Businesses of all sizes are leveraging emerging technologies to efficiently scale operations, increase revenue, and access new markets.
Entering new markets enables companies to tap into a larger consumer base and capitalize on growth opportunities as they arise. Hiring from other countries also allows companies to add individuals with unique and valuable perspectives, enhancing creativity and innovation within the workforce.
Small businesses benefit greatly by tapping into a diverse global talent pool. A small business is a privately owned corporation, partnership, or sole proprietorship that typically employs fewer individuals and generates less revenue than other businesses within a specific industry.
According to Indeed, a small business is an organization with fewer than 500 employees, while the United States Census Bureau states that businesses with a total revenue of $1 million to $40 million are considered small.
Because these companies don’t have the resources of larger companies, hiring internationally can be difficult. Small companies may be unable to afford the costs of registering an entity in a foreign country and have limited access to valuable legal or tax advice necessary to navigate the compliance-related intricacies of building a global team.
Luckily, global HR solutions such as an Employer of Record help here. This guide explains everything small businesses need to know about EOR platforms and debunks some of the myths regarding these HR platforms for global employment.
What is a Global Employer of Record
An EOR is a third-party organization that legally employs workers on behalf of another company. The EOR assumes responsibility for all administrative and employment-related personnel requirements needed to build a dispersed team, allowing companies to efficiently outsource important HR functions, freeing up time and resources. Your EOR of choice helps you navigate complicated international employment practices and local laws.
Partnering with a global EOR allows companies to hire employees in new markets without setting up a local entity in the country of hire. Registering a local entity in a foreign country can be a complicated process that can take significant amounts of time to complete, particularly when hiring in multiple jurisdictions simultaneously. By opening their own legal entities, these companies also assume legal responsibility for all employment-related requirements and financial obligations.
Essentially, an Employer of Record handles all the complicated HR functions while the client company still controls day-to-day operational processes and recruitment practices.
EOR vs Professional Employment Organization
Companies should also understand the differences between EOR and PEO services when deciding on a global HR solution. Both structures offer similar services and benefits for companies hiring internationally, though there are key implications that might appeal to certain business needs.
The main difference between the two is regarding legal liability. An Employer of Record assumes full responsibility for the administrative aspects required to hire employees, while a Professional Employer Organization acts as a co-employer for each new hire.
According to the Staffing Industry Analysts’ Global Employment Lexicon, co-employment is when two employers share responsibility for compliance with all legal employment-related obligations. This means the client company retains a certain degree of liability for any financial or legal issues that may arise, and the client company usually must establish a local entity beforehand.
Why Use a Global HR Platform?
Leveraging a global HR platform such as an Employer of Record helps small companies streamline the hiring process and access several benefits. In addition to outsourced HR functions, partnering with an Employer of Record gives companies a competitive edge when entering new markets.
Scalability
Hiring through an Employer of Record affords companies greater agility and flexibility when accessing new markets. Taking this route for hiring international employees allows a company to adjust the size of its workforce depending on the organization’s unique needs, meaning companies can quickly scale operations without handling complicated administrative requirements.
This is particularly useful for companies that want to build an international workforce but don’t necessarily want to set up long-term infrastructure within the country of hire. It’s also important to note that companies will be able to downsize their workforce or hire employees as needed, meaning companies have the agility to adapt to market conditions without potential noncompliance risks.
Companies that partner with an EOR instead of setting up an entity also enter new markets quickly. Leveraging EOR services means companies will not have to wait for registration applications to be processed and all other legal obligations to be met.
Reduced Administrative Burdens
Outsourcing tasks means the company will allow a third party to handle administrative requirements, meaning business leaders and employees can spend more time and energy on core competencies and improving the organization’s practices.
Outsourcing HR functions also helps companies save money when scaling operations by reducing overhead and labor-related costs. Companies that set up their own legal entity within the country of hire are responsible for employing an HR department, which means the company must pay each employee wages and other benefits.
On the other hand, companies that hire through an Employer of Record will not need to employ dedicated in-house HR professionals.
Access to a Global Workforce
Utilizing these services allows companies to tap into a wider talent pool when filling vital positions. Instead of worrying about complicated labor laws, business leaders can focus on finding the right candidate for each position to eliminate skills gaps or address talent shortages without being limited by international barriers.
Building a diverse workforce has significant benefits for companies as well. Businesses that foster a diverse, inclusive, and equitable workplace experience increased employee satisfaction, improved retention rates, and boosted employee performance.
A healthy company culture that values unique perspectives also promotes innovation and creativity throughout the workforce.
What Does a Global Employer of Record Do?
A global EOR offers various services that support a company’s global expansion. Ultimately, many of the services an Employer of Record offers are designed to simplify the client organization’s global management needs.
Common EOR services include:
Employee contract management
An Employer of Record helps you draft and manage compliant employment contracts to meet the specific requirements of each country, collect all required legal documentation, and administer employment agreements to new hires.
Benefits administration
An EOR also administers and manages locally compliant or customized benefits packages, which boosts employee engagement. These benefits can include supplementary benefits such as healthcare plans, dental and vision insurance, retirement or pension plans, and more.
Onboarding
Your global EOR will also onboard each new hire and manage other administrative tasks, such as performing background checks. Onboarding is the process of introducing a worker to the company’s core goals and values and providing new hires with all the necessary information and equipment to become familiar with their role.
