Key Takeaways:
- Companies stop using an EOR for many reasons, from establishing their own legal entity or switching providers to relocating employees, downsizing, or exiting a market.
- Ending an EOR agreement doesn't necessarily mean employees lose their jobs. They can continue working for the same company under a new employment arrangement, although the transition must follow local employment laws.
- EOR offboarding involves more than canceling a contract. Companies must account for notice requirements, employee transitions, outstanding payments, and any applicable termination costs.
Companies use Employer of Record (EOR) services for different reasons, but ending an EOR relationship involves more than canceling a service agreement.
Depending on the circumstances, companies may need to transfer employees to a new employer or terminate employment contracts, while meeting all applicable local legal requirements.
Why Do Companies Stop Using an EOR?
Companies end EOR arrangements for various reasons, from changes in hiring needs to decisions about where and how they operate.
Opening a Local Legal Entity
As headcount grows in a country, or as a company commits to a long-term presence there, establishing a local entity sometimes becomes a more cost-effective alternative to using an EOR.
Switching to Another EOR Provider
Companies may decide to switch EOR providers because of pricing, service quality, platform limitations, country coverage, or changing business requirements.
Ending Operations in a Country
A company might leave a particular market, shift its business strategy, or consolidate operations elsewhere. If it no longer needs employees in that country, the EOR must terminate their employment in accordance with local laws before ending the arrangement.
Relocating Employees
When employees move to another country, their existing EOR arrangement may not suit the new location. Depending on where they're relocating, the company can either employ them directly or use an EOR that operates in the new country.
Restructuring, Downsizing, or Closing the Business
Financial difficulties, organizational changes, or a complete business closure can lead a company to reduce its workforce or eliminate certain roles, ending the need for EOR services.
What Happens to Employees When a Company Stops Using an EOR?
An EOR service agreement is between the company and the provider, while the employment contract is between the EOR and each individual employee. That means ending the service agreement doesn't necessarily end employees' employment.
When a company ceases using an EOR, employees will typically either transition to a new employment arrangement or have their contract terminated.
- Scenario #1: Employees continue working under a new employment arrangement. Employees may transition to being employed by the company's own entity or another EOR. Depending on the country and circumstances, this could involve a formal transfer, a new employment contract, or termination and rehire.
- Scenario #2: Employees' employment ends. If the company is eliminating the employees' positions, the EOR needs to terminate their employment in accordance with local laws.
For employees moving to a new employer, continuity of service is important.
Length of service can affect notice periods, severance, and eligibility for certain statutory benefits. Depending on local laws and how the transition is structured, employees may retain their length of service and accrued benefits, or be entitled to payment for any outstanding amounts owed.
How Does the EOR Offboarding Process Work?
Offboarding from an EOR requires coordination between the provider and the client company, from reviewing contractual requirements to managing employee transitions and final payments.
The exact process varies by country, provider, and whether employees are transferring to a new employer or leaving the company.
1. Review the EOR Service Agreement
Before ending the arrangement, companies should check notice requirements, early termination provisions, offboarding fees, and any remaining payments. Some EOR providers require companies to pay for the remainder of a fixed contract term, even if they stop using the service early.
Contractual notice to the EOR and statutory notice to employees are two separate matters. Giving the provider the required notice under the service agreement doesn't necessarily satisfy an employee's legal notice entitlement, which could be considerably longer.
2. Determine What Happens to Each Employee
Before the transition begins, the company and EOR need to identify affected employees and confirm next steps for each individual. A single EOR exit might involve multiple scenarios, such as transferring employees to a new legal entity in one country while terminating employment in another.
For employees leaving the company, additional offboarding tasks often include returning equipment, removing access, and conducting exit interviews.
3. Confirm Local Employment Requirements
Local laws determine the rules for employee notification, consultation, termination procedures, severance, accrued leave, and other entitlements. The EOR and the client company must determine which requirements apply to each affected employee.
As the legal employer, the EOR typically handles formal employment processes, while the client company makes the underlying business decisions and, under its service agreement, covers associated costs.
Some transitions also involve additional protections or procedures. For example, employee transfer rules may require consultation before a change takes effect, while collective redundancies can trigger notification requirements and mandatory waiting periods.
4. Coordinate the Employment Transition
Moving employees to a new employer involves coordinating employment contracts, payroll setup, benefits enrollment, and any necessary immigration support. If the company is establishing its own entity, it must also complete employer registrations and other local administrative processes.
Timing is especially important. An employee's last day with the EOR and first day with the new employer should be coordinated to avoid gaps in pay, benefits, or work authorization. For sponsored workers, the new employer may need to secure the necessary sponsorship and immigration approvals before employment can begin.
Before communicating a termination decision to an employee, the company should confirm the appropriate process and timing with the EOR.
Clear communication is important for both transfers and terminations. The EOR and client company should coordinate employee notifications, including any changes to employment terms, payroll, benefits, or termination arrangements.
5. Complete Final Payments and Close Out the Arrangement
Outstanding employee payments can include salary, expenses, bonuses, unused leave, and severance where applicable. These amounts need to be calculated and paid in accordance with local requirements.
The company must also settle any outstanding EOR invoices, offboarding fees, early termination charges, or other amounts owed under the service agreement. Any deposits or credits should be reconciled and refunded or applied as appropriate.
Finally, the EOR and client company should ensure all required employment documentation and records are complete and obtain written confirmation that the EOR arrangement has formally ended.
Frequently Asked Questions
Can a company terminate an EOR agreement early?
Yes, but the terms depend on the provider and service agreement. Some EORs allow early termination with advance notice, while others charge cancellation fees or require payment for the remainder of the contract term. Ending the service agreement also doesn't eliminate any outstanding employment-related responsibilities.
How long does EOR offboarding take?
There's no standard timeline. The process depends on the provider's notice requirements, local employment laws, and whether employees are transferring or being terminated. Establishing a new legal entity or obtaining work authorization may further extend the timeline.
Can employees transfer to another EOR without losing their length of service?
Yes, in some cases. Whether employees retain their length of service depends on local employment laws and how the transition is structured. Some countries require continuity of service for qualifying employment transfers. In other cases, the new employer might agree to recognize prior service, even when it isn't legally required.
Who pays severance when an EOR arrangement ends?
Severance isn't automatically required when an EOR agreement ends. Whether it's owed depends on local employment laws and the circumstances of the employee's departure. When severance is required, the EOR typically administers the payment as the legal employer, while the client company covers the cost under its service agreement.
How RemoFirst Simplifies the EOR Offboarding Experience
Business needs change, and international employment arrangements should be flexible enough to change with them. Whether a company is hiring its first international employee, establishing its own legal entity, or restructuring operations, RemoFirst provides support throughout the employment lifecycle.
With no annual contracts and transparent pricing starting at USD 199 per employee/month, RemoFirst gives companies the flexibility to employ people in 185+ countries without making long-term commitments.
And when circumstances change, we're here to help manage the transition, from navigating local employment requirements and coordinating employee transfers to handling final pay, severance, and documentation.
Looking for an EOR that supports your business at every stage? Book a demo.
