For most businesses and organizations, global expansion is a long-term goal, but what is an Employer of Record (EOR)? Why would an organization use one? How does it simplify access to new international markets? The path toward success is fraught with risks, costs and delays, but it can be much simpler.
Global expansion is a challenge, yet the complexity and difficulties have not prevented start-ups from scaling their operations appropriately. They have powered their growth by identifying the hurdles that limit their expansion and deploying a solution. For many, this solution has been an EOR, which removes the complexity from the entire experience by becoming a simple step in a business plan.
An EOR can onboard, manage and pay staff on behalf of your business. Consider it the actual employer while the client, or hiring business, retains the role of the managing employer, looking after the day-to-day management of the employees. This allows organizations to call all the shots on hiring, compensation, assignments, duties and termination. The EOR is simply an HR service that helps keep businesses compliant with local laws.
For example, if an organization is looking to hire across multiple nations throughout Europe, it can simply provide the EOR with information about who and where along with the remuneration details. The EOR then navigates the local laws and handles all the paperwork for onboarding the employee. This frees the organization from the cost, time and distraction of bureaucracy and—more importantly—allows them to focus entirely on growing their business.
When a company partners with an EOR, they are taking extra steps to safeguard and enable their talent acquisition and international expansion strategies, even during periods of localized lockdowns or restricted mobility. In fact, an EOR can provide solutions for some of the most difficult HR employment challenges caused by the coronavirus pandemic—such as helping employees who are stranded due to rapid changes to their current visa or working permit—underpinning the importance of EOR.
There are two types of EOR models: the indirect and the direct. Let’s look at the key differences.
Direct EOR: A Direct EOR has its own local entity and manages all related HR tasks—such as payroll and benefits administration—in the country where you’re hiring. There are no third parties involved so there is no relay of messages across time zones. Organizations and their employees communicate with a single provider, cutting down on miscommunication and inefficiencies. Time zones are no longer an issue with experts on-hand in the target nation to provide the necessary help in real-time. Because Direct EORs have an in-country presence and a deep knowledge of the local market, you’ll have a higher level of service quality and a greater chance of expansion success.
Indirect EOR: An indirect EOR relies on third or even fourth parties to provide local employment and payroll services. If the EOR you’ve partnered with lacks its own in-country entity when you’re ready to hire in a new market, it will have to contract with local vendors to carry out its services.
Indirect EOR requires multiple layers of companies to work through for support. If you have a question for your EOR, it will likely need to reach out to its vendors to find the answer since it lacks local expertise, then relay the information back to you. This can also convolute the process when working across different time zones, as help may not always be at hand, lengthening the process further. This also heightens the possibility that your employees might be communicating with the EOR’s third-party vendors, while you’re communicating with the hired EOR. These complex layers of communication and information can easily cause delays, miscommunication and higher costs.
Direct EOR offers more trust and transparency for and between businesses and their employees, wherever they may be.
"EOR is a headhunting firm.”
False. While the use of an EOR allows companies to widen their talent pool, an EOR is not directly responsible for finding talent or providing access to talent.
“EOR is a recruitment service.”
False. An EOR allows companies to recruit talent from anywhere and ensures they are employed compliantly and in-line with local labor laws, but an EOR does not act as a recruitment service.
“EOR means payroll processor and that’s it.”
False. Although global payroll is an integral feature of any EOR model, it is far from the only function of an EOR. Through partnering with an EOR, organizations are also able to make use of visa, immigration and work permit services, benefits administration, aid when bidding on overseas projects, support with remote teams and much more.
A Direct EOR hires the employees in a target country under its local business entity and assumes all the legal risk. As the legal employer, the global EOR is responsible for:
Visa, immigration and work permits
Country-compliant payroll and taxes
Advice on cultural and language awareness
Benefits administration
Adhering to local labor laws
Advice on required notice periods and termination rules
As companies look to pursue opportunities in new parts of the world and gain a competitive advantage in their chosen markets, partnering with an EOR solution can allow them to surpass their ambitions. Global EOR services like Atlas gives a competitive edge in several ways by:
empowering companies of all sizes to easily create operations in new countries,
using global access to onboard best-in-class candidates, wherever they are based,
scaling businesses rapidly for market entry and testing,
accelerating bidding on international projects,
supporting remote teams and employing world-class talent without relocation, and
ensuring compliance with local employment laws and data protection requirements. An EOR can help shape the strategy and infrastructure of businesses, allowing businesses to achieve their goals in a far more cost-efficient and timely way. One of the primary issues when looking to expand overseas is the requirement to be registered as an entity in the target location. The cost and time frame to register as an entity varies from country to country, but it can take as long as 20 weeks and cost more than USD 80,000. Partnering with an EOR bypasses the need for a company to establish itself as a separate entity, reducing costs and considerably speeding up the process of becoming operational in the new market.