Offboarding
An Employer of Record handles termination procedures, ensuring that all legal requirements in that country are followed if the company decides to dismiss an employee. This includes providing the necessary notice period or determining severance pay amounts. EORs also assist with formally ending employment agreements and offboarding employees, which can be due to other reasons such as resignation or retirement.
Global mobility support
Employer of Record solutions enable employees to obtain the required documentation to legally work. This includes processing visa or work permit applications, preparing documents, and handling all immigration requirements to relocate existing employees.
Tax assistance
EORs manage tax requirements in various countries, ensuring that the proper amounts get withheld from each employee's paycheck. Additionally, the EOR may be responsible for filing taxes and maintaining records with accurate employee data.
Payroll
Payroll refers to a centralized process by which an employer provides payments to workers. EORs typically offer global payroll services which include paying international employees in their local currency, providing all statutory benefits, providing pay stubs to employees, managing time off requests, remitting all mandated social security contributions, and more. Companies can also get accurate real-time payroll data to gain valuable insights and optimize payroll practices.
Payroll is a major requirement for companies, as issues with payroll are a significant contributor to employee dissatisfaction, and just two payroll errors can be a significant cause for employees to begin job hunting according to the Workforce Institute at Kronos.
Compliance with Local Employment Laws
Another major Employer of Record service is guaranteed compliance at each stage of the expansion process. EORs offer expertise regarding local labor laws across multiple countries and ensure the company is meeting all employment-related requirements.
Failure to follow local labor laws results in noncompliance penalties, which can include fines, reputational damage, and in severe cases, potential criminal charges or business closure.
Global EORs help keep your company out of trouble by staying current with changing employment legislation and alerting you to any relevant changes in policy.
Employer of Record solutions help you navigate the complexities of local employment laws in multiple jurisdictions. This simplifies global management for companies that want to employ workers in multiple countries, as employment laws can vary drastically across borders.
Potential compliance issues for companies include:
- Failure to abide by local employment standards, such as minimum wage requirements
- Discriminatory employment practices
- Improper payroll procedures
Another major risk for companies arises from misclassifying workers. Misclassification is when an employer incorrectly classifies a worker’s employment status, typically occurring when the employer considers a permanent employee an independent contractor.
This is particularly significant because employees and independent contractors may have different employment rights, such as leave entitlements and tax or administrative requirements.
EOR Misconceptions
HR solutions, like EORs, provide companies with a more efficient and risk-averse way to scale operations in new markets. However, there are several common misconceptions about EOR services that we’ll take time to debunk here:
EORs Only Benefit Large Companies
One common misconception is that leveraging EOR services only benefits larger companies. In reality, companies of all sizes, including small businesses and organizations across various industries can benefit by outsourcing HR functions to a global Employer of Record. While most businesses hire multiples of employees, most EORs will work with a small business looking to hire as few as one person.
Leveraging EOR services helps companies increase organizational efficiency by enabling both large enterprises and smaller businesses to focus on growth. EOR platforms allow companies to test, explore, and quickly enter new markets, which is beneficial for smaller businesses that are unfamiliar with international laws or unable to register an entity.
EORs are Costly
The costs surrounding global HR platforms are another common misconception regarding EOR services. In addition to being a complicated process, setting up an entity in a foreign country is expensive, costing companies roughly $15,000 to $20,000 to register the business.
This also does not include common hidden fees, such as office space rent, ongoing payroll and compliance expenses, potential expenses to exit the market, and more.
In contrast, EOR service fees can range from a few hundred dollars to around $1000 per month for each employee. EOR platforms leverage economies of scale to lower the costs of each client. This ultimately provides smaller businesses with a more cost-effective way to tap into global talent pools.
EORs Aren’t a Viable Long-Term Solution
Other companies may be wary of leveraging global EOR services because of the misconception that these platforms are only for short-term projects or business goals. While EORs are an excellent option for businesses that want to engage contractors or hire temporary workers, these services also provide smaller companies with a method to employ full-time or permanent staff.
Additionally, few regulations place limits on EORs, meaning partnering with an Employer of Record can be a streamlined method for long-term growth.
When To Use An Employer of Record
Knowing when to utilize Employer of Record services helps companies find the right partner and effectively scale operations.
Generally, companies should use an EOR when looking to grow in or explore international markets, as companies have greater agility when addressing staffing needs to generate revenue without additional administrative responsibility. Additionally, leveraging an EOR platform is an excellent choice for companies that want to hire remote talent.
Outsourcing complicated and time-consuming duties also allowed the company to prioritize important objectives, such as developing creative programs for children and increasing community engagement. In another case, a tech solutions company utilized these services to build a remote workforce during project surges, enabling the company to tackle future opportunities.
Borderless AI - Experience the Future of Global HR
Borderless AI serves as the legal employer for your company’s international teams and leverages the power of generative AI to automate and speed up the process of onboarding, managing, and paying international team members.
With our help, you can compliantly hire talent worldwide, without needing to establish a local entity. We alleviate the complexities and risks associated with hiring global employees with no upfront costs, unrivaled customer experience, dedicated in-house support, and AI-powered global employment law resources in one convenient platform.
Alberni - Built for the future of global HR
Alberni is your AI agent for global employment.
In seconds, Alberni can answer questions about global labor laws and compliance or questions regarding the hiring costs for employees in over 170 countries. Alberni can also help generate compliant employment agreements for new hires and mitigate risks within new or existing contacts by reviewing important legal frameworks such as non-solicitation, confidentiality, intellectual property, and more.
Contact us today to see how we enable businesses to grow and compliantly explore new markets for sourcing international talent.
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.
