If you’re eyeing up global expansion, or need to start operating in another country, then an Employer of Record (EOR) is a great option. Rather than setting up your own entity in the target market, and having to deal with the associated bureaucracy in the process, businesses can instantly tap into international markets and workforces using an already-established local partner, while still retaining control of operations in the new territory.
Although this option sounds very attractive for organisations wishing to expand globally as quickly as possible, there are some watch-outs to go with the positives. To bring you up to speed and help with your decision, we’ve looked at both sides of the argument when it comes to working with an EOR.
Pros of working with an Employer of Record:
You can access global markets very quickly
The ability to hire staff anywhere in the world without the need for a subsidiary registration will help your company grow faster. As a result, using an Employer of Record is an excellent alternative for small businesses wishing to expand into new areas, but lack the budget to set up their own entity.
You’ll can tap into to on-the-ground expertise
Employers of Record are usually fully based in the country of operation, so, therefore, speak the local language, understand local employment laws and regulations and are there to guide partner organisations through the challenges and opportunities that their target markets present.
This often includes providing input when it comes to strategy and planning, which can be extremely valuable in countries with difficult employment conditions or complex bureaucratic business systems.
You don’t need to register a company
Many countries require foreign organisations or investors to register a company locally for administrative and sometimes taxation purposes. With an Employer of Record, this is already done, as the EOR acts as the local registered entity.
This means you don’t need to spend time figuring out how to register a company in the target country or paying associated fees. But perhaps the real value lies in the fact that the already-registered EOR is responsible for all legal outcomes, regulations and administrative responsibilities, leaving you to focus on your expansion rather than bureaucracy.
You’re disconnected from the EoR
Even though you’ll work closely with your appointed Employer of Record, you’ll also have the ability to cease the relationship at extremely short notice, for example, if you need to deploy your exit strategy or pivot to a new opportunity. The EOR is responsible for ensuring things like redundancies, finances and other administration is taken care of if the venture is no longer viable and you need to withdraw from the territory.
Cons of working with an Employer of Record:
You’ll need additional time to embed your goals and culture
Although your Employer of Record partner will align themselves comprehensively with your brand and organisational structure and values, you’ll still need to embed these into your EoR, which could mean a time investment. However, you’ll soon realise the EOR usually takes responsibility for ensuring they are aligned with your goals, rather than it being the other way round.
It’s a great short term solution, but not as suitable in the long term
Employers of Record may be one of the best choices for short term investments, time-limited operations or for the initial launch phase of global expansion, but it often makes sense to set up your own entity if you plan on remaining in the territory for a long time, or you expect growth to be very fast and very lucrative.
There are a few reasons: EORs come with a cost, which isn’t exactly an investment in your own company, and you’ll always be one step removed from a significant chunk of your operations.
Then there’s the fact that you’re operating in a new country, but you aren’t a registered entity there, which can have a knock on effect on a huge variety of scenarios. For example, a partner you wish to work with may prefer to work with a company with an established presence in the country.
It may feel like you have less control
Ultimately, engaging with an EOR means handing over a certain level of autonomy to an external partner. For some organisations, this is more difficult to overcome than others, but it ultimately comes down to a trade-off of time + expansion vs. cost + control.
This is where partnering with the right EOR makes the biggest difference. The best EORs will understand their clients’ needs and operations and will flex to meet them. They’ll also spend more time embedding and learning so that all outcomes and strategies have been addressed and planned.
Using an EOR fully comes down to your overall expansion strategy, but it is a fantastic way to expand into a new territory much quicker than setting up a new entity and navigating local laws and regulations. And even if it makes sense to set up an entity in the long-term, an EOR can be engaged in the initial stages of the strategy, even just to gain the local expertise that is critical for any global expansion.
Check out our global EOR coverage if you’re considering using an EOR partner in your global expansion strategy. Topsource Worldwide is a provider of EOR services around the world. Connect with your expert partner today and learn about the benefits of working with us as your EOR.