Global Expansion Simplified: 5 Key Benefits of Onboarding Via an EoR for Startups
Fortunately, there’s a key solution that can simplify global expansion for startups : an employer of record (EoR). An EoR is an in-country partner who hires employees on behalf of a startup, so the startup doesn’t have to make a locally registered entity.
According to data obtained by Papaya Global, the CAGR for international EoR market growth is approximately 28%, with total market size poised to exceed $1 billion in 2024 — after barely exceeding $250 million in 2019.
The key benefits an EoR can provide to the international onboarding process are clearly behind this growth and are worth considering for any brand looking to expand its hiring pool internationally.
1. Ensure Regulatory Compliance
One of the most important aspects of working with an EoR is ensuring regulatory compliance in the countries where you hire. Tax and labor laws vary dramatically from country to country, including how a worker is classified as an employee or independent contractor.
In the United States alone, it is estimated that 30% of employers have misclassified an employee. Employee misclassification in the U.S. can carry heavy fines, such as 3% of misclassified employee wages, 100% of FICA taxes you failed to pay for the employee, up to 40% of back taxes, and payment penalties of $1,000 per misclassified employee.
With an EoR, you can have confidence that employees are hired and classified in a way that complies with local regulations, so you don’t have to worry about such penalties in the U.S. or elsewhere.
2. Speed Up the Hiring Process
Working with an EoR can also speed up the hiring and onboarding process. Working with an EoR means you don’t have to set up your own physical entity to begin making hires in a new country. You don’t have to wait to go through the various hurdles associated with setting up your own business entity — you can use the EoR to begin sourcing candidates immediately.
An EoR also ensures faster onboarding because it will address all administrative tasks associated with onboarding, such as setting up payroll and managing employment contracts. This can be especially helpful for countries where contracts and payroll are managed differently. With fewer administrative worries, you can instead focus on getting new hires up to speed.
3. Expand Your Talent Pool
Regardless of which countries you hire from, using an EoR to access that area’s talent pool makes it easier to scale your operations. Opening a position to international talent can increase the number of applications you get exponentially, making it easier to find top talent and fit that role quickly.
This can be especially helpful for sourcing high-demand roles that can be hard to fill when competing exclusively for local talent. Skills shortages or increased competition for a particular position among other area businesses could result in a prolonged hiring process if you only hire locally.
Instead, by working with an EoR, you can quickly find and onboard quality international talent who can start contributing to your business goals.
4. Outsource Payroll Management
The work of payroll processing and administering benefits like healthcare and paid leave can be especially complex during global expansion when requirements for each country can vary so drastically.
For example, as data from Visual Capitalist reveals, while the United States only mandates that employees get ten paid vacation days per year, countries like San Marino, Madagascar, Monaco, Bahrain, and Yemen all mandate over 40 days of paid vacation per year. On the other hand, Micronesia has even fewer mandated vacation days, at just nine.
Payroll processing and benefits requirements can become quite complex, especially as you begin to hire from more countries. An EoR handles these administrative tasks so you can instead focus on helping your hires succeed.
5. Reduce Business Expenses
Trying to open a new business entity overseas is complex and time-consuming. Worse still, it also costs more to shut it down if things don’t work out. With an EoR, you can save money by avoiding that process and keeping costs low for starting and ending operations.
Hiring internationally can also help you lower business expenses, as not all talent needs to be paid at the same high levels expected in a San Francisco-based startup. While you must still compensate international employees fairly, differences in cost of living and pay expectations can help you lower your operating expenses while still paying competitive wages.
Competitive compensation relative to the local market can prove key in retaining top talent — and keeping that talent around for the long run will further boost your bottom line by enhancing productivity and minimizing hiring costs.
Is an EoR Right for You?
If you plan to hire internationally, an EoR is well worth considering. By streamlining many legal and compliance issues associated with international hiring, you can access a broader talent pool and scale your business operations without worrying about increasing your administrative workload.