Aggregator vs Wholly Owned EoR Models

Alex Margolin May 25, 2020

Expanding abroad has never been easier. Even a company with no local entities can start hiring in full compliance around the world through a global Employer of Record (EoR) service.

The EoR (also know as global PEO) serves as the legal employer, hiring the employees on behalf of the client, and handling all workforce management tasks, such as payroll, and assuming the burden of liability for the employees and for compliance. The client, however, still has full control over the employees in their day-to-day activities.

EoR services come in two models. In the aggregator model, an EoR provider joins with an independent in-country partner (ICP) in every country it serves. The client works with the provider, which coordinates with and the ICP.

The second model is the wholly-owned infrastructure. In this model, an EoR provider opens its own local office or acquires one in each country. The local office is a part of the global company and answerable to the central office, which is not located in that country.

When you compare the two models – partnership vs full ownership – it’s no contest. The aggregator model beats the wholly-owned model in each of the main considerations for choosing an EoR (see below).

The aggregator model functions in the industry the way Amazon does in retail. Amazon brings together products and vendors, offers full details on all of them, then oversees the experience to ensure Amazon’s high quality of service. An EoR aggregator does the same, bringing together different ICPs, openly sharing information about who they are and the service they provide, then stays with the client to make sure all the needs are met.

While the wholly-owned model appears to benefit from being part of a single company, in reality, the lack of flexibility, accountability, and transparency make it a liability.

Why the Aggregator Model Wins: A Comparison

  1. Quality of local Service 

Aggregator Model: Global partner carefully vets many potential ICPs before choosing the best in class in every location. ICPs are held accountable for the quality of service and incentivized to meet the highest standards: if the partners underperform, they can be replaced.

Wholly-owned infrastructure: A wholly-owned office cannot be replaced, reducing the incentive to produce top quality work. It is essentially stuck with the infrastructure it has, which is unlikely to be the best in class in any location, and certainly not in every location.

Sometimes, the wholly-owned “local” office may not even be located in the country it is serving. It is only local in name but operates from outside the country, which means it lacks the local presence to track legislative changes, so compliance is a constant question. It also lacks local knowledge and expertise.

Advantage: Aggregator Model  

  1. Multi-level System for Ensuring Data Accuracy 

Aggregator Model: Workforce data is processed by the ICP but audited by another party, such as the EoR aggregator. This method establishes a two-layer system for ensuring data accuracy on behalf of the client. If the ICP makes an error, it will be spotted in the audit and corrected.

Wholly-owned infrastructure: A payroll department owned by the company is essentially checking the company’s own work and may have a conflict of interest if it finds mistakes by another part of the company. Data lacks integrity if it cannot be independently audited by another party.

Advantage: Aggregator Model 

 

  1. Flexibility in Choosing Provider  

Aggregator Model: When it comes to EoR service, one size does not fit all. Some ICPs are better suited to some clients, not others. An EoR aggregator can leverage multiple ICPs in one country to find the right fit between client and ICP.

Wholly-owned infrastructure: A client cannot choose to work with a different local provider. There is only one choice, and the client has to accept it.

Advantage: Aggregator Model 

 

  1. Tailored Service 

Aggregator Model: EoR providers may have more than one ICP in any region, and can provide a particular expertise, such as tax law, at a client’s request.

Wholly-owned infrastructure: If it does not have the specific expertise the client needs, the client will have to hire an independent consultant at additional costs.

Advantage: Aggregator Model

 

  1. Advanced IP Protection and Implementation 

Aggregator Model: An aggregator understands the immense value companies place on their intellectual property. Legal clauses in the contracts between aggregators and ICPs ensure that clients retain the IP that belongs to them in any country, despite the differences in IP laws across the world.

Wholly-Owned Infrastructure: Since it is one company with offices abroad and locally, there are no contracts between them. A client’s right to IP is subject to the local laws of the country with no special protection.

Advantage: Aggregator Model 

 

  1. Protection Against Fraud 

Aggregator Model: An aggregator serves as an additional level of protection for a client against fraud from an ICP. The client remains protected by his agreement with the aggregator.

Wholly-Owned Infrastructure: With the wholly-owned model, the extra level of protection is gone because it is all one company. A client that wants to report fraud at a wholly-owned company has no one to turn to.

Advantage: Aggregator Model  

  1. Flexibility in Employee Compensation and Benefits  

Aggregator Model: A client can choose all different contracts, benefits, and perks in order to attract the best level of talent available. A senior manager can be offered a more attractive compensation package than an entry-level assistant. Each employee can be compensated at an appropriate and locally competitive level.

Wholly-Owned Infrastructure: The wholly-owned company generally offers a standard template for all employees, regardless of skill, experience, and responsibility, limiting the level of talent the client can attract and retain.

Advantage: Aggregator Model 

Papaya takes “Best in Class” Aggregator Model to the Next Level

Papaya Global chose the aggregator model because it delivers better service to clients. Some EoR providers have lowered the image of the model by choosing low-cost ICPs that under perform. Papaya is elevating the process of aggregation but putting its own imprint on the model, improving it in a number of ways.

  1. Full Access to Local Experts 

Papaya is completely transparent about its ICPs and provides full access to the local experts at any time. In addition, Papaya maintains its own in-house Center of Excellence, a committee of experts on global employment issues such as compensation, benefits, and HR.

  1. Service always Carried out Locally, and Never Outsourced 

Papaya’s ICPs will never outsource their service to another provider, and they will always be based in the local country, not working from a different location. In addition, Papaya will only work with ICPs that demonstrate they have data protection and strong security standards and certification.

  1. Fixed pricing model without hidden fees 

When it comes to pricing, there are essentially two approaches: a flat fee for each employee, known as the fixed price model, or charging a percentage of the employee’s salary. Papaya chooses the fixed-price model, applying the same fees and the same scope of work in every country.

That makes it easier for clients to understand and forecast their total employer costs in advance. 

 Wholly-Owned InfrastructureStandard Aggregate ModelModel
Vetted PartnersNoYesYes
Independent Data for AuditNoYesYes
Flexibility to Choose ICPNoSometimesYes
Tailored Service NoSometimesYes
Extra Layer of Fraud ProtectionNoSometimesYes
Full Access to Local Experts NoNoYes
Service Always Carried Out Locally NoSometimesYes
Legal Protection of Client IP NoNoYes
Flat fee with no hidden costs SometimesSometimesYes

Get the Papaya Experience

Papaya offers a total workforce management solution supporting all types of global workers (payroll, EoR, and contractors) in over 100 countries. The automated, cloud-based SaaS platform provides an end-to-end solution, from onboarding to on-going management to cross-border payments.

The automated platform ensures payroll compliance, provides benefit management, and ensure data privacy in compliance with GDPR. Papaya’s knowledge center provides updated information on salary benchmarks, mandatory benefits, tax rates, and more – everything you need to know before hiring overseas.

Contact us for a strategic consultation. We can help with budget planning, compliance, and a plan for management and communication for your distributed workforce.

Papaya Global payroll platform lets you:

  • Automate payroll with zero processing errors
  • Manage global payroll, PEO & contractors via one platform
  • Make cross-border payments in 140+ countries