With the emergence of a global economy, companies of all sizes can expand their teams overseas with full legal compliance, with or without a legal entity in those countries. Companies that have the resources, both in terms of time and money, can opt to open an entity in every country where they want to be based. The move is risky because of the investment involved and because closing an entity can often be as hard as opening one. But it provides the company with most stable base for long term engagement in those countries.
Companies that want to mitigate some of risk by testing out a foreign market before diving all the way in can choose to work with a global EoR (Employer of Record). Through a global EoR, companies can build a fully compliant global workforce at low cost and in the shortest possible time. They can take advantage of a snap opportunity or a short-term engagement. They can also scale quickly if the situation calls for it, maintaining maximum agility.
The employees are formally hired by the global PEO, which maintains legal liability for them, but the end-company directs them in their day-to-day activities. The arrangement is usually temporary, but it allows the company to fully assess its prospects in the foreign market and decide if the expense of opening an entity is worthwhile. If the company decides to commit itself fully, its easy to transfer the workforce to the entity.
Under the right circumstances, working with a global EoR could be the best option for any company, even if it has the resources to open an entity. The question, however, is what to look for in a global EoR. The following are some of the important questions to ask before signing on.
1. Does the EoR have a local presence?
Every country has a different set of laws that govern the relationship between employer and employee, and a different set of tax codes. To be sure of compliance in a foreign market, the EoR has to have a local presence. That means either the EoR itself is based in the country where you are hiring, or it must be associated with an in-country partner to handle all of the workforce management compliantly.
Without a local presence, a company may not be up-to-date with changes in legislation that could affect your company directly. They also might not be experts on various details of workforce management, such as how to handle disputes over time off allowances or limits on overtime. They may not be able to advise your company on local salary expectations or benefits benchmarks, and they certainly will not be available on the ground to help you recruit new employees and vet those you want to hire.
2. Is there a limit to how long a country allows companies to work through a Global EoR?
While working with a global EoR is almost always a temporary solution, some countries are strict about the time limit they allow. Germany, for example, allows companies to pay an employee through an EoR for 18 months. After that point, a company has to open an entity and hire the employee outright.
Most global EoR solutions range in time from a few months to a few years before it becomes more advantageous for the companies to plant roots and open a legal entity. When they reach a certain threshold of employees, usually in range of 15-20, the fees they pay on each employee usually grows beyond what they would pay as the outright employer. At that point, they may also want to engage in contracts with partners that requires a permanent presence to complete. They key to planning, however, starts with knowing in advance about any legal limits imposed by the country in question.
3. How does the EoR ensure data privacy and security?
Even before the EU’s sweeping GDPR regulations, privacy and security were buzzwords in the business world. After all, when it comes to payroll, companies collect and store some of the most sensitive data available about their employees. Before choosing a global EoR, it’s essential learn more about how that data will be protected when you hire workers.
You want to know that web transfers, when necessary, are done through the secure HTTPS protocol, that nothing is sent through standard emails – a major red flag in data protection – and access to data is limited to the minimum number of people possible. It’s not just a matter of protecting your employees. The fines for mishandling data can be extremely severe, and yet it’s not automatic that every company handles data with the proper care.
4. What pricing model does the EoR use?
When it comes to pricing, there are essentially two approaches a global EoR can choose. It can offer a flat fee for each employee, known as the fixed price model, or it can charge a percentage of the employee’s salary. While both ways may be equally valid, workforce spending is much easier to predict and plan with a fixed price model.
When fees are based on how much an employee earns, the numbers are likely to fluctuate from person to person, country to country, and job to job. Therefore, it becomes difficult to predict how much your company will pay the global EoR for the service. Alternatively, if there is a standard fee for each employee, your company will know how much it is paying based on the number of people hired in each location.
5. How much flexibility does the EoR show in employment contracts?
Every company has its own policies, and the same is true for every global EoR. The question, however, is what happens when the two sets of policies run in different directions. Will the EoR be willing to compromise – without violating compliance regulations or local standards – to allow your company to maintain its values and principles? For example, will the EoR allow you to offer additional benefits in keeping with your global standards, even if it does not already offer such benefits?
In reality, some EoRs show admirable flexibility and others are adamant about sticking to their standard contracts. Companies from abroad are often intimidated into accepting the EoR standards under the belief that the local partner knows best. Those standards are often just preferences by the EoR, not local standards, and there is no reason for companies to accept them. Your company is better off working with an EoR that wants to work with you rather than imposing its terms on you.
Papaya’s EoR and Local Payroll Services
Papaya can help your company navigate the challenges of global expansion our global EoR has local vendors in more than 100 countries to serve as employers of record. We also provide guidance and support for companies seeking to move from Global EoR to full local entities to ensure each company maximizes its potential at every stage of growth.
In addition, the Papaya platform contains a unique portal for employee engagement. It lets you manage all employee on-boarding, PTO reporting, full pay slips, and expense tracking. Workers can view their benefits and company policy. Most importantly, they have one point of contact to answer all of their questions. By providing a good system for tracking worker satisfaction and helping them feel comfortable within their EoR, your company can dramatically increase retention rates.