The remote work model has become the new normal that is changing working life and has also introduced a new approach to recruitment for businesses. Employers are no longer limited to searching for talents in their local market but rather are searching for the best talents from the international market.
Remote hiring has emerged as a popular concept as it allows employers to select and retain the most qualified employees from different parts of the world. Nonetheless, it also has its own risks and such operations are not simple. For a compliant recruitment process, there are three different strategies to get there and the business has to evaluate each of these strategies.
These three strategies include entity set up in the country of destination and hiring contractors or utilization of an EOR.
This article will assist in learning about the three solutions – Employer of record vs. Entity setup vs. Hiring contractors – to determine which one will fit the best for you.
Content Outline
Setting Up An Entity
Establishing the entity is the classic approach in circumstances where a business plans to hire globally. Incorporating a legal entity in a particular country will help your business to run your operations legally, being able to hire, pay, and manage your talents in the country.
Pros
Control over operations: through setting up an entity, the business will get full control over operations while advancing the corporation’s culture in relation to recruitment and engagement.
Increase visibility in a new market: Setting up a new entity can help you in the process of increased visibility and, recruitment of the best talents your business needs if the market is among your recruitment Hubspot.
Have legal clarity: When you set up an entity, it will boost your local market knowledge and gain total control together with the understanding of the local laws.
Cons
Consume time and resources: Business registration is known to be a lengthy and expensive step. Additionally, the cost does not end after the establishment of the entity and has a continuous cost for management.
Reduce flexibility: A local entity does not allow much flexibility mainly because you only can only hire within the country of incorporation of the entity.
Legal considerations: If you hire your employees on your own entity, that means you are their legal employer and then you will be solely responsible for all the risks.
Hiring a contractor
This approach may appear appropriate to lower the cost of an entity setting up or recruiting a permanent employee. Hiring a contractor is sometimes effective depending on the business plan as well as the objectives of the business. For example, it is appropriate when you are in urgent need of a talent for a specific task or a short-term project.
Pros
Gain flexibility: The main advantage of this method is flexibility. It helps your business to try out a market before you register your business or hire a person.
Short-term project: Hiring an independent contractor would be the ideal course of action for your company if your work requirements are changing or if you have a short-term project.
Cons
Misclassification Risks: The major threat that is evident from outsourcing is the misclassification risk. In most countries, the distinction between employees and contractors is not very clear, and the stakes are much higher as to which category your talent belongs to. Penalties related to finances and the law are widespread, particularly in Latin America.
Less control: An independent contractor will have more work freedom, unlike an employee. They control when, where, and how they would prefer to do their work and achieve objectives.
Hiring through an Employer of record (EOR)
Working with an EOR is advantageous and hiring internationally is indeed achievable. The EOR will be the legal employer of record which bears the legal responsibility for employment contracts, onboarding, legal compliance, next of kin/benefits, payment, and a lot more.
Hiring Solution
Pros
Quickly expand globally: Employer of record service will assist you to ensure that you hire in the various markets quickly and efficiently. It enables you to increase your reach of the talent you have and you don’t have to stick with the local talent only.
Team of experts: Regardless of what is your expansion goal, international expansion requires a significant local understanding. EOR partners generally have global knowledge provided to assist with the operation’s growth.
Streamlined solution: EOR hires, pays, and manages the employees of different countries without setting up a branch in that nation. They offer administrative and HR responsibilities which create room for you to concentrate on your core business activities.
Cons
Less control over workforce operations: Since the EOR will be the legal employer of the workforce, your business will only partially be in control of the workforce.
What Is The Best Approach Your Company Should Utilize?
The best strategy between setting up an entity, hiring a contractor, or working with an EOR is subjective.
Depending on your business requirements, strategies, growth plans, recruitment necessity, internal capabilities, etc. the best solution will be different.
It is important to comprehend what choices you have and then make the right decision in regard to the solution that will be best for your business. Here are some questions that you have to answer before choosing one of the options.
