The corporate world has grown increasingly interconnected over the last several decades. Companies of all shapes and sizes can now reach international markets with relative ease and efficiency, taking advantage of opportunities that would otherwise have been closed off.
But expansion into foreign countries still carries sizable administrative burdens. And many small and medium-sized enterprises (SMBs) are easily put off by the prospect of setting up new legal entities, employing remote workers, and dealing with the ongoing bureaucracy of largely unknown jurisdictions.
One way that many businesses are overcoming these hurdles, however, is by leveraging employers of record (EORs), also known as professional employment organizations (PEOs). If your startup is currently expanding, then an EOR could represent a feasible and cost-effective way of entering new markets.
In this post, we will tell you everything you need to know about EORs and outline how they can help you scale your company globally.
What Is an EOR?
Companies thinking about scaling internationally have traditionally been faced with a costly and time-consuming problem. Hiring new workers in a foreign jurisdiction entails setting up an entirely new legal entity.
In addition, ensuring that legal requirements are met with regards to obligations like employee rights, health insurance, benefits, and so on demands expertise that existing human resources departments might not have.
An “employer of record” or “global professional employment organization” removes this problem. An EOR is essentially an independent company, located in the country or jurisdiction you wish to enter, that employs an individual on your behalf, thus removing most of the responsibilities that would normally fall on you.
EoR’s are different though to PEO’s as known in the U.S which still require the company to have a local entity set-up, but which use the PEO to outsource their payroll and other such auxiliary HR services.
EOR arrangements are becoming a popular choice for fast-growing start-ups, and several services have arisen. They are also often feasible as a long-term solution. In some countries though, like Germany, they need to be replaced with a legal entity after several years.
With all that in mind, let us look at some of the benefits of scaling with an EOR in a little more depth.
- Cut Down on Administration Costs (Significantly)
Foreign countries, and even specific jurisdictions within a country, are governed by distinct tax and employment laws and regulations. This “red tape” can be extensive and complex, often requiring specialist expertise to navigate. This is especially the case in countries outside of Europe and North America, where language and cultural barriers may present additional problems. China for example is a particularly challenging country to hire in, both with regards to the language and compliance issues, a specialist China PEO provider though will allow you to quickly hire and establish a team without the need to deal with the complexities of multi-faceted tax and employment laws.
If you set up your own legal entity, you will have to employ somebody to complete necessary paperwork on an ongoing and consistent basis. An EOR, on the other hand, employs specialists to take care of these obligations, significantly cutting your set-up and human resources costs.
- Build an International Team Quickly and Gain a Competitive Edge
To enter foreign markets successfully, start-ups and SMBs often must act quickly. If you’re tied up in the process of establishing a new company before you can start selling products, you can easily miss the optimal launch opportunity.
EORs eliminate this issue by allowing you to build a foreign team in a fraction of the time it would take had you opted for a more “traditional” approach. Once you’ve chosen an EOR, you can focus on hiring the right candidates and setting up logistical infrastructure rather than processing large amounts of paperwork.
- Test New Markets with Minimum Risk
As a start-up or small business, you may wish to test foreign markets before launching a fully-developed business plan. Employers of record can be extremely beneficial in this regard. They allow you to build short-term teams quickly and inexpensively, without having to set up a separate company or subsidiary.
If market tests yield positive results, you can continue to work with the team you have set up. If not, you can terminate their employment without the headache of having to shut down various supporting legal entities.
- Fill Skills Gaps in Your Team for Comparatively Lower Costs
Expanding companies invariably need to hire skilled employees. And this presents an issue. Budgets are usually very tight and the highly-skilled candidates are beyond the salary range of startups and SMBs.
By providing access to foreign labor markets, EORs enable you to build a high-quality team much more cost-effectively than if you were to select from only local candidates. What’s more, long-term employees tend to be much more reliable than freelancers, which many companies opt for as a compromise.
Even if you decide not to remain active in a foreign market, candidates that you hire through an EOR can continue to be valuable members of your team.
Running a company isn’t easy at the best of times. But steering a start-up or small enterprise through early phases of growth, especially when expanding into international markets, is one of the most challenging responsibilities that business leaders can undertake. If you are in that position, don’t make your job any more difficult than it needs to be.
Employers of record provide an inexpensive, low-involvement way of building an international team without having to worry about the bureaucratic burdens that would normally be involved. And in the end, you can always bring operations in-house later when you have more resources and expertise at your disposal.