Let’s assume your startup wants to expand into France, hire developers in Ukraine and Poland, and have a sourcing manager in China. That's four different countries with completely different labour laws, work contract regulations, HR processes, payroll difficulties and compliance risks.
You could panic — or you could try out an Employer of Record.
An Employer of Record (EoR) is a company that manages the legal, HR, tax and local compliance responsibilities of a company’s talent in any country where a business doesn’t have its own legal entity. Once contracted with an EoR, they hire, onboard and pay talent on a company’s behalf.
As the client, the business still decides on who to hire, how to compensate, what work to perform and when to terminate contracts. The EoR is simply a HR service that helps keep a business compliant with local laws in the country where its talent lives and works.
Considering an EoR? This is what you need to know.
To use an EoR, you provide it with information about who you want to hire and other basic data such as start date and compensation. The EoR then navigates the local laws and handles all the paperwork for onboarding the employee. This frees time and allows startups to focus on growing the business.
“The EoR becomes the legal employer of your talent, whilst the client will look after the day-to-day management of the employees,” Matt Jennison, head of sales UKI at HR platform WorkMotion, tells Sifted. “The alternative would be for a client to open their own legal entity, which is an expensive and time-consuming process, fraught with legal and compliance risks.”
The EoR becomes the legal employer of your talent, whilst the client will look after the day-to-day management of the employees
Because startups need to be agile, Jimena Mondragon, VP of marketing and communications at WorkMotion, says the EoR model is useful to quickly hire and onboard qualified talent, while staying cost-efficient.
“We believe this model is a win-win because companies can make competitive offers and hire top talent around the world instead of struggling and waiting three to six months to staff their teams,” she says.
Avoiding legal issues down the line
Marc Morego Palau is digital marketing manager at Service Club Delivery, a Barcelona-based startup and job platform exclusively for delivery people. As a global business, he knows that local employment laws can be complex and vary greatly from one country to another.
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“To ensure that we weren't unknowingly putting ourselves at risk of violating any of these regulations, and to remain compliant with our obligations as employers in each market where we operate and hire talent, we decided it was the most prudent option to use an EoR,” Morego Palau tells Sifted.
“By leveraging this service, we are able to ensure compliance with local regulations while still hiring great talent from different countries,” he adds. “This allows us to run our operations smoothly without having to worry about running into any legal issues down the line.”
Addressing the talent shortage
With the ongoing talent shortage across Europe, finding the right people to scale a startup is much tougher than it once was.
However, Jennsion believes there is only a shortage of talent if your startup limits its search to the locations where you have a legal entity.
WorkMotion’s WorkDirect solution supports clients who have hired multiple people in a particular country to open their own entity whilst still enabling them to retain its ongoing HR support.
Working with an EoR, clients can expand their search for talent to pretty much anywhere in the world
“Working with an EoR, clients can expand their search for talent to pretty much anywhere in the world, giving them access to talent that would have previously been out of reach,” he says. “This strategic step could be the competitive advantage that a startup needs to succeed.”
An EoR can also help companies improve their diversity by facilitating remote work. A recent study found that 93% of workers prefer a remote or hybrid work setup.
Could an EoR work for your startup?
According to research by NelsonHall into business strategies for the coming years, multinational firms of all sizes seem set to remain the primary target for EoR services, with 93% operating in the small to mid-market segment (<15k employees).
The analysis firm attributes this in part to smaller startups within emerging sectors that have a lack of in-house expertise in HR, legal and accounting, but are dedicated to global expansion strategies. So, could an EoR work for your startup?
An EoR assumes all payroll tax liabilities, meaning that you don't have to worry about complying with complex local regulations
“If you're a startup considering using an EoR, I'd say that it's a great option for quickly and efficiently onboarding employees who will be working remotely or across multiple countries,” says Morego Palau.
“It eliminates the need to set up local entities in each country where your employees are located, saving you valuable time and money. Plus, an EoR assumes all payroll tax liabilities, meaning that you don't have to worry about complying with complex local regulations."
WorkMotion enables companies to hire skilled talent in 160+ countries without the barriers of borders with a few simple clicks. For more info, click here.