How much are you going to invest?
All of the approaches will have a cost, though, some will cost more compared to others. For example, opening your subsidiary will cost a higher amount of money in comparison with EOR or hiring a contractor.
However, when it comes to setting up an entity, keep in mind that a considerable amount has to be invested at the registration stage. There will be initial costs related to the setup of the entity and additional costs for its management and support.
While EOR is comparatively less resource- and time-intensive, and less expensive. The cost is fairly stable and there are no worries about having to build a local infrastructure which will cost a lot of cash.
Hiring a contractor would be the less expensive solution if you do not misclassify the contractor.
Does your internal team have enough knowledge about the local market?
Whether you hire employees directly through your entity or by engaging an EOR, it is vitally essential to be familiar with local employment laws and be in compliance with them.
If you are hiring employees in your own structure, then you’re going to be dealing with employment contracts, benefits, taxes, and wages. This implies that you will have to have your own team in order to meet your legal obligations. The compliance risks will be fully supported by your own entity which can be problematic at the beginning but have more control.
For an Employer of record partner, you will realize that you have competent legal counsel to guide you on applicable laws in the regions. Furthermore, the compliance responsibilities rest with your EOR partner as it maintains legal employer status. After that, they will always make sure you are compliant with the local laws concerning the labor laws.
While hiring a contractor is convenient and does not compel you to know labor laws, ensure that there is no misclassification.
How fast do you want to start your operation?
An entity does not permit much of a fast access to the markets. On average, it takes month to establish and operate your own entity. The process of starting a business in a country usually takes several months, and does not allow for fast growth.
On the other hand, EOR services also enables you to onboard your employees easily. For example, in Brazil, it takes you 5 days to recruit employees. Sometimes if you have identified talents in another country, there are few prospects you will have to wait for the establishment of business in your country.
Hiring a contractor is the most effective approach in regards to the ability to expand the capacity of the enterprise quickly. It enables you to begin working from the day that the contract is signed out.
How long do you intend to run your operation in the country?
Are you only hiring employees/or a contractor in the targeted country or do you want to start a business and establish branch in the same country? To what extent are you committed to the targeted market?
The approach will be different mainly based on your strategy of your business expansion. Although incorporation means you have a goal to grow your company in the region, using an EOR to hire a candidate will not show an interest in creating a long-term company in the region.
An EOR enables you to hire your full-time employees and it can also be used temporarily during the process of setting up the entity.
How much do you want to control?
Having an entity means that all the operations of the workforce are fully within your control. Thus, there can be a synchronization of internal process of recruitment, on boarding and engagement strategy with the existing organizational culture. This means that you can have full control on attractivity and retention without costing anything. However, it involves a certain cost in terms of time and effort from Human Resource department and adequate understanding of the culture.
Hiring with an EOR helps in international hiring and avoiding the complexities. For employee experience, it would be totally different depending on your partner and you should ensure that your partner pays attention to the employee experience since it immediately affects retention. Consider carefully for a positive employee experience when selecting an EOR.
The level of control can be lower if you hire a contractor. You could gain flexibility in ability to control the workforce.
What is your required level of flexibility and scalability?
The degree of flexibility & globalization is not very high because you can hire in the country where you registered your business and also for managing the business, you will need lawyers & accountants.
However, EOR provides the employer with the utmost hiring versatility with the engagement of a contractor. You can hire across the world immediately and experiment with the markets so the amount of paperwork is much less than setting up an entity.
Grow Global.
Shine Everywhere
How FastLane Group Can Help?
Establishing a hiring entity for a global team is not easy especially to be in compliance. That is why it is recommended to cooperate with an experienced and based-in-local-country partner such as FastLane.
Our specialized professionals are also ready to assist you in managing the employee life cycle. We can help you with business incorporation international recruitment employment contracts and payroll. So, you can concentrate on building a strong professional team and a successful business all around the world.
Get in touch to learn how we can help and start attracting and recruiting the best talent around the world.