By Globalization PartnersJanuary 2021
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Outsourcing is a common practice for many businesses, but have you considered outsourcing your human resources department? Maybe not for your headquarters, but what if you’re expanding your business globally? Building a new team of international employees can be an exciting and fruitful step for your business, but you may find that trying to handle HR for these employees in-house is excessively complicated or simply not feasible.
Fortunately, working with an employer of record (EOR) can allow you to hand over HR functions to some very capable hands. Let’s look at nine reasons why global human resources is something that many companies are better off outsourcing.
1. You Can Still Choose Your Employees
Your domestic HR department likely handles the whole life cycle of your employees, starting with recruiting. You may outsource your hiring to an agency, but many employers like to maintain control over this process so they can be sure they find the best candidates to join their team. If that’s true of your company, you’ll be pleased to know that you can outsource every other aspect of HR for your international employees without giving up the ability to choose your new hires.
When you work with an employer of record, you can still handle your own hiring process. You can advertise your positions, review applications, interview applicants, and choose the candidates who will be the best fit for the job. But once you make those selections, you can hand off tasks like onboarding, payroll, and the rest of the employee lifecycle to your EOR.
This arrangement provides the best of both worlds for your company. You can choose your international employees and have them work for you without having to handle the logistics that can cause your domestic HR team some major headaches or force you to build a whole new team for your international operations.
2. You Give Up the Burden of Legal Compliance
One of the biggest hurdles for a company hiring in a new country for the first time is legal compliance. Every country has its own employment laws you must follow. You may also need to follow laws that apply to specific states, territories, or municipalities. In many cases, you’ll have to understand unfamiliar laws governing the following and more:
- Handling of personal data
- Minimum wage rates
- Overtime pay
- Maximum working hours
- Public holidays
- Annual paid leave
- Sick leave
- Parental leave
- Caregiver leave
- Healthcare coverage
- Working conditions
- Employment contracts
- Procedures for termination
With so many legalities to navigate, companies employing international workers are at a major risk of noncompliance. One misstep could lead to fines or other legal penalties from the state or lawsuits from your employees or their labor unions. Avoiding these costly scenarios is a major benefit of global HR outsourcing.
When you entrust legal compliance to an organization that is deeply familiar with all the local employment laws, you don’t need to invest lots of time and resources into researching these laws yourself or hiring lawyers to help you remain compliant. Instead, you can remove this stressor and rest assured that your EOR is granting employees all the rights they are entitled to under their laws.
3. You Can Forego Establishing an Entity
If you’re planning to set up HR staff and directly employ your new international team, that means you’ll have to set up a legal entity in the country. This is because countries generally do not allow international employers to employ their citizens. Instead, you must establish your company as an employer in the country. Entities can take different forms, such as branches and subsidiaries.
The procedure for setting up a legal entity is different for every country, but in most cases, it’s a fairly involved process that can take months to complete. It can also be an expense some companies simply cannot afford. Even if your company can afford to establish an entity, you may want to test your entrance into a new market before fully committing to establishing a subsidiary there. For all these reasons, some businesses choose to partner with an employer of record instead.
If your company wants to expand globally but doesn’t want to establish an entity, an EOR is the perfect option. Your EOR will handle all the HR tasks you can’t legally handle without an entity, and you’ll still get to establish relationships with international employees and test out your expansion.
4. You’re Saved From Payroll Complexities
Managing payroll is an ongoing HR task you can’t afford to mess up. Establishing and managing payroll in your home country can be a major task for your HR department, but international payroll can be an even bigger task. Paying your employees may seem simple on its face, but it involves a lot, including:
- Determining an appropriate salary.
- Adding in bonuses when they are warranted or legally mandated.
- Paying the correct rates for overtime work.
- Paying employees at the correct intervals.
- Accurately handling holiday or sick pay.
- Withholding the right amounts for things like income tax and social security.
That last item alone can be a complicated task since the rate an employee pays in taxes or the rate an employer and an employee pay toward various social security schemes can differ depending on factors like how much the employee earns. Fortunately, you don’t have to deal with any of that complexity when you outsource payroll to your EOR.
For example, an EOR in Zambia should know the right amount of income tax to withhold according to the country’s progressive rates and Pay As You Earn system. An EOR in Brazil should know that an employee must receive a 13th-month bonus divided into two installments throughout the year. Wherever you’re expanding, handing off the complexities of payroll to an expert is one of the major benefits of international HR outsourcing.
5. You Can Take Advantage of Ready-Made Benefits Packages
When you’re ready to take on an international team, creating the ideal benefits package should not be an afterthought. No matter what country you’re in, employees care about their benefits. As job seekers look through job ads or consider a job offer from your company, they will definitely want to know what sorts of benefits you offer, and that may influence whether they accept a job offer. In a U.S. survey, 79% of employees said they would choose an improved benefits package over a pay increase.
