Small and medium size businesses have come a long way in the past decade, especially when it comes to options for global expansion. In the past, only the biggest companies were able to hire abroad because of the costs and risks involved in opening entities across the globe. Multinational companies had the time and resources to deal with the bureaucracy and the know-how to take on the liability that was necessary.
Today, SMEs have the same options as the biggest multinationals did in an earlier era. They are no longer limited by their resources. Options such as the Employer of Record model eliminate the need to open entities and assume liability. They also make it easy for companies to maintain legal compliance, which can make or break an overseas expansion.
Too many small or medium size businesses have avoided hiring abroad because they are not confident about the employment laws and the tax codes. Working with EoR partners eliminates that level of anxiety and makes global expansion simple. It could be the best-kept secret in SME strategy, often ignored by those who give tips and suggestions but should be part of any SME leader’s decision-making process.
What Is a Global EoR/PEO?
A Global Employer of Record (EoR), which is also commonly referred to as a Professional Employment Organization (PEO), is a great way for SMEs to compete on a global scale, allowing any company to begin hiring abroad in a matter of days in full legal compliance of all local laws and taxes. The company does not need to open an entity to start hiring, and it does not need expertise on the local tax structure or workplace culture.
When a company hires employees through an EoR, the EoR takes on the role of official employer for the employees in the eyes of the government. The EoR handles all the administrative functions of the employment process, including payroll, withholding taxes, and paying all stakeholders, managing benefits, and much more. The employees, however, take their day-to-day instruction from the client company.
The EoR provides a local presence in each location where a company wants to hire. In essence, it allows companies to outsource the workforce management functions of employment and still have employees on the ground to run their operations. As the official employer, the EoR assumes all legal liability for the employment, so if taxes are not withheld properly or if payments are not delivered on time to a benefits vendor, the EoR is responsible for sorting the matter out.
The employees also benefit from the EoR model because they gain full employment rights through the arrangement, as opposed to being designated as contract workers, a far more limiting classification that does not require employers to pay a minimum wage, overtime, or vacation days, or provide health or pension benefits. With an EoR, there is no risk of misclassifying employees as contractors, a practice that many governments are looking at seriously and issuing heavy fines.
An EoR can also go in the opposite direction as well. A company from overseas can use a PEO service to expand into the UK and take advantage of the massive market in the UK capital. All the principles would be the same, except that the company would be looking to hire UK employees in compliance with UK taxes and labor laws.
Benefits of Hiring Through an EoR
For a company at an early stage of overseas expansion or considering hiring remote workers in foreign countries, the EoR option can significantly simplify the process. It is easy to begin, demands little or no commitment in the event the project needs to close, and provides maximum flexibility for new ventures. Here are some of the most common ways companies use EoR today:
Low-Risk Overseas Hiring
Opening an entity can be expensive, time consuming, and difficult to reverse. In many countries, there is an expectation that a company that opens an entity plans to operate indefinitely. That often means that companies have a tax liability for a set number of years, even if the project shuts down.
With an EoR, the risk is minimized. That gives companies the flexibility to start with a small team and build. It also provides opportunities to test a market to determine if their product is a good fit – something an SME would likely not do if it had to go through the entire process of opening an entity first.
Hiring the Best Talent Anywhere
In the days before remote work was a legitimate option, companies had to limit their candidate search to the area within commuting distance of their central headquarters. Today, technology has made it possible to work many jobs from anywhere in the world. That means companies can pursue the best talent wherever people are located, with no need for them to be in the same city, or even the same country.
This sort of hiring, however, requires a solution for the payroll challenges that come up. Companies need to have a reliable way to pay their employees compliantly according to the laws of the local country. Without an EoR, hiring five employees across the globe would mean opening five entities. But with an EoR partner, companies can get employees on the books in a matter of days, all in complete compliance.
Take Advantage of the Opportunity
In today’s business climate, more companies are hiring a remote workforce than ever. By utilizing the EoR model, SMEs can compete at the same level as their enterprise colleagues.
The solution, however, should be seen as a short-term solution. If a company hires a significant number of employees in the expansion – between 10 and 20, for example – and sees that the project will continue for at least five years, the company should consider moving to regular payroll and accepting liability by opening an entity.
An entity remains the most stable long-term plan for any company. It opens the door to partnerships and contracts that are harder to execute through an EoR, largely because potential local partners prefer to work with companies that are incorporated in the country.
But for a short-term solution to hiring abroad or for testing a market with the lowest possible risk, it’s hard to beat the EoR solution. It lets you get off the ground quickly and lets you hire abroad with as little friction as possible.