For most businesses and organizations global expansion is a long-term goal, but what is an Employer of Record (EOR), why would an organization use one and how does it simplify global expansion? The path towards success is fraught with risks, costs and delays. Global expansion is a challenge, yet the complexity and difficulties have not prevented start-ups from scaling their operations internationally.
They have powered their growth by identifying the hurdles that limit their expansion and deploying a solution. For many, this solution has been an Employer of Record, which removes the complexity from the entire experience by becoming a simple step in a business plan.
What is a Global Employer of Record (EOR) and Why Use an EOR Company?
An EOR can onboard, manage and pay staff on your behalf. Consider it the legal employer while you, the client, retain the role of managing employer, looking after the day-to-day management of the employees. In other words, you call all the shots on hiring, compensation, assignments, duties and termination. The EOR is simply an HR service that helps keep your business compliant with local laws.
For example, for organizations looking to hire across multiple nations throughout Europe – they can simply provide the EOR with information about who and where along with the remuneration details. The EOR then navigates the local laws and handles all the paperwork for onboarding the employee. This frees organizations of the cost, time and distraction of bureaucracy and more importantly, allows them to focus on growing their business.
When a company partners with an Employer of Record, they are taking extra steps to safeguard and enable their talent acquisition and global expansion strategies, even during periods of localized lockdowns or restricted mobility. In fact, an EOR can provide solutions for some of the most difficult HR employment challenges caused by the coronavirus pandemic. For example, helping employees who are stranded due to rapid changes to their current visa or working permit, underpinning the importance of EOR.
EOR Company Types
There are two types of EOR models, or companies: the indirect model and the direct model. But how do they differ when looking at global EOR, what’s the importance of EOR and what are the key differentiators?
- Indirect EOR: An indirect EOR relies on third or even fourth parties to provide local employment and payroll services. Let’s say you’re ready to hire in a new country, if the global EOR you’ve partnered with lacks its own in-country entity, it will have to contract with local vendors to carry out its services.
When you need support, you now have multiple layers of companies to work through. If you have a question for your EOR, it will likely need to reach out to its vendors to find the answer since it lacks local expertise, then relay the information back to you. This can also convolute the process when working across different time zones, as help may not always be at hand, lengthening the process further. Plus, your employees might be communicating with your EOR’s third parties, while you’re communicating with your EOR. All of these complex layers that can results in delays, miscommunication and higher costs.
- Direct EOR: A direct EOR will have its own local entity and manage all related HR tasks, such as payroll and benefits administration, in the country where you’re hiring. There are no third parties involved so there is no rely of messages across time zones. You and your employees communicate with a single provider, cutting down on miscommunication and inefficiencies. This means that time zones are no longer an issue, as experts will be on-hand in your target nation to provide you with the help you need. And since direct EORs have an in-country presence and deep knowledge of the local market, you’ll have a higher level of service quality and a greater chance of expansion success.
More transparency and trust for you and your employees—that’s what you’ll get with a direct EOR.
Common Myths and Misconceptions About EORs
“EOR is a headhunting firm?” False. While the use of an EOR does all companies to widen the talent pool from which they wish to employ, an EOR is not directly responsible for seeking out talent and supplying organizations with access to talent.
“EOR is a recruitment service?” False. An EOR allows companies to recruit talent from anywhere, as we are able to ensure they are employed compliantly and in-line with local labor laws, but an EOR does not act as a recruitment service.
“EOR means you only process payroll and that’s it?” False. Although global payroll is an integral feature of the EOR model, it is far from the only function of an EOR. Through partnering with an EOR, organizations are also able to make use of visa, immigration and work permit services, benefits administration, aid when bidding on global projects, support with remote teams and much, much more.
What are Some of the Duties EOR Companies Perform for Their Clients?
An EOR hires the employees in a target country under its local business entity and takes on all the legal risk. As the legal employer, the global EOR is responsible for:
- Visa, immigration and work permits
- Country compliant payroll and taxes
- Advice on cultural and language awareness
- Benefits administration
- Adhering to local labour laws
- Advice on required notice periods and termination rules
How Does a Typical EOR Service Model Work?
As companies look to pursue global opportunities and gain a competitive advantage in their chosen markets, partnering with an employment solution can allow them to surpass their ambitions. Companies are able to use global EOR services to gain this competitive edge, this can be achieved in a number of ways:
- Empowering companies of all sizes to easily create operations in new countries
- Using our global reach to onboard best in class candidates, wherever they are based
- Scaling businesses rapidly for market entry and testing
- Accelerating bidding on global projects
- Supporting remote teams and employing world-class talent without relocation
- Ensuring compliance with local employment laws and data protection requirements
An EOR can help shape the strategy and infrastructure of businesses, allowing clients to achieve their global goals in a far more cost-efficient and timely way. One of the primary issues when looking to expand globally is the requirement to be registered as an entity in your target location. The cost and time frame to register as an entity varies from country to country but can take as long as 20 weeks and cost more than $80,000. Partnering with an EOR bypasses the need for a company to establish itself as a separate entity, reducing costs and speeding up the process considerably.
