Hypergrowth is exciting: you’re acquiring new customers at a fast pace, attracting investors from all around the world, and potentially disrupting your industry with innovative solutions.
But things might be getting complicated behind the scenes.
As your customer base grows, your business needs exceed your current resources. You need to find a cost-efficient way to hire new employees who will adequately cater to your customers, test the waters in new markets, and make sure you’re compliant with legal requirements and labor laws in every new jurisdiction.
If you’re planning to set up your own entity in every new country, expansion may take months and even years. Meanwhile, the market may become saturated, and your prospects may turn to your competitors. Not to mention the difficulty of attracting the right global talent.
Let’s talk about a cost-effective alternative to owned entities: an employer of record. Learn how this organization can help you hire and scale a global workforce quickly and compliantly while remaining an interesting opportunity for global investors.
What is an employer of record?
An employer of record is a global employment service provider that legally hires staff internationally on behalf of its client companies without the client setting up their own legal entity in new countries. The EOR handles all employment-related legal responsibilities, like drafting employment contracts, managing salaries and benefits, and overseeing tax obligations, to ensure that hiring across different countries complies with local employment laws.
Hiring through an EOR can be a vital global expansion strategy for fast-growing startups, as it allows them to hire full-time employees abroad, removes the regulatory obstacles in the process of international employment, and minimizes exposure to risks, including worker misclassification.
Typical global employer of record services involve legal employment of international employees (and sometimes independent contractors), creation of tailored agreements, employee benefits management, international payroll processing, collecting tax documentation, compliant onboarding and offboarding, and assistance with visa applications.
Learn about the pros and cons of hiring contractors and avoiding misclassification.
Why startups should consider EORs rather than owned entities
Startups, especially those experiencing hypergrowth, face the need to cater to an increasing number of clients fast. As a startup leader, this leads you to look for ways to minimize employer costs through lower-cost hiring options while reinvesting in other areas of the business.
Why is this hard to achieve through opening owned entities in each new market? As we briefly mentioned above, there are several reasons:
- The setup process can last three to six months, depending on the complexity of a foreign jurisdiction
- Registration and incorporation fees, minimum capital, and ongoing expenses can reach hundreds of thousands of dollars
- You would need to hire local legal teams in each country to navigate international employment regulations
- The flexibility in scaling operations based on market demands can be very limited
- Exiting an unprofitable market and closing down an entity can be even more complex than setting it up
For most startups, these reasons are enough to give up (at least momentarily) on expansion plans.
Luckily, employers of record can unblock your teams faster, offer more local expertise, and improve the employee experience, consequently improving customer experience, too.
Here, we unpack the key reasons why EOR services are the ideal global hiring solution for startups:
Prove the stability of your workforce to investors
Startups seeking investment must demonstrate stability and continuity within their global workforce to encourage potential (and current) investors.
Investors often become worried about how a company protects its intellectual property, treats employees, ensures compliance worldwide, especially if you only hire independent contractors to facilitate compliance. This can be an indicator of an unstable global workforce, especially when it comes to leadership roles, as they should be offered full-time employment rather than project-based contracts.
💡 Read more: When Should You Move from Contractors to Full-Time Employees?
How EORs solve this challenge
Leveraging EOR services provides startups with the necessary infrastructure for hiring international employees in countries where your startup doesn’t have a local entity.
By offering tailored and regularly reviewed and updated employment contracts, tax compliance, payroll processing, benefits administration, and other payroll and HR services, the EOR lets you operate in a foreign country and hire employees without risking noncompliance or losing great candidates.
With an EOR, you’re no longer forced to hire foreign independent contractors or limit the search for talent to the local pool, which can sometimes be more expensive than international hiring. Startups can now offer full-time employment to candidates from other countries, enhancing their internal skill set and bringing diverse business perspectives and expertise to help them reach expansion goals.
Take your picks. Find the best talent for your team and leave the rest to Deel.
Mitigate compliance risks
When you start onboarding new hires from different countries, your payroll, compliance, and HR tasks will get more complex in comparison to a team of local workers.
Small businesses typically have up to 50 employees. Between core business activities, sales, accounting, and several other roles, it’s highly unlikely that you’ll be able to register your own entity and hire legal experts, HR specialists, and payroll managers for each country you hire from. At the same time, while your team may understand local labor laws, global compliance may be an overwhelming task.
How EORs solve this challenge
When outsourcing legal compliance to an EOR, startups can easily navigate complex regulatory environments.
Employers of record typically work with legal counsels with vast knowledge of employment laws and tax regulations across different regions, which can help you protect intellectual property rights, minimize employee classification liabilities, and make sure your team members everywhere receive compensation (including statutory employee benefits) aligned with local requirements.
In 2022 only, 61,000+ regulations changed across 190 countries, which further highlights the value of working with an EOR. This value is also reflected in the money you save by avoiding hefty noncompliance fines and penalties (which may include even jail time and permanently ruined reputation), especially for the wrong categorization of workers.
📖 Read more about employee misclassification penalties and how to protect your company against them.
Optimize business operations
Startups often rely on manual and decentralized processes (run payroll in spreadsheets, store employee data in multiple systems) as they’re looking for the most affordable solution to tackle a problem instantly, without long-term planning.
This becomes an issue when the number of global team members increases and locations, where they reside, become diverse. Manual and repetitive processes take up too much time for human resources and payroll departments while increasing the possibility of human error and reducing visibility into employee data, global payroll costs, etc.
Note: Even if a startup has its own entities in other countries, this lack of visibility can be an issue if entities use different (and often incompatible) systems and inconsistent processes for global payroll and administrative tasks.