That same survey found that some of the top benefits employees value more than higher pay include health insurance, paid vacation and sick days, performance bonuses, retirement savings or pensions, and scheduling flexibility. However, in a different country, employees may be looking for different perks.
You need to rework your benefits package when you start hiring in a new country to ensure you offer all the benefits employees are legally entitled to there along with other benefits that will help you be a competitive employer and attract top talent. An EOR in the country where you’re planning to start hiring will know which benefits these job seekers are looking for and will have appealing benefits packages ready to go for your new hires.
6. You Can Save Money
Outsourcing always comes at a cost, but you have to weigh your options to determine if this cost may actually save you money in the long run. Consider how much it would cost if you handled international HR in-house. To do so, you will need to establish an entity in the country and take on a human resources staff to handle all HR functions there.
Paying your new HR staff can add up quickly. Consider, for example, that an HR manager in the United Kingdom earns an average annual base salary of £46,063. This is not the only cost involved in handling HR in-house, but it’s one of the most significant. By eliminating the need to bring on a whole new HR team, you can immediately save your company a large sum of money.
By outsourcing your HR, you can also save money from not establishing an entity and from avoiding costly fines or lawsuits that come if you inadvertently break the law. Small companies can also save money on employee benefits by outsourcing their HR. This is because professional employment organizations can often get better rates on private insurance packages for your employees.
7. You Gain Access to Local Familiarity
Another one of the many benefits of outsourcing global HR functions is that you immediately gain an HR team with local expertise. Understanding the law may be of chief concern, but researching the law alone is not enough to employ international employees successfully. You also need to know the local customs and practices that are not spelled out in the law but are still critical to keeping your employees happy.
According to Personnel Today, these softer cultural elements are what international employers often overlook. Cultural literacy is best gained through first-hand experience in a country. That kind of local familiarity is difficult to replicate for a company that is just starting to learn about another country’s culture. Fortunately, an EOR in a country will have local expertise that extends beyond just the law.
Our HR teams in the 187 countries where we have a presence understand things like courtesies employees expect and bonuses or gifts that are customary. You’ll still want to learn about your international employees’ culture and business customs so you can build a strong relationship, but as you learn, your EOR will be helping you bridge the gap.
8. You Don’t Have to Handle International Terminations
Terminating employees can be a complicated business in most countries around the world. The U.S. is known for at-will employment, where employers can fire an employee for any reason at any time, as long as they don’t violate the law. Likewise, Denmark has a flexicurity system that makes it easy for employers to let employees go. However, in most countries, there are stringent standards for terminating an employee and specific procedures you must follow.
Attempting to fire someone when it’s not warranted under the country’s employment laws can result in significant penalties for your company. Some countries are more litigious than others, and you can expect employees to sue if they don’t feel they deserved to be fired. You could end up having to dole out front pay, back pay, emotional distress damages, and more.
Needless to say, you want to avoid these situations, which is why you must handle terminations with the utmost care and a thorough understanding of the law. Not having to handle these delicate situations is a crucial benefit of global HR management. Your EOR will know whether they can legally fire or lay off an employee depending on the particulars of the situation. They will also know the procedures to follow to handle the termination properly.
9. You’re Freed Up to Focus On Higher Level Concerns
Overall, one of the best benefits of outsourcing HR services is that it frees up your company to give your time and attention to other things. The time you might be spending on figuring out unfamiliar employment laws and tax systems can instead be directed toward central aspects of running your business. This is especially helpful when you’re expanding globally because you likely have many things your company would like to concentrate on to make your expansion a success.
You can also give more attention to building strong relationships with your international employees and fostering collaboration across your global team. These endeavors require some concerted effort, especially in the early days of your expansion, and those are also the days when you may find yourself entrenched in HR concerns if you don’t choose to outsource.
Strategize as a company to determine where your management can deliver unique value and where you will lose nothing by outsourcing. This may lead you to outsource other aspects of your international business, such as hiring, as well. For most businesses, it is an understatement to say they won’t lose anything by outsourcing their HR. As we’ve seen throughout all the benefits we’ve discussed, using an EOR can be a major value-add for your company. They can bring their expertise to the table, so you can use your expertise to grow your company.
International Human Resources Services From Globalization Partners
In short, outsourcing your international HR functions saves you time, money, and headaches and helps to ensure all of your employees are treated fairly according to their own laws and customs. Considering all these international HR benefits, you may determine that using an employer of record is the best option for your international expansion.
Globalization Partners can serve as your international employees’ EOR in 187 countries across the world. Our teams are well established with a thorough understanding of local employment laws and customs. We can handle essential HR functions, including onboarding, payroll, tax filings, benefits, and more. Working with Globalization Partners allows you to expedite your global expansion, remain legally compliant, and build positive working relationships with your new employees.
For more information on international HR operations, download our eBook “Global Hiring Handbook: Onboard and Manage Talent in 20 Top Expansion Countries.”