The Advantages of Outsourcing HR Functions to an Employer of Record
If you’ve ever been tasked with managing a team, it should come as no surprise that HR is an important and strategic business function. Hiring and maintaining a growing list of employees is difficult enough, but the challenges increase once you start to pursue global expansion. However, by partnering with an Employer of Record (EOR), you can outsource your employee onboarding, benefits administration, and compliance so you can focus on scaling your business.
Need help managing your global workforce? In this article, you’ll find out how you can improve your HR function by working with an EOR.
What is an Employer of Record (EOR)?
An Employer of Record manages the legal, HR, tax, and local compliance responsibilities of your employees in any country where you don’t have a legal entity. By acting as the legal employer, the EOR assumes the legal risks of an employer on your behalf, while you maintain control over your employees and business operations.
Advantages of Outsourcing HR Functions to an EOR
Outsourcing your ‘people function’ to a third party seems counterintuitive at first, but once you peel back the layers, it makes perfect sense. For starters, managing a global workforce on your own means you’ll have to deal with the red tape of global compliance and it can take a serious toll on your business’s bottom line if done incorrectly.
Here are the unique advantages of partnering with an EOR vs. managing your global workforce internally:
Stay Compliant with Employment Laws
By acting as the legal employer on your behalf, an EOR allows your business to meet in-country compliance obligations without having to establish a local entity. Key benefits of using an EOR include:
Mitigates the risk of non-compliance for businesses:
By serving as the legal employer and managing compliance obligations, an EOR provides you with the proper legal structure from day one as you scale abroad. This protects your company from unintended non-compliance or legal problems that could disrupt operations and prove costly if not addressed early on. Having an EOR as a partner provides you with an invaluable safeguard.
Ensures compliance with local employment laws and regulations:
An EOR has extensive knowledge of local labor laws, including those related to hiring, employment contracts, payroll, taxes, and benefits administration. They stay up-to-date on any changing regulations and ensure full compliance on your behalf.
Manages employee contracts, proper employee classification, and payroll taxes:
An EOR will handle drafting appropriate employment contracts under local laws, properly classifying employees (e.g. independent contractor vs full-time), and managing payroll taxes like income tax and social security withholdings. These administrative tasks are complex and prone to mistakes for foreign companies new to a country.
Realise Cost Savings
Expanding into new countries not only comes with legal and tax complexities, but also new costs associated with setting up payroll and human resource administration. An Employer of Record (EOR) can help mitigate these costs and realize significant savings for your business. Here’s how:
Reduces costs associated with HR administration
An EOR handles all HR-related tasks associated with hiring, onboarding, and managing international employees. This eliminates the need to have dedicated in-house HR staff in every country you operate in. The EOR's economies of scale translate into lower per-employee costs for your business.
Handles many administrative tasks associated with HR
Because the EOR serves as the legal employer, they manage everything related to employee benefits, taxes, and onboarding based on local laws. Your business avoids having to invest in technology, personnel, and infrastructure to handle international HR administration.
Saves on payroll costs by eliminating the need to maintain an internal payroll system
For multinational companies, managing global payroll across different currencies, systems, and regulations is highly complex. An EOR has payroll administration down to a science, allowing you to save significantly compared to running it yourself.
For example, an EOR handles all aspects of payroll, including the calculation of pay based on hours worked, tax withholdings, and deductions. In addition, EORs can handle various currency payments for international workers, making them an ideal partner if you plan on operating in multiple countries.
Tap into Specialized HR Expertise with an Employer of Record
Expanding internationally means adapting to different employment laws, HR best practices, and cultural norms around managing people. An Employer of Record (EOR) provides invaluable expertise to guide you, including:
Provides expertise in local employment laws and regulations
EORs maintain specialized legal and HR teams in each country. This means you have a reliable resource to consult on unique aspects of labor law, including contracts, payroll, leave policies, terminations, and more. Avoid missteps by leveraging their localized expertise.
