Acquiring qualified employees with the required skill sets can scale operations while minimizing skills gaps and talent shortages in various job roles. When thinking about growing your team, picking the right expansion method is one of the most important decisions you have to make.
When hiring globally, companies explore either entity setup or engaging an Employer of Record. But how do you evaluate which method is best for your growing organization?
Setting up an Entity
Setting up a legal entity in a different country than your headquartered country is time-consuming with variable costs depending on your business complexity and need for professional services. Let’s look at some of the critical steps involved in setting up a legal entity in the U.K. if you’re a U.S.-based company.
1. Research and Planning:
- Before entering any new market, you should do basic research to understand the market, and its legal and tax requirements so that you can devise your expansion plan. Doing this work upfront will help you make the right decision for your growing company. If you decide to do this in-house, it might generally take your HR department roughly four to twelve weeks with limited cost but if you hire a consultant to do it, there will be an engagement cost.
2. Entity creation:
- Now that you have a plan, you’ll want to choose the legal structure for your UK entity and select its name (based on availability). While this shouldn’t take more than four weeks, the right research must be done on the type of structure to ensure it meets your company’s needs. Costs are minimal with spend encompassing just the basic registration fee with Companies House.
3. Register the company:
- This step is time-consuming as many pieces of information and documents are needed such as the registered physical address, directors' and shareholders’ details, articles of association, and statement of capital. In addition to taking roughly four weeks, many of these documents will involve legal and financial consultation which will add significantly to the cost.
4. Tax registration:
- After you have registered the company, you then need to obtain a Unique Taxpayer Reference (UTR) from HM Revenue & Customs (HMRC) and register for Corporation Tax. This typically takes two weeks and has minimal cost.
5. Bank Account:
- Now that you’re authorized to do business in the U.K., you will need to open a UK Business Bank Account. You should plan for this step to take about four weeks and the costs may vary depending on the bank.
6. Comply with Employment Laws:
- To compliantly employ U.K.-based workers, your team will need to draft employment contracts and policies so that you ensure compliance with UK employment laws. This will take roughly four weeks, while engaging legal consultants will result in legal fees, based on the complexity of the documents.
7. Set Up Payroll:
- Before you start building your U.K.-based team, you must create a way to pay them by establishing a payroll system, which includes registering as an employer with HMRC. This process may take two to four weeks as finding the right payroll provider is key in managing costs and keeping your employees happy. This step would include payroll software subscription fees and potential accounting fees.
Overall, the process can take several months and cost upwards of £15,000 GBP just to set up an entity. In addition to this amount, you must add the monthly cost of the new employee ( including their salary and employer contributions) and ongoing monthly costs to run payroll and maintain tax and legal compliance.
Engaging an Employer of Record
An Employer of Record (EOR) is a third-party organization that acts as the legal employer on behalf of your organization. Your EOR will handle various aspects of employment, such as drafting valid and compliant contracts, accurately processing payroll and withholding tax, and ensuring all labor law and tax requirements are met.
With an EOR, you will not have to set up a legal entity just to hire a U.K.-based employee.
At Borderless AI, we’ve made it easy to calculate the costs of hiring an employee through our employer-of-record solution. Our Employee Cost Calculator estimates the monthly cost of your new hire so that you can compare those costs to setting up an entity and hiring directly. Let’s take the same example of hiring a U.K.-based employee:
Total Gross Salary
This is the monthly salary for the employee - their annual salary divided by 12 months.
Employer Contribution
This consists of your contribution or ‘employer burden’. In the U.K., it consists of workplace pension, apprenticeship levy, and national insurance.
Employer Cost
This is the employee’s monthly gross salary + the monthly employer contribution. This is the monthly base number that you would use to compare the cost of setting up your own entity vs. engaging an EOR
Borderless EOR fee
This is the Borderless AI subscription fee - per month, per employee. You should compare this against the payroll subscription fee that you would have to use if you were operating a legal entity.
Borderless FX fee
This is the exchange rate which changes daily. This would have to be paid regardless of whether or not you formed a legal entity in the U.K.
Borderless transaction fee
This is a standard fee we charge to transmit payment.
Total Employer Cost
This includes the Employer Cost plus all other Fees.
Remember when assessing costs that most EOR providers require 1-2 months of salary deposit upfront while Borderless AI does not.
Comparing Legal Entity vs. EOR Costs
In addition to the monthly employer cost (employee salary + employer contribution) of a new hire, there are several other considerations for companies hiring globally.
Speed
With an EOR like Borderless AI, you can hire a remote employee in as little as 48 hours instead of the months that it takes to register a foreign legal entity.
Time Savings
A global EOR processes payroll compliantly and stays abreast of labor laws and accounting practices in a new country. On average, HR managers spend 20% less time on administrative tasks associated with payroll processing and employment management/compliance. In addition, because an EOR takes responsibility for all hiring and compliance, your organization can rest easy knowing that your global hiring practices are compliant.
Cost Savings
Some estimates indicate that HR managers can save almost 25% on employment costs for more than 45 employees when using an EOR like Borderless AI not to mention the cost saving experienced by not settling up a permanent legal entity.
Why Choose Borderless AI?
Interested in hiring globally?
When you choose Borderless AI, you can look forward to:
- Quick and Easy Global Expansion: Build your team with talent from around the world
- Efficient Cash Management: Borderless AI requires no salary deposits or payroll pre-funding
- Elite Customer Service: With our in-house customer support, accompanied by AI agents, Borderless AI is there every step of the way to make your global hiring process seamless.
Speak with Borderless AI today and elevate your global hiring practices.
Disclaimer
Borderless does not provide legal services or legal advice to customers, contractors, employees, partners, or the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
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