Global Expansion Simplified: 5 Key Benefits of Onboarding Via an EoR for Startups

Many startups have the aspiration to grow beyond their national borders. While this is certainly an admirable ambition, it often presents significant challenges, especially when it comes to integrating remote employees from different countries. However, a practical solution exists to simplify international expansion for startups: the Employer of Record (EoR). An EoR acts as a local partner that employs staff on behalf of a startup, eliminating the need for the startup to establish a registered entity in each country. According to Papaya Global, the compound annual growth rate (CAGR) for the international EoR market is approximately 28%. The total market size is projected to surpass $1 billion in 2024, a remarkable increase from just over $250 million in 2019. The growth of the EoR market is driven by the numerous advantages it offers for international onboarding, making it a valuable option for any company looking to expand its talent acquisition efforts globally.

1. Ensure Compliance with Local Regulations

One of the primary benefits of using an EoR is ensuring compliance with local labor and tax regulations in the countries where you hire. Tax and employment laws can vary significantly between countries, including the criteria for classifying workers as employees or independent contractors. In the United States, for instance, it is estimated that 30% of employers have misclassified employees. Misclassification can result in severe penalties, such as fines equivalent to 3% of the wages of the misclassified employee, 100% of unpaid FICA taxes, up to 40% of back taxes, and additional penalties of $1,000 per misclassified employee. An EoR helps ensure that employees are hired and classified correctly according to local laws, minimizing the risk of incurring such penalties, both in the U.S. and internationally.

2. Expedite the Hiring Process

Using an EoR can also accelerate the hiring and onboarding process. Instead of setting up your own business entity to begin hiring in a new country, you can leverage an EoR to start recruiting immediately. This eliminates the delays associated with establishing a new business entity. An EoR also takes care of all the administrative tasks related to onboarding, such as payroll setup and contract management, which can differ significantly between countries. With these administrative burdens handled, you can focus on integrating new hires into your team quickly and effectively.

3. Access a Broader Talent Pool

Engaging an EoR to access talent in different countries makes it easier to expand your operations. Hiring internationally can significantly increase the number of applications you receive, allowing you to find top talent more efficiently. This approach is particularly beneficial for filling high-demand roles that may be difficult to source locally due to skills shortages or intense competition. By working with an EoR, you can quickly identify and onboard qualified international candidates who can help drive your business forward.

4. Outsource Payroll Management

Managing payroll and administering benefits such as healthcare and paid leave can be particularly challenging during international expansion, as requirements vary widely from country to country. For instance, Visual Capitalist data shows that while the United States mandates only ten paid vacation days per year, countries like San Marino, Madagascar, Monaco, Bahrain, and Yemen require over 40 days. Conversely, Micronesia mandates just nine vacation days. As payroll processing and benefits administration become more complex with international hires, an EoR can handle these tasks, allowing you to concentrate on maximizing the performance of your team.

5. Reduce Operational Costs

Establishing a new business entity abroad is not only complex and time-consuming, but it can also be costly to shut down if necessary. By using an EoR, you can avoid these expenses and keep costs low for both starting and ceasing operations. Hiring internationally can also reduce business expenses, as salary expectations vary based on local cost of living. While it’s essential to pay international employees fairly, these differences can help lower operating costs while still offering competitive wages. Providing competitive compensation relative to local markets is crucial for retaining top talent, which in turn enhances productivity and reduces hiring costs over time.

Is an EoR Right for Your Startup?

If you are considering international hiring, an EoR is a valuable option to explore. By streamlining the complexities of legal and compliance issues associated with global recruitment, an EoR enables you to tap into a wider talent pool and scale your business efficiently, all while reducing your administrative burden.