June 07, 2022
What is an Employer of Record (EOR)?
Advantages of using an Employer of Record
How to use an Employer of Record for smooth global expansion
Other use cases of EOR services during global expansion
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Reaching new customers to increase revenue, gaining access to a global talent pool and increasing brand reach and prestige are just some of the reasons why organizations decide to expand globally.
While international expansion is promising in many aspects, it also involves numerous challenges, one of which is hiring remote employees in different countries and the administratives headaches that come with legal entity set-up. Establishing an office or subsidiary in a foreign country is known for being an expensive and time-consuming process, which can quickly slow down the expansion and even put a (temporary) stop to business growth.
In this blog post, we’ll show you how companies can leverage Employer of Record services to speed up their global expansion and keep growing.
An Employer of Record (short: EOR) is a global employment solution which allows companies to hire employees in foreign markets without having to set up a legal entity in the respective country. As a third party in the employment relationship, the EOR hires employees on behalf of a client organization, taking on the role as the legal employer of the employee.
The official employment contract is hence concluded between the employee and the EOR. The latter takes over all legal and administrative responsibilities linked to the employment, while the business contracting the EOR remains in full control of the employee’s day-to-day activities.
The services provided by an Employer of Record include:
Providing a localized employment contract
Hiring and onboarding new employees
Registering the employee with local authorities
Managing employee benefits
Arranging visas and work permits
Processing payroll and paying the employees
Managing taxes and social security
Ensuring compliance with local labor laws
Supporting employees’ HR needs on behalf of their clients
Wondering what the difference is between an Employer of Record and a Professional Employer Organization? Read the answer in our related blog post What are the differences between PEO and EOR?.
Using an Employer of Record to hire global talent has many advantages. First of all, an Employer of Record allows globally expanding businesses to save time and money, since they no longer need to set up a local office or subsidiary to hire talent in a new market.
Depending on the country, setting up a subsidiary can cost several thousand dollars (plus capital requirements) and take several months to complete. For instance, setting up a legal entity in India is estimated to take around 16 weeks. That’s a long period of time, during which your company isn’t making any money in the new market.
Second, using EOR services opens up access to a global talent pool. Businesses that are able to hire the best talent in any country they want gain a huge competitive advantage and can leverage the benefits of a global workforce, which include increased diversity in the workplace, enhanced creativity and broader language support.
Third, an EOR ensures to mitigate compliance risks. Without the necessary local knowledge with regard to employment law, payroll regulations and tax requirements, companies are likely to commit costly compliance errors. EOR providers are experts for HR and employment in the countries they cover and ensure full compliance throughout the employment. Plus, hiring local talent through an Employer of Record service also helps businesses avoid employee misclassification.
Last but not least, an Employer of Record helps to increase efficiency in the organization. If HR and payroll teams don’t have to deal with laws and regulations for different countries, this frees up valuable time and resources for focusing on the expansion project.
Thinking about whether to set up a subsidiary or not? Our blog post EOR vs. Subsidiary – Which option for your business? compares the pros and cons of both approaches and provides helpful guidance on how to find the right strategy.
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Besides the above-mentioned advantages, an Employer of Record is a valuable asset for your agile global expansion strategy and can be leveraged as a transition solution to ensure your international business expansion runs smoothly and without any hold-ups. Here is how to use Employer of Record services when expanding globally.
It is vital to first test your assumptions and see if your products and services really fit the new market before establishing a legal entity. Hiring a local team with an Employer of Record allows you to do exactly that. Thanks to the speedy hiring and onboarding process, your team will be operational in 2 weeks, which allows you to validate your market assumptions before making any further investments.
International business expansion is all about speed. If you take too long, you might lose a new market to one of your competitors. Hiring local employees through an Employer of Record allows you to hit the ground running and start creating your local brand presence while your incorporation is still underway. By having your local team up and running and setting up an entity in parallel, you get a head start on competition who can only start building their local presence once their legal entity is established.
Once your office or subsidiary is established, you can easily move your EOR hires to your own entity while simultaneously setting up local payroll operations, which Lano can also help you with.
What we’ve discussed above is just one possible example of how to use EOR services for global expansion. In addition, an Employer of Record can also be useful in the context of global talent mobility and acquisition, as well as on the way to building a remote-first company culture. Further use cases include:
Converting freelancers to employees: Freelancers and contractors play an important role for almost any business and it is not rare for companies to offer talented freelancers a full-time position. However, if the freelancer is based abroad, the organization would need to set up a local entity first in order to act as an employer in the respective country - at least in many cases. Employer of Record services solve this problem.
Enabling employee relocation: With remote work now being among the most popular employee benefits, companies find themselves confronted with an increasing number of employee relocation requests. As is the case with international freelancers, retaining employees who decide to relocate to a different country could require legal entity set-up. With an Employer of Record, you can retain talented workers and reduce employee turnover rates by offering your workforce the flexibility to work from wherever they want.
Becoming a truly remote-first company: Being a remote-first organization can be a valuable asset for your employer branding. However, building a remote-first culture and putting this mindset into practice requires radical changes to how the company operates, i.e. fully remotely. EOR services facilitate these changes with regard to your global hiring and talent management processes.
Whether you’re looking to test a new market with local freelance talent or are already setting up your own legal entity, we’ve got you covered throughout your global expansion journey and provide you with all the solutions you need to build and manage your global team in 150+ countries.
Start off hiring freelancers in your new target market with our compliant freelancer and contractor agreements, and use the Lano platform to streamline your invoice approval and payment processes. Then seamlessly transition from freelancers to full-time employees with one of our Employer of Record partners and have your local team working for you, while you evaluate whether to fully commit to the market or not.
And if you decide to incorporate, we have a global network of in-country payroll providers who can help you set up your local payroll in record-time. Book a demo and talk to our sales team to find out more.
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