A Direct EOR serves as a client’s single destination for HR services, offering a robust and complete solution that differs from the experience of working with an Indirect EOR. Working with a Direct EOR delivers a more streamlined approach, circumventing third-party involvement and working directly with the client.
The Benefits of Hiring an EOR
As companies explore new markets and pursue global opportunities to be closer to talent, resources and customers, they need an employment solution that helps them rise above the competition. An Employer of Record (EOR) service is the next level in HR solutions, and will enable you to reimagine your business and workforce by providing the strategy, expertise and infrastructure to support your global goals.
While empowering businesses in this way is invaluable, an Employer of Record is a more cost-effective alternative then creating your own local entity. An EOR delivers all of this and more without compromising on compliance or employee experience, all without the need of a large HR team.
A direct EOR also drives success due to having the local expertise to provide a rapid and informed response to support local employees. The direct model delivers faster speed to market than an indirect EOR by owning the entire HR experience, rather than outsourcing it. By taking a hands-on approach, the Direct EOR can onboard employees and create payroll faster than other models as there are no third parties to interrupt or slow the process.
An EOR Company Might Be Right for You if…
You are working in a sector that requires you to seek exceptional talent from overseas, in order to gain a competitive advantage by hiring quickly, efficiently and compliantly. This is particularly common in the following sectors:
- Tech and IT – Some of the benefits of EOR are especially prevalent within the tech and IT industries, as they will typically first look to expand to new countries after a series B raise, although this may sometimes happen earlier. Global expansion is mentioned in a large amount of Series B announcements, so ensuring a company’s flexibility and mobility is crucial. Another theme that comes up often within Tech (but also other industries) is the desire to embrace a remote-first structure to support employees anywhere they want to be.
- Energy – Oil and gas companies often win projects in emerging markets for limited periods. Often these organizations will operate in a country for one, two or three years, and opt to use an EOR for convenience, cost and time savings.
- Education – Top institutions in the education sector are increasingly opening faculties overseas as international students seek to gain the best education without leaving home. A global EOR provides the foundation for expansion.
- Pharma and health – Pharmaceutical, Medical Technology and Healthcare companies opt for an EOR in order to tap into locations with higher densities of experts with the required skill sets for development and research. These are often project specific and can begin as temporary assignments that become permanent.
- What is an EOR?
An EOR manages the legal, HR, tax and local compliance responsibilities for companies lacking legal entities in their target countries. An EOR like Elements onboards and pays staff, becoming the legal employer of the employee while they retain control over the day-to-day management of employees.
- How much, on average, can clients expect to save?
The average market cost to set up an entity in a new country is as follows:
- Entity Registration/Set Up: $10,000
- Statutory & Labor/Employment: $5,000
- Entity Tax Compliance & Registrations: at least $5,000
- Bank Setup & In-Country Capital Requirements: $20,000
- Legal & Financial Counsel: at least $10,000
- Internal Staff to Manage Process & Payroll: at least $30,000
This would take the average market cost of setting up an entity in a new market to around $80,000. In comparison an EOR, such as Elements, is able to take care of this process for far less, costing $10,000 on average.
- What Countries Do We Cover?
Elements are currently present in over 160 countries.
The Difference Between EOR and PEO
The type of service required often dictates whether a company needs an Employer of Record solution or PEO, but some of the main differences when looking at EOR vs PEO are as follows:
An EOR is suitable for any business planning to expand their operations and employ people overseas in a fully compliant and rapid manner.
- EOR takes on risk
- Client organization runs day-to-day operations
PEO is more aligned with businesses seeking to offload some HR duties, for those employees located in the same country where their business is registered.
- PEO “Co-employment” shares risk
- Client Organization runs day-to-day operations
Often companies looking to expand globally pose the question: “are there any other type of EOR or PEOs?” and, while a direct EOR is the most efficient, time and cost-effective solution, the indirect EOR model is also an option. But for the most streamlined service, the direct model reigns supreme.
The Difference Between EOR and GEO
For many, the terms ‘EOR’ (Employer of Record) and ‘GEO’ (Global Employment Organization/Outsourcing) are synonymous, and that’s because they practically are. While EORs and GEOs tend to serve similar – if not the same – functions, a GEO is an organization that may offer EOR as a service. They do this through their own entities, or through third parties across many countries. However, Elements Global Services offer unrivalled solutions.
As the first and only 100% Direct Employer of Record, Elements provides our clients with the leading Employer of Record services on the market. We also provide Business Process Outsourcing, Administrative Services Outsourcing and much, much more, to suit the needs of your organization. Whatever it is you need, wherever it is you need it, Elements Global Services is at your side every step of the way.
About Elements Global Services:
Elements Global Services is a global tech firm, focused on software that is built to go beyond country borders and simplify a company’s ability to Expand their Business, Onboard Employees, Manage Compliance and Pay Globally. Visit elementsgs.com or LinkedIn for more information.