How to Use an EOR Company to Expand Globally
Employer of Record (EOR) companies are among the most powerful tools in a company's arsenal, especially those of small to medium size. They allow business owners to expand globally and accommodate their exponentially growing workforces without worrying about tax law, employment regulations, or intellectual property rights regulations that other countries have.
Let's take a closer look at what an EOR company is and how it helps business owners grow their empires on a global scale:
What is an Employer of Record?
In a nutshell, an EOR is the best friend of any small- to medium-sized business that wishes to expand on a global scale. An Employer of Record becomes the full legal employer of a company’s international workforce and, as an added benefit, is responsible for all human resource (HR) tasks such as payroll, benefits and taxes on behalf of the company that engages it.
How do they achieve this on a global scale? Well, EORs will have established legal entities in territories where their services are available.
Difference between EOR and PEO
You may have also heard of the term “PEO” during your journey to expanding your company globally. Generally speaking, a PEO, or Professional Employer Organisation, will also carry our HR duties on behalf of the company that engages with them – much like EORs. Does that mean that EORs and PEOs are the same? Not in the slightest.
There is one huge difference that separates EORs from PEOs. Where EORs are considered the full legal employer of a company’s global workforce, companies will enter a co-employment relationship when they engage with PEOs. This is because EORs have established entities around the world which PEOs do not. Therefore, companies will need to establish legal entities wherever they wish to operate and, as such, are still legally responsible for the people they seek to employ.
Benefits of Using an EOR Company
For small-to-medium-sized companies, there are many benefits that an EOR can offer. As you’ll learn quite quickly in this article, an Employer of Record will not just be an HR outsourcing firm that you engage with, but your global partner who will help you achieve your globalisation goals.
With that in mind, these are the biggest benefits of partnering with an employer of record:
1. Eliminate the need for foreign entities
Typically when a company seeks to expand into new markets, it needs to set up a local entity in order to conduct business and hire foreign talent. When you partner with an EOR, you won’t have to worry about doing this.
As the perfect global partner, the EOR that you engage with will allow you to gain access to global talent without the need to spend precious resources on establishing a local entity. This is because EORs have established their own entities around the world – staffed with experts who will support you throughout your company’s global expansion exercise.
2. Manage international payroll and tax
Since your company would be outsourcing most, if not all, HR tasks to their partner EOR, the Employer of Record will handle everything related to HR, including payroll administration and tax management. Managing payroll at the local level can be tough enough but coupled with an international workforce, payroll management can become overwhelming quite quickly.
An Employer of Record would be armed with the knowledge and technology necessary to ensure that your workforce is paid appropriately and on time. It will also be able to handle the necessary tasks needed to pay the relevant taxes around the world without you having to worry about it.
3. Maintain compliance
When expanding globally, there are three things that a company needs to make compliant with 100% certainty – employment or service contracts, payroll and tax. And since different countries carry differing laws and regulations regarding labour and tax, it is extremely easy to miss a step and become at risk of being non-compliant.
Those who work at your partner EOR company are experts in compliance. They will ensure that hiring and paying talent will always remain compliant, regardless of where in the world your staff may be from. This is because EORs always have their finger on the pulse of changing legislation worldwide and know how important it is to keep documents and procedures up to date and aligned with local laws.
4. First-class HR support
When it comes to outsourcing HR services, the support you’ll get from a highly-experienced Employer of Record is bar none. The best EORs understand the need to be present, should you have any concerns and will be quick to answer to any of your needs.
Your global EOR partner will also handle their tasks with expertise and precision. You can rest easy with the knowledge that your workforce is in good hands and that they will always be paid on time. Plus, all the relevant taxes will be managed by your partner EOR, and all records kept up to date.
5. Save costs
Not only does it get costly when you need to establish a legal entity in every country where you wish to expand your business to, but you will also need to hire competent teams to be able to handle the global workforce you wish to obtain in an efficient and effective way. Engaging with an Employer of Record as your global partner removes the need for both completely.
Partnering with the right EOR can be extremely cost-effective for small- to medium-sized businesses looking to explore and hire from new markets. Best of all? The mitigation of the risk of non-compliance also means that you won’t have to worry about facing hefty fines!
6. Hire top talent globally more quickly
Since you won’t have to worry about establishing entities everywhere you wish your company to operate, working with an Employer of Record allows your company to hire top international talent quickly. Some first-class EOR companies will even help you look for the right talent to fit your company’s needs.
The ability to hire top talent quickly, that is provided by engaging with an EOR allows your company to expand at a much faster rate. It also allows you to focus on the core of your business rather than worry about any legal issues that can arise when you don’t engage with an Employer of Record. We’ll talk about the problems that you might face when not using an EOR in the next section.
