When the COVID-19 pandemic forced companies to shut down their physical offices, remote work became mainstream. The global corporate landscape has changed due to the advent of remote labor. While the pandemic has ended and the offices are back running, the concept of remote work has stayed.
Currently, around one-third of the US workforce is working remotely. Although this is down from 43% in January 2022, it is still way more than 7% before the pandemic. This increase in the remote work population is a result of the positive benefits it offers to both employees and employers.
The remote workforce also made it easier for businesses to scale globally with the help of employees in multiple geographical regions. However, one challenge that many companies face is managing the global workforce. Using an Employer of Record (EoR) is one way to manage remote teams efficiently across borders.
Payroll processing, benefits administration, and compliance with local employment rules are all under the purview of an EoR. This strategy lessens the difficulty of managing a dispersed staff while enabling companies to grow globally.
The Role of EoR in Managing a Distributed Workforce
As defined by HSP Group, Employers of Record (EoR) are companies that legitimately recruit workers on behalf of other businesses. These services are particularly useful in countries where the company is not well-established locally. It serves as a liaison between the business and its distant workers.
It manages the legal obligations of the remote employees of a company on its behalf, while the latter maintains oversight over day-to-day operations. With this arrangement, businesses may minimize the risks related to overseas hiring while concentrating on their primary business operations.
EoR services perform various administrative tasks, such as monitoring tax withholdings, guaranteeing adherence to labor regulations, and offering benefit plans that satisfy regional requirements.
This is particularly important when overseeing employees in several nations, as every nation has unique employment-related regulatory obligations. Businesses may ensure they comply with all local requirements by employing an EoR without having in-depth knowledge of every market.
This ease of management is driving the growth of the EoR model, which is expected to grow worldwide. The global EoR market is expected to increase from $4299.1 million in 2021 to $8045.4 million by 2031. According to Business Research Insights, it is estimated to exhibit a CAGR of 6.8% between the mentioned years to reach this whopping number.
How is an Employer of Record (EoR) different from a PEO?
An EoR manages all employment duties, including payroll and compliance, and is the employees’ legitimate employer when employed abroad. In contrast, a professional employer organization (PEO) shares legal responsibility with the business because it co-employs personnel. While an EoR does not require the company to form a legal entity, PEOs frequently do.
Streamlining Global Expansion with EoR
There are many options for hiring employees globally in the expansion areas. For instance, you can set up a physical location and hire through that entity. Alternatively, you can set up a branch of your company, which is similar to setting up a physical location. There’s also an option to register your company as a foreign entity in the new country and hire through a non-resident payroll.
However, all these options can be costly, as you would need a physical office in the desired country to go through all the paperwork. Thanks to an EoR, businesses no longer have to establish legal entities in each nation in which they conduct business. The EoR takes on the role of the lawful employer. This enables businesses to swiftly hire staff in other nations without the requirement for a fully functional infrastructure.
This simplified method is particularly helpful for businesses exploring new markets. Businesses may employ people locally with the aid of a global EoR, saving them the long-term investment of setting up a physical presence.
They can then increase operations as needed if the market proves to be viable. In highly competitive marketplaces, where prompt decision-making can mean the difference between success and failure, this flexibility is important.
How soon after engaging an EoR can a business begin hiring?
Depending on the nation and its legal requirements, the timeframe for onboarding staff via an EoR may vary. However, recruiting through an EoR typically happens far more quickly than forming a local legal organization. This enables businesses to begin operations in a matter of weeks instead of months.
Managing Time Zone Differences in a Distributed Workforce
Managing time zone variations is a major difficulty when overseeing a multinational staff. Collaborating with remote workers can be challenging because they may be dispersed across continents.
An EoR ensures explicit standards regarding working hours and expectations, which aids in time zone management. Time zone variations might make scheduling more difficult, but many companies have found success by using flexible communication strategies.
Employees with flexible work hours can better maintain a healthy work-life balance, which can boost output considerably. Employees are more likely to perform successfully when their schedule permits them to work during their most productive hours. When an EoR handles administrative duties, businesses may concentrate on creating effective communication channels that span time zones.
It is also very important to use technological tools to manage distant teams. Project management software, video conferencing, and collaboration platforms may all help team members stay in sync and engaged, no matter where they are. For instance, Slack allows employees to establish their time zones and preferred work hours. This is one of the best ways for employees working in global teams to maintain a healthy work-life balance.
How can businesses promote cross-time zone collaboration without driving away employees?
Businesses might provide “core hours” when overlapping time zones facilitate synchronous communication and promote asynchronous work outside of these hours. This strategy guarantees productive teamwork without taxing staff members with excessive late-night or early-morning sessions.
Navigating Cultural Differences in Global Teams
Diversity in culture might be one of the biggest advantages of a scattered workforce.
A McKinsey & Company article states that you should go global only if you can beat local. This means that you will have to make a profitable share among your competitors in the destination location. This can only be done with the help of robust local teams with a cultural understanding and who can attract customers.
While a global workforce offers this advantage, it also provides difficulties for teamwork and communication. Diverse cultural backgrounds lead to distinct work, management, and communication methods. If these discrepancies are not appropriately addressed and managed, miscommunications may occur.
An EoR can help bridge cultural gaps by ensuring that corporate policies and practices reflect regional conventions while upholding a single organizational culture. This entails comprehending regional labor demands and establishing an atmosphere at work that promotes their success. Managers and team leaders may also nurture a more welcoming and cooperative work culture by receiving cross-cultural training.
Compliance and Risk Mitigation in Global Workforce Management
Countries have very different employment rules, and breaking them can lead to fines, penalties, or even the liquidation of businesses in some areas. Many questions must be answered here, such as:
- Is there a need for a written employment contract?
- Does the written contract have to be in any specific language?
- What are probation period possibilities?
- Is conducting hiring checks allowed?
The answers to these questions can change depending on the country where you are hiring employees. For instance, a study of 64 countries shows that just under 50% of companies do not need an employment contract in any specific language. Similarly, probation period terms in employment contracts are allowed in almost all countries except Belgium and Chile.
One of the main advantages of utilizing an EoR is that it manages the company’s compliance with local labor laws, taxes, and employment rules. Since it complies with the laws in every nation where it employs people, firms may now operate peacefully.
Managing payroll, benefits, and termination processes is also part of maintaining compliance. Every nation has its own laws governing worker benefits, including health insurance, pensions, and paid time off. An EoR is responsible for ensuring that each of these conditions is satisfied. This avoids possible legal problems, especially when laws are amended or changed.
The role of the EoR also includes managing any risks associated with employee termination. Distinct nations have different laws governing severance compensation and termination processes.
Termination may entail nuanced legal procedures in some countries with which businesses may not be acquainted. An EoR lowers these risks by managing terminations in compliance with local regulations and ensuring the business does not suffer any repercussions.
By utilizing an Employer of Record, companies may fully use the potential of a worldwide workforce. It makes operations more efficient, simplifies compliance, and offers a platform for international expansion. An EoR allows businesses to concentrate on managing their teams and expanding into new markets by taking care of sophisticated legal and administrative responsibilities.