Maximizing Operational Efficiency: The Role of Employer of Record Services

Regardless of what stage of global growth your company might be in, establishing and managing entities is a time-consuming, costly process.

Establishing entities has long been seen as a key steppingstone towards global growth, allowing companies to hire the right talent in target markets – but they come with a number of challenges. Every country will have its own tax and employment compliance stipulations, not to mention cultural variations, requiring careful planning, long timelines, and big budgets.

Companies can then expect further slowdown around opening bank accounts, appointing local directors, building local advisory teams, and setting up compliant payroll and employment systems. The time this adds may end up costing more than initial set-up fees.

After all that work to get entities up and running, companies might assume it will then be too expensive to consider other solutions. But the systematic inefficiencies created by their entities will only create further pitfalls in the future – made worse by the constantly evolving employment laws and procedures in different countries.

A bloated organizational structure created by entities may hinder, rather than help, global growth. Here’s how companies can move beyond the headaches of managing those entities in order to maximize efficiency for a more successful business.

Entity bloat: big problems with challenging solutions

Unchecked entity growth over time can quickly spiral. Investment Monitor found that the top 6,000 international companies had a total of 370,320 subsidiaries. This will often lead to entity bloat, with complex, inefficient organizational structures.

More than one-third of the business leaders who participated in McKinsey’s State of Organizations Survey list efficiency as one of their top three organizational priorities for the coming years. That same group found ‘complex structure’ to be the biggest root cause of current organizational inefficiency. Some of these inefficiencies include multiple team members doing the same task, or hundreds of extra hours of top managers’ time spent communicating the same messages across the organization.

Entity bloat is often at the core of such inefficiencies. As such, in order to achieve the efficiency they need to, companies will consider significant structural changes to address such bloat, including divestiture and mergers and acquisitions.

Divestiture is on the rise, with almost 80% of the companies polled in a 2024 Deloitte survey anticipating three or more divestitures in the next year and a half. While this will make companies more agile, such a transformation is rarely easy. The survey found that the time from finalizing a decision to divest to executing a sale ranged between seven and twelve months.

It’s also expensive: organizations typically spend at least 4% of the revenue of the business to be divested on the execution of that divestiture. More complex, cross-border divestitures often cost up to 20% to 25% of that revenue.

On the flipside, mergers and acquisitions come with similar levels of administrative headaches, with the added challenge of integrating a new workforce into an existing company structure and culture. Employee experience might suffer, with different company structures and the potential for layoffs leading to added workload and stress.

The irony in all this is that, in attempting major structural changes like M&As or divestiture, companies might mire themselves in even more inefficiencies – making the problem worse before it gets better.

A North American-based software company faced these issues. After three years of high-speed expansion that successfully balanced organic growth and strategic acquisitions, the company faced financial pressure and needed to reduce their administrative burden. Core structural changes in their global structure were needed. However, rather than a typical divestiture or instigating significant layoffs, they wanted to maintain as many of their employees as possible while still achieving efficiency.

This is where EORs can provide the perfect solution.

Unpacking the growing partnerships between companies and EORs

Employer-of-Record (EOR) service providers have evolved to meet the needs of companies seeking to grow globally in a more efficient manner. They often take on an increasing number of administrative tasks for their clients, as those clients move away from fully owned and operated entities.

There are several efficiency-focused reasons as to why an enterprise might initially partner with an EOR. The EOR may handle:

• The HR processes in a country, including payroll and tax, significantly reducing admin hours for central HR teams.

• Staying on top of shifting labor compliance laws across all the countries their clients operate in.

• Global mobility and visa management – saving companies time and unlocking true global hiring.

Other keyways an EOR might help them save money and inform their strategy would include:

• Reducing the costs of establishing entities in new markets

• Testing new markets with a few hires through the EOR

• Simplifying cross-border mergers and acquisitions.

What often happens is that, following the initial success of these initiatives, companies will increasingly rely on their EOR partners to help achieve greater efficiency. This is a key reason why EORs are seeing record growth, with the market expected to grow to $8.05 billion USD by 2031.

The Atlas approach: greater efficiency and happy employees

Returning to our earlier example, the software company initially started working with Atlas to streamline a transition for their 40+ employees into Atlas’s global entities. In the process, thanks to a personalized approach that included town halls and direct communication channels, employee morale was maintained.

This highlights the Atlas approach, which sees our clients’ employees as core assets to that company’s success. In transitioning over to Atlas’s entities, your employees get access to great benefits, Atlas Learning, and the ability to work globally across over 160 countries. We believe that divestiture and other key efficiency initiatives can be achieved in a way that retains top talent and increases employee satisfaction.

Not only was the software company able to keep their teams happy, Atlas now manages all payroll and life cycle changes of the company’s worksite employees, as well as other HR processes including benefits and office expenses. By handling compliance and administrative tasks efficiently, we’ve allowed our client to concentrate on their strategic goals rather than operational issues.

As the software company learned, efficiency doesn’t have to come at the cost of global company control. By working with Atlas, your company still determines who to hire and terminate, how to regulate benefits, and all strategic decisions.

Our global structure equips you to attain global efficiency and further growth quickly. We own branches in our operating countries and don't rely on third parties. That means we're flexible and fast. Meanwhile, our expertise in local customs and merging companies makes for a frictionless transition.

Thanks to this balance of control and scope, it’s a true partnership. We’ll work together to help you grow, making your global business more agile and your employees more satisfied.