Issues That Could Arise From Not Using an EOR
Now, if you decide to expand your business globally, you should be aware of the problems and issues that you might face. When you partner with a reputable Employer of Record, all these problems will be solved, with a near-zero need to worry (unless you want to!).
Here are four significant problems that could arise from not engaging with an EOR:
1. Risk of non-compliance
The landscape of labour and tax legislation worldwide is ever-changing and not keeping up to date with their subtleties is a sure-fire way to face non-compliance issues. As we’ve mentioned before, all contracts, payroll and tax payments need to remain compliant according to the laws that govern the people that you plan to hire, according to their country of residence.
Not engaging with an EOR when expanding your company worldwide means that you’ll have to hire an in-house team that may or may not be able to maintain compliance as efficiently as those who work with your partner EOR. Compliance calls for efficiency and awareness, so this inability can place your company at great legal risk.
2. Increased expenses during expansion efforts
Without using an EOR during your company’s global expansion efforts, your company will have to establish a new local entity for each country that you wish to expand into and hire from. This, as it turns out, can be a rather costly exercise. Plus, those costs will be unavoidable.
Firstly, the fees required to create local entities can get quite expensive. You may need to hire local lawyers and perhaps even translators to ensure that the establishment of that local entity goes smoothly and that you understand what is happening every step of the way. Then, you’ll have to hire multiple teams to manage the workforce of their respective markets, one for each country of operation.
As you can imagine, the dollar figure will only continue to rise as your business continues to expand. With both maintaining and continuation of your expansion efforts, there is only one easy way to mitigate these costs – partner with an Employer or Record.
3. Contractor misclassification
Did you know that, in certain countries, there is no distinction between an employee and a contractor? There are also certain countries that do have a legal distinction but still require companies to have established a local entity even if they perform no other form of business within those territories. So, even if you wish to hire in certain countries without establishing an entity, for example, by contracting your workforce, you might still end up in legal trouble.
This is why it’s extremely important to become fluent in the local labour laws, which, again, can take up valuable resources your company could spend on the business instead. It cannot be overstated how complex international labour laws can be and how important it is to maintain compliance across the board. The slightest misstep can lead to severe consequences, one that we’ll describe in our next point.
4. Heavy fines
All the above points lead to this final one. If your company doesn’t maintain compliance, if it doesn’t have an established local entity; if it accidentally misclassifies its workers within the eyes of labour laws, then your company will face some severe penalties and fines. The last thing a small- to medium-sized company needs to burden as they seek to expand their business globally is a hefty fine.
The lack of proper strategic workforce planning also puts your company at risk of legal issues. It might be stressful enough to have to worry about being slapped with a big fine, it’s another to also have to worry about having to go to court. Companies that don’t place emphasis on compliance may face the displeasure of not just local law enforcement, but could also face lawsuits from their global workforce – leading to even heavier costs to burden.
What a Great EOR Service Should Include
By now, you should understand the great benefits of partnering with an Employer of Record and the great risks you and your company face without engaging with one. With that, you might be wondering what you should be looking for in the right EOR for you.
You’ll know that you’ll be partnering with a top-notch EOR when it has these characteristics:
The worst thing to happen when partnering with any third-party company is finding out at the last moment about hidden fees and surprise charges. An Employer of Record that provides complete price transparency is definitely one that your company should partner with when seeking to expand globally.
When engaging with an EOR, you need to ensure that they are able to provide worldwide coverage to whichever country you wish to expand your company into at present and those in the future. If they only have limited reach, it might not end up being very cost-effective to have to engage with multiple EORs with different prices, packages and rates.
Possibly the most important aspect of a trustworthy EOR is one that has a knowledgeable staff. There should be no guesswork when it comes to compliance, regardless of whether it is related to hiring, payroll or taxes. Although it might seem commendable to say “I don’t know”, it can be rather detrimental to say so in this regard.
Great track record
A great track record is a proven track record. The right EOR for you should have proof of their successes and should be able to showcase that they have had experience in engaging with companies like yours. Don’t be afraid to ask lots of questions when you meet your potential global EOR partner – it’s incredibly important to make sure that they’re the right fit!
Great response rate and support
Responsiveness and helpful support are two highly-ranked characteristics of a great EOR company. You need to be able to rely on them to be there throughout your journey towards global expansion, and they need to respond to you and your needs in a timely manner. Hiring a reliable Employer of Record will ensure that your globalisation efforts run smoothly and that you have the greatest chance of success in achieving your goals.