Have we started to see the great separation in the Employer of Record (EoR) industry? In the last quarter alone, companies like Deel, Remote and Rippling have all announced product enhancements aimed to differentiate from the mainstream “EoR ” only providers. Payroll acquisitions, Professional Employer Organizations (PEO) partnerships and a broader offering around the full stack HR experience can lead us to one conclusion. EoR as an industry is being disrupted again.
In this brief, we’re focusing on indications that it might be time for you to consider moving away from Employer of Record services. Here’s a list of three common drivers for graduation from EoR as your global employment landscape evolves.
1. Headcount in country
Employer of Record (EoR) is a quick to market, mitigated risk solution that has helped empower companies to tap into global talent. No doubt, the “arms race” in global expansion from the over two billion dollars of outside investment has placed companies like Deel, Remote, Rippling and others into the spotlight. They have world-class sales organizations and multi-million-dollar marketing budgets, all aimed at selling you on EoR. So, what happens when it goes well? Headcount can be a leading indicator that it’s time to consider an EoR transition—graduating away from EoR and moving to your own infrastructure. There’s a litany of reasons for this but let’s take the most obvious one to start. Cost. If you’re paying $700 a month for 10 workers or more, the platform costs alone would likely be double of what you would expect to pay for your EoR to entity transition, from local payroll to benefits, book-keeping, and HR support.
2. Types of hires on EoR
Permanent establishment (PE) risk comes from both employment engagement and revenue recognition. If you’re hiring loads of revenue-generating people, or if you are recognizing revenue in a country where your company utilizes an EoR provider, you may be operating under a PE risk. The remedy for PE risk is infrastructure. This takes planning and time. Consider the timeline for the EoR to entity transition: setting up a bank account, registering your own legal entity, finding a local payroll provider, aligning benefits, and transitioning employees to your newly found entity. This process in some countries can take up to a year or more, depending on external influences.
Let’s face it. There are plenty of companies who are struggling given this current economic environment. If M&A is part of your strategy for global growth, EoR may not be an option for you to utilize at all—you need to consider an EoR transition. Restoration of benefits and employee confidence are two key factors in a successful transaction. Limitations typically found with EoR providers around prior employment agreements and other factors may create a necessity to move away from EoR as a mechanism for global workforce management. It’s easy to overlook, but deals can fail if the right diligence is not performed at the front end. Preparing for an EoR to entity transition exercise can help negotiations especially with durations of things like the Transition Service Agreement (TSA) and the culture mesh of bringing multiple companies together under a newly formed business.
Let’s discuss your needs
At HSP Group, we know that EoR is rarely a long-term or permanent solution. We specialize in guiding businesses from EoR when launching operations in-country, to the time when establishing their own EoR to entity transition is the right choice. Our comprehensive, employee-centric process ensures a compliant, cost-effective, and efficient transition for your growing business.
Contact Us today to speak with one of our EoR experts and find out more about Employer of Record services .