Going global has never been easier. Thanks to the internet, businesses of all sizes can sell products to consumers worldwide, and it should come as no surprise that COVID-19 has changed the way companies perceive working with remote working and distributed companies becoming increasingly popular.
However, employing people in a different country is not a straightforward task. Typically, a company must establish an entity in the new country or jurisdiction, familiarize itself with local labor and tax laws, and ensure it is always compliant with local employment laws and payroll regulations. All of this is before it considers local employment practices and compensation guidelines.
Employer of Record or EOR services, also called global professional employer organization or Global PEO services, have emerged as an elegant solution to these issues. We outline how EOR services work and the benefits they offer companies looking to expand their global footprint.
Simplify hiring overseas
Expanding overseas is a daunting task. For instance, if a company wants to expand across Southeast Asia, it must incorporate an entity in every country in that region. In the past, companies opted to incorporate in a central jurisdiction in a region and conduct business from there. For instance, Singapore and Malaysia became popular business hubs in SE Asia for this reason.
However, opening entities in a country a company is seeking to expand to is a lengthy and time-consuming, generally taking a minimum of 6 months.
EOR service providers remove the biggest roadblocks in the local incorporation and hiring process. The EOR provides the local entity and hires workers on behalf of its client. The client ultimately pays its employees while the EOR remains the employer on paper as far as local authorities are concerned.
Thus, the task of hiring local talent is simple. Thanks to a deep knowledge of local markets, EORs usually act as payroll and HR consultants for their clients. Everything from tax compliance to employee compensation is simplified, allowing an international company to quickly establish a footprint in a new region.
Many EORs also offer recruitment services and provide guidelines on salary benchmarks. Whether companies are using an EOR to hire rapidly in S.E Asia or using a British PEO service to hire in London, these all-in-one local HR solutions provide the flexibility and agility to get on the ground quickly.
One of the biggest benefits that EORs provide their clients is cost savings. Expansion costs can quickly escalate if not kept in check. If an organization chooses to handle expansion by itself, the company’s HR and legal professionals will first have to file a new entity in the region.
Improper filing or a lack of local regulatory knowledge will result in delays, not to mention frequent trips to the destination to sort out issues. Assuming these steps are properly executed, it’s time to hire employees and conduct necessary background checks, credential verifications, etc.
Once again, a lack of local knowledge will hamper recruitment efforts. A company’s HR team will easily become overburdened with these tasks, increasing man-hour costs. Worst of all, the time it takes to get up and running might extend to a few months.
Using a global EOR service helps companies establish an entity, register for necessary permits, recruit a foreign workforce, and manage payroll taxes within a few weeks. In the process, companies save time and money, reducing the cost of global expansion.
Tax and regulatory compliance can turn into nightmares if mishandled. Typically, companies bring business practices from their countries of origin to new locations. However, these practices won’t fit local requirements. For instance, tax laws might be very different in the new jurisdiction, requiring setting up new systems and processes.
In such instances, companies cannot claim ignorance to avoid penalties. Local governments expect businesses to remain up to speed regarding changes to local tax codes and regulations. Maintaining a running library of local tax laws and changes is challenging. Add to this the difficulty of locating qualified local expertise across multiple regions, and the complexity of the task is apparent.
EORs have a long-established local presence that eliminates these problems. By acting as the employer of record in the new jurisdiction, they simplify compliance needs by effectively absorbing all requirements. A global company can thus expand without fear of non-compliance and escape paying the heavy price associated with it.
By simplifying compliance, EORs can also supercharge expansion and business scaling. Since regulatory roadblocks are the biggest concern for globally scaling companies, EORs eliminate all cost and time-related issues.
EORs are a necessity in the modern business landscape. Companies with a global footprint needs a global presence. EORs simplify this by handling all the complex bureaucratic tasks and simplifying the overseas hiring process. By reducing the time it takes to expand, businesses can scale quicker.
HR Future Staff Writer