How EORs solve this challenge
Hiring through a global employer of record involves access to a comprehensive platform for workforce management that typically unifies the most important processes throughout an employee lifecycle, such as:
- Onboarding process
- Documentation management
- Benefits adminstration
- Tax filing
- Employee data storage
- Timesheets and time off request processing
- Salary payments
- Invoicing for contractors
- Payslip distribution
- Contract termination
A well-integrated global HR platform allows you to automate and optimize all these processes and remove any unnecessary steps that hinder your HR and payroll teams’ productivity. Automated global-friendly workflows also reduce potential errors and help overcome the obstacles that come with remote team members who may reside in different time zones, making your processes consistent across all locations.
Attract (and retain) top global talent
Cost-efficient staffing is another challenge that startups often face, particularly in competitive industries. Experienced talent well-versed in remote work is often too expensive, so small businesses look to hire from low-cost regions to minimize employer costs. Having to set up your own entity would defeat the purpose of this expansion move.
Limited resources, especially for bootstrapped companies, hinder the ability to acquire talent globally, restricting the startups’ growth potential. So, to ensure competitiveness, startups sometimes offer equity as a part of benefits packages, but this comes with certain compliance risks.
How EORs solve this challenge
EOR services enable startups to access a global talent pool, offering flexibility and cost-effectiveness in hiring and competitive employment benefits, enhancing their ability to attract and retain top talent.
For example, EORs may offer excellent health insurance plans that a startup wouldn’t have been able to access without setting up a local entity (and even then, it might have been unaffordable). Thanks to the EOR’s wide network of local partnerships worldwide, you can provide tailored benefits that match employees’ needs no matter where they are.
Maintain agility in international expansion
Speed to market is key during expansion, especially for startups looking to establish themselves quickly to capitalize on demand or talent before conditions change or competition increases.
Also, if you’re:
- Chasing the next round of funding and want to meet investor expectations
- Looking to maximize revenue
- Seeking to hire from a specific talent pool to close a skill gap
Time to market is a metric you should be trying to reduce.
Changes in regulatory frameworks, trade agreements, or market conditions may also create windows of opportunity or necessity for rapid market entry to adapt to new circumstances or mitigate potential risks.
The time and cost involved in entity setup act as deterrents, slowing down market entry and consuming valuable resources, especially if you want to hire from multiple countries at once. This delay hinders startups' agility in expanding into new markets, putting their growth trajectory at risk.
How EORs solve this challenge
With an EOR, you can hire an international employee in as little as a couple of days, depending on the complexity of local labor laws and legal regulations. As the EOR already has a local entity, its local legal and compliance team will work on the required paperwork (contract and other documentation) immediately, while the dedicated onboarding and HR experience teams will work to incorporate your new hire in as little as a few days.
That means you could send an employment offer on a Monday and have a new international employee start within the same week!
In comparison with entity setup, this is lightning speed. Here are a few examples:
- In France, setting up an entity takes three months, while hiring through an EOR takes up to five business days
- In the Philippines, setting up an entity takes two to three months, while hiring through an EOR takes up to two business days
- In Mexico, setting up an entity takes four to five months, while hiring through an EOR takes up to two business days
💡 Read more: How Can I Expand My Business in the US: 3 Options for Startups
Ensure scalability and flexibility
As startups often scale at a breakneck speed, their teams tend to go out of their way to cover all customer needs. This may lead to many negative consequences of hypergrowth, like long response times, too many escalations, and employee burnout, so startups need scalable solutions to support rapid growth and adapt to changing business needs.
The constraints imposed by entity setup only amplify the challenge of scalability and flexibility. Grappling with the complexities of establishing entities, startups may find themselves burdened by administrative hurdles and regulatory requirements and, consequently, limited agility and ability to scale operations efficiently.
The substantial time and resources invested in entity setup divert focus away from core growth initiatives—and may even leave a startup without any return on investment in case a market turns out to be unprofitable, and you need to wind down the entity and terminate your local workers.
How EORs solve this challenge
EOR services offer scalable and flexible hiring solutions, enabling startups to expand into new markets quickly and adjust their workforce according to evolving business requirements.
For example, through Deel, you’re able to hire:
- One full-time employee in one foreign country
- A hundred of full-time employees in one or across dozens of countries
- A mix of full-time employees and independent contractors/freelancers to cover a fluctuating workload
- An employee that you’ll relocate to another country through EOR visa sponsorship
Note: You can even hire employees through our PEO (Professional Employer Organization) services in countries where you own an entity to enter a co-employment relationship, delegate HR responsibilities to our team, and consolidate employee management, whether your worker is a direct hire, an EOR employee, or a contractor.
The key benefit of hiring through an EOR is that the number of employees doesn’t affect their onboarding time. This process is automated on the platform and based on the worker’s location and contract type, so there are no delays due to the worker and their manager being in different time zones.
💡 Download a playbook: A Founder’s Guide to Building and Scaling a Global, Remote-First Company
Grow your startup hassle-free with Deel’s EOR
Fast-track your growth through with Deel’s all-in-one global people platform designed for ambitious, scaling team like yours.
Avoid the time-consuming and costly entity setup process and easily hire the best talent from more than 150 countries! We offer:
- An extensive network of countries to hire from
- Quick time to hire and onboard
- Next-level automation in workflows across onboarding, invoicing, payments, and offboarding
- Flexible payment methods
- Later payroll cut-offs to spend less time on adjustments
- Easy, customizable reporting, displayed exactly how you need it
- Full suite of accounting and HR integrations to connect employee data
- On-demand support when, wherever, and how you need it
Speak to our experts today to see how Deel can help your startup skyrocket hassle-free.
