The pandemic has brought dramatic changes in the work structure and has forced companies to adapt to different operation strategies. While hiring and managing globally distributed teams have always been difficult for multinational organizations, it will become a bigger challenge in the post COVID world.
Cross-functional, diverse, and globally distributed teams will be the new normal. It will become a resource-intensive task for human resource departments to conduct international and national hiring and manage employees from diverse geographical backgrounds and work remotely. Companies need to strategically align with partners who can help them achieve the same without too much resource investment. An EOR or an Employer of Record comes to the rescue here. An EOR can strategically boost a company in attaining efficiency and effectiveness in global employee management.
What Is An Employer Of Record (EOR)?
An EOR or Employer of Record operates as a third-party company that has been given the contract for employee management, which includes administrative operations, payroll management, taxes, insurance and benefits, visa applications, and others.
The EOR is preferred by companies today, as they directly help the latter in cost and time savings, increase the effectiveness of regulatory compliances for international and national scenarios, and reduce risks. The EOR is responsible for the regulatory and legal requirements associated with employment, immigration, payroll but does not have any management role in respect to the employee’s position. Therefore for a business, hiring an EOR is strategically, financially, and operationally profitable.
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Hiring overseas employees without an EOR service provider - Is that a safe bet?
Yes, however, you must either establish your own legal business in the nation or hire the employees as independent contractors. Both techniques have advantages and disadvantages.
You will manage your entire presence in the new nation if you establish your own legal business. This requires the employment of attorneys, payroll specialists, benefits administrators, and other professionals. It may make sense to do so if you want to employ hundreds of employees in a new nation, but if you just intend to recruit a few (or perhaps a few dozen), a global EOR vendor is cost-effective.
Employing independent contractors demands diligence. Misclassification of international contractors is a major issue that can cause substantial fines and penalties.
Starting The Process Of EOR Selection
International expansion and operation are the prime challenges for most companies, and therefore, choosing the suitable strategic alternative becomes a make or break game for an organization. Opting for an EOR has proved to be effective in managing international hiring and globally distributed teams. But the process of choosing the right EOR partner is critical and should be relevant to one’s organization. Researching about the choices available on specific criteria will help one streamline the relevant EORs for one’s needs.
- The infrastructure of the EOR in providing prompt and accurate support.
- Degree of customization and experience offered by the EOR in your industry.
- Ease of payment and the pricing model followed by the EOR.
- The experience level of the EOR in the target country and host country.
Choosing The Perfect Fit – The Process
In management literature, achieving the perfect fit between a need and its solution is touted as the strategy for success. Therefore, it is critical to identify and choose the EOR that will perfectly fit its needs and strategic vision. Once the company has streamlined several EORs based on the criterion mentioned previously, it is then needed to answer specific questions.
1. The local presence of the Employer of Record
As the regulatory framework for every country differs, it is critical that the chosen EOR needs to have a local presence in the country where the company intends to set up its international operations and does the hiring, or at least needs to have a strategic partner in that nation to handle all the compliances of employee management.
2. The limit that the target country allows EORs to operate
There are nations such as Germany that allow organizations to work through EORs for 18 months. Global EORs all operate on different time frames, and companies should utilize this time to set up their future strategies. While hiring the right EOR, the company should have complete knowledge of legal limits and its future game plan.
3. The security and data privacy offered by the EOR
Security and privacy are the two aspects that cannot be stressed enough in today’s business. Even before the regulations of GDPR, these have served as critical strategic aspects for the company. The task of an EOR is dealing with sensitive employee information. If the former cannot ensure complete privacy and security of the information, it can prove detrimental for the company. Therefore, it is of phenomenal importance to choose an EOR partner that has sufficient infrastructure.
4. The model of pricing used by the EOR
The company must determine the profitable pricing model that they want to engage in. Global EORs opt for either a fixed price per employee or charge a proportion of the employee’s earnings. It depends, therefore, on the country, employment rules, basic salaries of the employees to finally arrive at the suitable pricing model beneficial for the company. Therefore, before engaging with any EOR, it is pertinent to know about the model of pricing followed by them.
5. The flexibility shown in contracts of employment
Between the company and its EOR, it is required that their policies be aligned together. Situations may become complex if the two sets of guidelines are directed differently. It is necessary that before choosing, the company needs to strategize with the EOR into creating a host of standard policies that would work best rather than accepting what the EOR has to offer without flexibility.
How To Know That You Have Made The Right Choice?
Companies choose EORs with the promise of higher effectiveness and efficiency. But to determine whether the chosen EOR is, in reality, helping you or just merely acting as a middleman or an aggregator is a task that companies need to examine periodically. The organization must investigate variables of GDPR practices, legal and HR compliance, protection of the business’s best interests, attrition rates of employees, employee satisfaction surveys, and others at periodic intervals to understand whether hiring the EOR meets the business’s objectives successfully.
Lastly, the ability of the EOR is prompt communication, and the solution of issues must also be considered an essential criterion for selection. Ideally, companies intending to hire an EOR must create their framework of suitable metrics and explore the available choices of the EORs based on those metrics periodically.
Choosing the right EOR partner is fundamental as the success of international expansion depends on that. Companies need to keep in mind that the EOR partner must enable them with the entire gamut of employee management practices, give timely and successful solutions and prove to be financially profitable for them in the long run. In choosing a true partner, the company must select an Employer of Records who can satisfy them rather than meet the basic requirements.
EOR services help companies avoid the hassle of local and international operational hiring and help them focus their valuable resources on strategic tasks. If you are looking to expand in different nations, start searching for EOR services now. Make a checklist of your requirements, and analyze the available options for you. And conduct periodic reviews to assess the fit between your partner and you and take intervention strategies to arrive at the best fit.