR works as per the Indian Labor Law. This includes meeting minimum wage standards, working hours, overtime regulations, and other legislative obligations. By providing 100% compliance with employment laws, the EOR lowers the client company’s chance of facing legal consequences.
Reduced liability
An EOR bears many of the legal risks that come with hiring employees, such as the risk of employee lawsuits, discrimination claims, and other employment-related disputes. While the client firm may still be liable depending on the circumstances, the EOR provides additional protection by absorbing a major percentage of the legal risk.
Contractual obligations
The client company signs a service agreement with the EOR that explains both parties’ responsibilities. It is critical that the client company thoroughly analyze and negotiate the contents of this agreement to protect their interests and hold the EOR accountable for its obligations.
Intellectual Property Protection
When working with an EOR, the client organization must have protective measures in place to safeguard its intellectual property. This includes requiring workers to sign nondisclosure agreements (NDAs) and ensuring that the EOR has suitable safeguards in place to protect the client company’s confidential information and intellectual property rights.
Legal Implications for the Employee
Relationship of Employment
Workers employed by an EOR are bound by an employment contract with the EOR rather than the client business. Accordingly, the EOR is legally in charge of the workers’ pay, benefits, and other employment-related issues. Nonetheless, the client business usually maintains authority over the daily responsibilities and output of the staff.
Benefits and Rights of Employment
Workers who are employed under an EOR are entitled to the same benefits and rights as other workers in the nation in which they work. This covers statutory benefits like as minimum wage, overtime compensation, and paid time off. The EOR is in charge of making sure that these advantages and privileges are granted in compliance with regional legislation.
Severance and Termination
According to local rules, the EOR is in charge of managing the termination procedure and making any necessary severance payments in the event of termination. The terms of the service agreement with the EOR and the particulars of the termination, however, may nevertheless impose some duties on the client organization.
Privacy of Data
As per the local privacy regulations, employees of an EOR have the right to protect their personal data. The EOR is in charge of making sure that these rules are followed when gathering, storing, and processing employee data. Additionally, the client organization must take precautions to protect employee data and guarantee that it is utilized exclusively for appropriate business needs.
Mitigating Legal Risks
Both the client business and the employee should do the following to reduce the legal risks connected with utilizing an EOR:
1- Check and discuss the service agreement’s terms with the EOR.
2- Make sure the EOR has a history of adhering to local rules and regulations.
3- Keep lines of communication open and work together with the EOR to resolve any potential problems.
4- When required, obtain legal counsel to make sure their rights and interests are upheld.
