The pros and cons of global employment outsourcing

Global employment outsourcing allows expanding businesses to overcome the challenges of cross-border employment. This includes payroll, benefits management, tax compliance, legal onboarding, and more.

Besides the fact that employment outsourcing facilitates international employment, there are many other ways in which businesses benefit from outsourcing global employment to third-party service providers. So, what are the advantages of global employment outsourcing? And are there any drawbacks to outsourcing employees?

Employment outsourcing, also commonly referred to as outsourcing employees, describes a business practice under which organizations outsource their employer responsibilities to an external service provider. The latter is then contracted to manage all things HR, employment, compliance, and payroll. Service providers that specialize in such employment services include Professional Employer Organizations (PEO). 

Global employment outsourcing takes the idea of outsourcing the employment function one step further. In the context of global expansion, employment outsourcing is a solution businesses use to hire international employees in jurisdictions where they don’t have a legal entity. This typically means using an Employer of Record (EOR) service. 

Lano Blog

How an Employer of Record simplifies global expansion

Read more

Global employment outsourcing holds several advantages for both the business and its employees. Businesses benefit from outsourcing their employment responsibilities to a third party in the following ways: 

• Enhanced compliance and risk management: Outsourcing all things employment to a third party that specializes in employment services ensures compliance with employment, payroll and tax rules. Especially for organizations with employee populations in several countries, this significantly decreases the overall compliance risk. 

• Quick market entrance: One of the main advantages of global employment outsourcing is that it doesn’t require establishing a legal entity in the jurisdiction for the sole purpose of being able to hire employees. This makes entering a new market a lot quicker and easier.

• Focus on core business: Outsourcing certain business functions and tasks is always about freeing up resources to focus on more important tasks. Employment outsourcing is no exception to that.

• Cost savings: Cutting costs is another main driver for outsourcing employees. Paying an external service provider to handle employment matters often means getting better results at a lower cost. In global employment outsourcing, this is mainly due to the fact that there is no requirement to pay for incorporation. 

Further advantages that are also beneficial to the employees include: 

• Local benefits and compensation standards: Despite it being called global employment outsourcing, outsourcing employees happens on a local level. This means that foreign employees hired through an external service provider receive a compensation and benefits package that matches local standards.

• No need to relocate: Global employment outsourcing enables cross-border employment, which means that employees can take jobs with foreign employers without having to go through the trouble of employee relocation.

• Less errors in HR and payroll: If payroll is late or important forms aren't filed on time, it’s usually the employees who feel the repercussions. Outsourcing crucial employer responsibilities such as payroll and HR management to a specialized service provider significantly reduces the risk of errors in this department.

• Perceived loss of control: Some businesses struggle with the idea of giving up control over something as important as managing employment compliance and everything related to it. Depending on how the organization operates, outsourcing employment might seem like losing control over employees and crucial business processes.

• Reduced sense of belonging: Global employment outsourcing might have a negative impact on the employee’s sense of belonging. When employment contracts and payslips are signed by a different organization than the one the employee actually works for on a daily basis, this can lessen the employee’s feeling of loyalty towards the company.

• Dependence on an external service provider: When outsourcing global employment, the responsibility to make sure everything is under control is on the service provider. A global employment solution should normally allow businesses to gain peace of mind, knowing their employment compliance is in good hands. However, depending on the chosen outsourcing model, at least a part of the liabilities arising from the employment may still be on the organization that uses the service for outsourcing employees.