Offers specialized support to businesses, including guidance on employee benefits, compensation structures, and performance management strategies
Beyond legal knowledge, EORs provide guidance on HR best practices locally. This includes structuring competitive employee benefits packages, mapping out compensation levels and bonuses, and instituting performance review cycles. Access their expertise rather than having to build your own.
Additionally, an EOR partner provides thought leadership, training, and tools to promote positive workplace culture and talent management strategies adapted to local norms. This level of HR expertise allows you to get your international team up and running effectively.
Global Hiring and Expansion
For companies looking to hire and pay employees overseas, an Employer of Record (EOR) simplifies global growth. Here are some key benefits:
Enables companies to quickly and safely hire and pay workers globally without establishing legal entities in multiple countries
An EOR allows you to hire employees in new countries while avoiding the cost and complexities of setting up foreign legal entities from the start. The EOR serves as the legal employer, handling compliance on your behalf.
Facilitates global expansion without the commitment of entity establishment
Using an EOR gives you the flexibility to hire overseas employees for a project or to test a new market, without fully committing to establishing a new international legal entity right away. This facilitates faster and leaner global growth.
Allows for compliant hiring and collaboration with employees overseas
With an EOR as your global HR partner, you can hire employees, pay them compliantly, and formalize employment contracts according to local laws. This also enables effective collaboration with overseas team members from the start.
Outsource HR Tasks to Focus on Your Core Business
When expanding internationally, HR administration and compliance can eat up significant time and resources. An Employer of Record (EOR) alleviates these burdens, allowing you to stay focused on core business operations in the following ways:
Frees up time and resources for companies to focus on their core business operations
An EOR handles the entire employment lifecycle from hiring to ongoing HR management. This lifts the operational burden from your team’s shoulders so you can stay strategic and focused on accelerating global growth.
Provides ongoing support and expertise to HR matters globally
With an EOR as your global HR partner, you have a team to consult on employee relations, local practices, compliance issues, and more. This ongoing expertise and support enables your leaders to focus less on HR details and more on business strategy.
An EOR is also a great facilitator of remote work. For instance, smaller businesses and entrpreneurs can leverage the services of their Employer of Record to offer better benefits packages, provide employees with education professional stipends, and stay competitive with their enterprise company counterparts to reduce employee turnover.
Disadvantages of Not Outsourcing Some HR Functions
Expanding globally while managing all HR administration and compliance internally can be risky and costly if you don't have expertise in local employment laws. Here are some of the key disadvantages:
Increased risk of non-compliance with local employment and tax laws
Without an Employer of Record as your global HR partner, the risk of non-compliance increases significantly. Lack of knowledge of local regulations around contracts, payroll, leaves, terminations, etc. can lead to legal issues, huge fines, and long term reputational damage. In other words, no one wants to do business with a company that’s suspected of breaking local employment and tax laws. Working with an EOR gives you peace ofmind that you’ll stay compliant, always.
Higher costs associated with maintaining an internal HR team
Building out HR infrastructure in every new country is expensive, from hiring knowledgeable staff to implementing the required technology and systems. An EOR provides economies of scale so you don’t have to deal with the expenses of building a new HR team from scratch.
Limited access to expertise in HR and local employment laws
Understanding nuances around employment contracts, payroll taxes, leave policies, and other HR practices country-by-country is complex. An EOR provides this localized expertise so you can focus on growing your business.
Make it easier to hire and manage internationally
Choosing to manage all HR functions internally when expanding globally can present significant risks and costs. Between non-compliance with local laws, higher operational expenses, and limited access to localized HR expertise, trying to tackle global expansion on your own can present some serious challenges.
On the other hand, an Employer of Record acts as a strategic partner, offering essential legal protection, cost efficiencies, HR knowledge, and operational ease, all of which make global expansion more accessible and manageable for your business.
Ready to pursue global expansion? Request a demo to see how Atlas helps growing companies manage their global workforce.