For a business owner, there are various advantages of going global. From expanding your business’s reach to a global clientele to lowering your project development costs and getting access to an international talent pool, business expansion to foreign shores pays well. Whether you’re acquiring another company, expanding your business’s footprints, or furthering a mission, establishing your business entity overseas offers you a powerful opportunity to grow. However, in a new land, hiring new employees, and handling the associated responsibilities for their employment costs, liabilities, and tasks may not be what you’ll like to deal with. And that’s exactly where an employer of record (EOR) can help.
What’s an EOR?
In simple words, an employer of record refers to a third-party organization that handles the responsibility for legal and financial procedures required to set up and run an office overseas.
An EOR company handles all personnel functions, which include:
- Arranging all work permits and visas for the employees, avoiding refusals or delays
- Doing background checks
- Meeting all labor laws of the host country pertaining to worker protections and local contracts
- Onboarding local employees with employment contracts compliant with the laws of the land
- Processing and funding payroll
- Supporting the HR needs of the in-country employees
- Depositing and filing taxes
- Handling workers’ compensation
- Creating and maintaining employment contracts
- Advising the client about requisite notice periods, severance pay, and termination rules
- Offering and administering employee benefits
- Handling tax documentation
When you outsource your payroll and HR functions to an employer of record, you can free up precious time as you won’t have to deal with potentially time-consuming payroll and HR issues. You’ll just need to pay the EOR a set rate for each hour the employee works, and the EOR will handle all tasks.
When your business needs to handle payroll processing and comply with employment laws for employees in multiple countries or different US states, using an employer of record can be especially helpful. As the EOR stays updated on the local and state laws, you won’t need to lose sleep over learning and complying with laws in different countries and multiple states or locations.
With an EOR, foreign employment becomes easy for a company of any size. Whether your business wants to work with local residents or expats, an EOR is equally effective for both as it’s in complete compliance with the host country’s laws. For your business, this translates to no risk of violating tax, labor, and employment regulations in the host country.
The EOR is liable for handling employment issues, along with tax laws and payroll compliance. However, it won’t interfere in project-related tasks or workflows, thus offering your business full management freedom.
It’s important to remember that what exactly an EOR stands for differs from country to country and even from one industry to another. For instance, in the United States, this means that state tax authorities will have the EOR registered as the employer (typically with an EIN or Employer Identification Number) and legally responsible for withholding payroll taxes. An employer of record may also need to register with the State Department of Labor for paying unemployment taxes. In contrast, in the United Kingdom, registration as the EOR happens on a nationwide basis.
Why should you use an EOR?
If your business has plans of global expansion or you’re somehow involved with such planning, perhaps you already know there’s a lot to think about. When you’re plagued by a lack of local expertise or speed, an employer of record could be the best option for achieving your worldwide growth objectives.
If you’re still not sure why you need an EOR, here are some reasons that have prompted businesses and companies like yours to join hands with an EOR provider to assist their international expansion efforts.
1. Remove barriers to exploring and entering local markets
Establishing an entity overseas offers a lot of benefits, such as the opportunity to tap into an extensive talent pool, access an affordable workforce, and have greater workplace diversity. However, registering a business entity abroad has its fair share of challenges.
Countries with bureaucratic red tape like India, Argentina, etc., are likely to make you wait for months to get the embassy’s approval for starting business activities. During this period, you’ll keep wondering if you should continue pushing to explore the new market in your target countries or give up on your dream of a global office and focus on hiring employees in your home country instead.
How an EOR can help: An employer of record is an officially registered company in your target country with an approved right to hire and pay employees. By hiring an EOR firm, you can begin seeking talent abroad and get work started on your projects right away, without trying to battle the red tape. Even when you just want to test the waters in your destination country, an EOR can help by letting you begin your operations with your new workers, without making any commitment in terms of money and time for establishing an entity on the foreign land.
2. Ease of compliance with local laws
Companies expanding their business to foreign shores often find themselves entangled in a legal mess because they aren’t aware of local trade and labor laws. For instance, European companies require employers to give their female employees at least a 14-week maternity leave. A company in the US with less than 50 workers, where the Family and Medical Leave Act (FMLA) won’t apply, may not be aware of such requirements and could land in legal trouble due to its lack of awareness of the EU legislation. This could pave the way for expensive lawsuits and invite a lot of troubles, including a bad market reputation.
How an EOR can help: To manage your employees and teams in a legally-compliant way and avoid any legal mess, you can rely on an employer of record. EOR agencies have a solid grasp of business and labor legislation and ensure all your business processes are compliant. In the worst-case scenario of a breach of law, you won’t be liable as the business owner. Instead, the EOR will have to take responsibility. In other words, when you hire an EOR, you won’t need to worry about the consequences of non-compliance with local labor laws or accidental tax documentation negligence because the EOR will be liable for it.
3. Save precious time
Handling employment details, processing payrolls, complying with tax and labor laws, and dealing with HR issues are time-consuming tasks. You may choose the DIY approach and try managing paperwork, running payroll, administering benefits, and terminating employee contracts, along with juggling a dozen other management tasks. However, this would mean you won’t have adequate time on your hands for your core business activities, like crafting and implementing marketing strategies, improving your offerings, and building meaningful connections with business partners or clients.
How an EOR can help: You can save a lot of precious time by hiring a reliable EOR firm that manages employee payroll, tax payments, and other formalities. The time thus saved can be better used in strengthening your core business areas instead of researching international laws and procedures for hours.
4. Cost-effective option for a global office
The first step of setting up a local entity on foreign land is incorporation and registration. This takes a lot of time and money, in addition to needing proficient accounting and legal support to ensure compliance. The expenses related to hiring financial and legal experts and building a team overseas from scratch end up burning a deep hole in the budget of companies.
How an EOR can help: Byhiring an employer of record, you can save up on hiring financial, legal, and HR consulting firms. Thanks to the high flexibility of EOR companies, you get the room for exploring new markets and even shutting down your global offices if the collaboration ends up not being as efficient as you had envisioned it to, without worrying about upkeep and employee termination costs.
Choosing the right EOR
It’s not easy to locate and hire the right EOR. But does it mean you should give up on your dream of global expansion? Definitely not!
Given below are a few questions to ask your shortlisted EOR firms:
- Do you have a permanent and direct in-country entity (like a service branch or an LLC)? Or do you simply depend on local partnerships?
- Do your staff members have the local expertise to manage my company’s payroll and HR services?
- Have you worked with companies resembling mine before? How capable are you of understanding my business needs and meeting them?
- What’s your performance record and service history?
- The EOR services you provide – are they your firm’s core business, or are they a sideline service?
- What’s the minimum length of the contract? And the notice period for termination?
- How do you set your fees and rates?
- What’s the timing cycle for invoicing and payments?
The answers to these questions will facilitate determining the EOR firm’s competence. Consequently, you can decide if it’s worth hiring to give your business’s global expansion plans the necessary support.
Thank you for reading,
At InHunt World we assist International companies growing abroad.
We offer Headhunting Services, Recruitment and Consulting, Executive Search in 46 countries worldwide. We can also assist you with Payroll and Employee of Record services globally.
Drop us a line at firstname.lastname@example.org to receive a free consultation, we’ll get back to you in less than 24 hours.