The benefits of setting up an offshore Global Capability Center (GCC) for growth are undeniable. However, gaining access to world-class talent and technology capabilities, quickly and at scale, comes with its fair share of challenges. Research suggests that in the past, growing teams abroad has cost companies ~USD 200,000 per country, with an additional yearly HR admin cost of USD 90,000, with setup times taking more than 6 months. Recruiting top talent, meeting local regulatory and governance compliances, providing the right training, and integrating cross-global teams are just some long-term considerations for companies venturing beyond their domestic borders, all of which have a direct impact on brand and revenues.
Employer of Record (EOR) is a corporate map that helps guide global teams navigate these complexities, ensuring seamless onboarding and integration of talent at both cost and scale. Simply put, an EOR assumes legal responsibility for its client with regard to HR-related practices across the talent value chain. This includes recruitment and talent acquisition (TA), payroll and compliance, compensation and benefits, and overall HR services (onboarding letters, offboarding, and exit policies, leave management, labor law compliances, etc.). While the EOR solutions for complex HR and compliance tasks as well as assume responsibilities against legal liability, operational control and management of employees remain with the client organization.
Whether the client is a multinational corporation with multiple global centers or a younger company offshoring for the first time, setting up and managing a global workforce can put unnecessary strain on their existing HR functions. That coupled with laborious and varying regulatory compliances related to setting up foreign entities, severely impacts scalability. An Employer of Record allows companies to expand with agility and flexibility, in line with business needs, all while alleviating the pressures and costs associated with HR management. This allows companies to focus all their energies on core business objectives of driving growth, innovation, and competitive advantage while relying on EOR for strategic functional expertise related to employees.
Most countries require corporations to set up a local entity before they can legally hire employees in that location. The bureaucratic red tape can be tedious to navigate and can often take a few weeks to a few months. With an EOR, companies can circumvent this and start their hiring from Day 1 by using the EOR as the registered entity.
Setting up a GCC in an offshore location involves investing in heavy upfront costs. An EOR can help companies offset some of these costs, including administrative costs associated with registration, payroll, and regulatory licensing. In addition, an EOR can help companies onboard the best local talent at competitive salaries.
Each geography has a unique set of human capital compliance and regulatory practices. Familiarizing and complying with these are not only daunting but also mandatory. By relying on the domain and geographic expertise of the EOR, companies can alleviate associated risks with taxation, labor laws, statutory benefits compliance, and local dispute management, to name a few.
Attracting the best talent is only part of the equation; onboarding, engaging, and retaining them is equally important. EOR can ensure seamless onboarding through rigorous background checks, adhering to documentation and new employee registrations, payroll and benefits setup, and completion of all onboarding formalities. Furthermore, the EOR can provide necessary skills training, answer job-related FAQs, manage reimbursements, manage cultural sensibilities, and maintain performance standards in accordance with HQ, all of which are key to ensuring high employee satisfaction and engagement.
A term often equated with Employer of Record is PEO or Professional Employer Organization. While there is considerable overlap between the scope of what an EOR and a PEO can do, the biggest difference is that an EOR does not require the client company to have a local entity; in essence, the EOR acts as the local entity. A PEO can only be enlisted when a company already has a local entity and acts as a co-employer, contrary to an EOR that operates as the legal employer on behalf of the client. As co-employers, the client organization and PEO share legal and financial risks (versus an EOR that takes full ownership of the same).
What’s important to note is that an Employer of Record is not a replacement for setting up your own Global Capability Center. It is a stop-gap interim solution, to help companies reduce their barriers to entry, specifically with regards to talent hiring. To put things into perspective, setting up a GCC is like buying a home, where an EOR is a short-term rental to house you while you find the perfect home. While there is no cap on the duration to empanel an EOR, Zinnov recommends a period of no longer than 12 months at the most.
As more companies look to derisk and ramp-up capabilities through globalization, Employer of Record is a viable solution that helps companies enter new markets with minimum friction and scale up based on their business needs. While choosing the right EOR partner, it is important to consider their geographical and domain expertise, track record, ability to provide transparent information upfront, compliance certifications, and data and privacy policies. Frontloading efforts to align these key attributes to the customer’s business objectives and outlook will save them time and money from potential future liabilities.