Expanding business operations globally presents many challenges for companies. One major consideration is how to handle payroll, benefits, and compliance with local employment laws for overseas employees. This is where Employers of Record (EORs) can provide valuable services to facilitate global growth.
What is an Employer of Record?
An Employer of Record (EOR) is a company that acts as the legal employer for employees working in foreign countries. The EOR handles payroll, benefits, taxes, and compliance with local labor regulations on behalf of the client company. This allows the client company to hire talent globally without having to set up legal entities in every country where they have employees.
Some key benefits of using an EOR include:
Compliance with Local Laws
EORs have extensive knowledge of the employment laws, tax regulations, and HR compliance requirements in different countries. They ensure clients remain compliant as they hire globally.
Quick Expansion
EORs can onboard foreign employees in a matter of days through their existing payroll and HR infrastructure. This greatly accelerates global expansion.
Cost Savings
EORs eliminate the need for clients to establish foreign legal entities. This results in significant cost savings in legal, accounting, and administrative expenses.
Mitigated Risks
EORs assume many of the risks associated with international hiring and employment such as local regulations, payroll taxes, benefits, terminations, and more.
When Does it Make Sense to Use an EOR?
There are a few scenarios where leveraging an EOR can be beneficial for companies expanding globally:
Starting Operations in a New Country
When beginning operations in a new region, engaging an EOR allows a company to start hiring employees quickly without having to take time to set up a local entity. The EOR can manage the onboarding, payroll, and compliance requirements.
Exploring a New Market
If a company is testing out a new market and wants to initially have just a small temporary team, an EOR provides the flexibility to ramp up and terminate employees as needed. No local entity registration is required.
New Project with Overseas Talent Needs
For a defined project requiring international talent, an EOR allows the business to onboard resources for just the project duration. There is no need for long-term investment in local payroll and entity infrastructure.
Acquiring Companies with Overseas Employees
When acquiring a company, the existing foreign employees can be transferred to an EOR during the transition period to avoid any interruptions to payroll and benefits.
Expanding to a High Risk Country
For expansion into high risk countries with complex local laws, an EOR partner experienced in those specific regions can mitigate the risks associated with non-compliance.
Key Services Provided by an EOR
Some of the major services offered by an EOR include:
Recruitment Assistance
EORs provide access to extensive networks of qualified talent globally. Their familiarity with local HR practices speeds up recruiting.
Payroll Administration
EORs handle all payroll functions including salaries, bonuses, and commissions for international employees while ensuring compliance with local payroll tax laws.
Benefits Management
They enroll overseas employees in compliant benefit plans such as health insurance, retirement plans, paid time off, etc. tailored to local regulations.
HR Administration
EORs manage employee documents, ensure local employment terms are met, maintain personnel records, handle terminations if required, and address employee relations issues.
Compliance Management
EORs track changes in local labor, tax, and HR laws around the world and ensure ongoing compliance through adapted policies and processes.
Visa & Immigration Assistance
They coordinate required work permits, visas, and immigration paperwork for foreign national employees.
Local Office Space
In some countries, EORs can provide shared office infrastructure and services to support in-country teams.
By leveraging these services, companies can have locally hired overseas employees up and running in a matter of weeks while minimizing legal risk.
Key Factors to Consider When Selecting an EOR
Choosing the right EOR partner is critical when expanding globally. Here are some key factors to consider during selection:
Countries Covered
Ensure the EOR has existing entity infrastructure and experience in the specific countries where you intend to hire.
Industry Experience
Pick an EOR with clients in your industry to leverage relevant expertise and best practices.
Scalability of Services
As you grow, the EOR should be able to add additional countries and increased hiring volumes without issue.
Client Size Fit
Opt for an EOR that typically serves clients around your company’s size to ensure a fit for services and support model.
Service Delivery Capabilities
Examine how the EOR delivers services such as technology platforms, payroll systems, reporting, and employee support models.
Cultural Support
Having resources that speak local languages and understand cultural nuances can be hugely beneficial when hiring overseas.
Cost
Compare pricing models (per employee, bundled packages, setup fees) to maximize value and predictability.
By carefully vetting EORs on these criteria, companies can select the right partner for their global expansion needs.
Key Steps in the EOR Engagement Process
Once an EOR is selected, the typical engagement process involves:
Service Agreement
An agreement is signed detailing the EOR’s services, fees, process, compliance responsibilities, and liabilities for both parties.
Employee Transitions
If there are existing overseas employees, they are transitioned to the EOR for payroll, benefits, and HR management.
Recruitment
The EOR sources qualified candidates for open positions locally in each country. The client interviews and selects hires.
Onboarding
The EOR handles onboarding of selected candidates globally. Local employment contracts are managed by the EOR.
Ongoing Support
The EOR provides ongoing payroll, benefits, compliance, and support throughout the employee lifecycle internationally.
Reporting
Regular reporting on employee headcount, costs, compliance, and other metrics provides visibility for the client.
By partnering closely through each phase, the EOR engagement process enables efficient expansion.
Potential Challenges When Using an EOR
While EORs provide extensive benefits, there are some potential challenges to consider including:
Limited Visibility
Relying on a third party for overseas hiring can reduce visibility into recruiting and onboarding processes. Clear reporting and communication is key.
Coordination Overhead
Managing the relationship with the EOR and coordinating on shared HR responsibilities creates additional overhead.
Compliance Risk Exposure
EOR compliance does not eliminate compliance risk. Liabilities for overseas employment still ultimately reside with the client company.
Service Inconsistency
With operations across many countries, consistency in EOR services and delivery may vary. SLAs and periodic reviews are important.
Cost
EOR services come at an additional cost versus managing HR processes fully in-house. The benefits typically outweigh the costs.
While these risks can be managed, they should be understood when entering an EOR partnership.
Best Practices for Maximizing EOR Success
To maximize the value from an EOR relationship when expanding globally, companies should focus on:
Executive Sponsorship
Ensure executive level support across the business for adoption of the EOR model to align operations.
HR Close Partnership
The in-house HR team should maintain continuous collaboration with the EOR through frequent meetings, visits, and consultations.
Proactive Communication
Proactively coordinate with the EOR on upcoming hiring needs, compliance issues, new country entries to allow sufficient preparation time.
Central Oversight
Have centralized oversight of all overseas hiring and EOR relationships rather than each local country office managing independently.
Regular Reviews
Conduct quarterly business reviews, audits, and employee surveys to identify areas of improvement in the EOR partnership.
Technology Integration
Integrate HR systems as much as possible with the EOR’s platforms for seamless data exchange and management.
By instituting global best practices and centralized governance, companies can make the EOR relationship a strategic advantage.
Conclusion
As companies expand internationally, the role of Employers of Record becomes increasingly valuable. EORs allow faster overseas expansion through quick hiring without local legal entities. They minimize compliance risks and costs while providing robust global HR support.
When selecting an EOR partner, companies should evaluate countries covered, industry expertise, scalability, client fit, delivery capabilities, cultural support, and cost. By establishing strong relationships through the engagement, ongoing management, and continuous improvement, businesses can leverage EORs as a driver of global growth.
The complexities of international employment continue evolving. By proactively relying on EOR expertise and best practices, companies can more confidently embrace opportunities worldwide. The right EOR partnership serves as a critical accelerator for global business expansion.