A Direct EOR serves as a client’s single destination for HR services, offering a robust and complete solution that differs from working with an indirect EOR. Working with a Direct EOR delivers a more streamlined approach, circumventing third-party involvement and working directly with the client.
As companies explore new markets and pursue opportunities to be closer to talent, resources and customers, they need an employment solution that helps them rise above the competition. An EOR service is the next level in HR solutions and enables you to reimagine your business and workforce by providing the strategy, expertise and infrastructure to support those goals.
While empowering businesses in this way is invaluable, an EOR is a more cost-effective alternative than creating your own local entity. An EOR delivers all of this and more without compromising compliance or the employee experience, all without the need for a large HR team.
A Direct EOR also drives success with local expertise that provides rapid and informed responses to support local employees. The direct model delivers faster speed-to-market than an indirect EOR by owning the entire HR experience rather than outsourcing it. By taking a hands-on approach, Direct EOR can onboard employees and create payroll faster than other models. There are no third parties to interrupt or slow the process.
You are working in a sector that requires you to seek exceptional talent from overseas in order to gain a competitive advantage by hiring quickly, efficiently and compliantly. This is particularly common in the following sectors:
Tech and IT: Some of the benefits of EOR are especially prevalent within the tech and IT industries as they typically first look to expand into new countries after a Series B raise—sometimes even earlier. Many Series B announcements highlight global expansion, so ensuring a company’s flexibility and mobility is crucial. Another theme that comes up often within tech (as well as other industries) is the desire to embrace a remote-first structure to support employees anywhere they want or need to be.
Energy: Oil and gas companies often win projects in emerging markets for limited periods. Often these organizations will operate in a country for only one to three years. Because of their short-term contracts, they opt to use an EOR for convenience, cost and time savings.
Education: Top institutions in the education sector are increasingly establishing overseas facilities and campuses in response to international students who seek the best education without leaving home. An EOR provides the foundation for expansion to meet these needs without creating a full campus setting.
Pharma and Healthcare: Pharmaceutical, medical technology and healthcare companies opt for EOR in order to tap into locations with higher densities of experts with the required skills for development and research. These are often project-specific needs that begin as temporary assignments and become permanent.
An EOR manages the legal, HR, tax and local compliance responsibilities for companies lacking legal entities in their target expansion countries. An EOR such as Atlas onboards and pays staff—becoming the legal employer of the employee while the client controls the daily management and direction of employees.
The average market cost of setting up a legal entity in a new market is around USD 80,000:
Entity Registration/Set Up: USD 10,000
Statutory & Labor/Employment: USD 5,000
Entity Tax Compliance & Registrations: at least USD 5,000
Bank Setup & In-Country Capital Requirements: USD 20,000
Legal & Financial Counsel: at least USD10,000
Internal Staff to Manage Process & Payroll: at least USD 30,000
In comparison, an EOR like Atlas can take care of this process for far less, costing USD 10,000 on average.
Atlas is currently present in over 160 countries.
The type of service you require often dictates whether the best solution is an Employer of Record or Professional Employer Organization (PEO), and there are several differences between the two.
An EOR is suitable for any business planning to expand their operations and employ people overseas in a fully compliant and rapid manner.
EOR takes on risk.
Your organization runs day-to-day operations.
A PEO is more aligned with businesses seeking to offload some HR duties for employees located in the same country where their business is registered.
PEO “co-employment” shares risk.
Your organization runs day-to-day operations.
Companies looking to expand into new markets often ask, “Are there any other types of EOR or PEOs?” While a Direct EOR is the most efficient, time- and cost-effective solution, the indirect EOR model is also an option. But for the most streamlined service, the direct model reigns supreme.
For many, the terms Employer of Record (EOR) and Global Employment Organization/Outsourcing (GEO) are synonymous, and that’s because they are quite similar. While EORs and GEOs tend to serve similar—if not the same—functions, a GEO is an organization that may offer EOR as a service. They do this through their own entities, or through third parties across many countries. However, Atlas offers unrivaled EOR services and solutions.
As the first and only 100% Direct Employer of Record, Atlas provides our clients with the leading EOR services on the market. We also provide Business Process Outsourcing, Administrative Services Outsourcing, and much more to suit the needs of your organization. Whatever it is you need, wherever you need it, Atlas is at your side every step of the way.
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