EOR vs Owned Entity: Exploring the Pros and Cons of Employer of Record (EOR) Services

July 3, 2023
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Diversifying teams across borders is not as rosy as it seems. 

Expanding teams globally presents a myriad of challenges for businesses. HR teams are tasked with sourcing top talent, complying with local laws, setting up collaboration systems, managing payroll, onboarding and training employees and ensuring data security. The workload can be overwhelming, but there is a solution that can lighten the burden.

Enter Employer of Record (EOR) services, the perfect support system for global team expansion. 

EOR is a team of experts who specialise in local laws and regulations, guiding businesses through the complexities of expanding teams globally. By partnering with an EOR, companies can offload the administrative tasks and focus on their core objectives.

In fact, the EOR market size reached $4,450.5 million in 2022, highlighting its popularity among businesses seeking a smoother global expansion experience. With the assistance of EOR services, companies can navigate the challenges seamlessly and unlock their global growth potential.

Why Partner with an EOR

An EOR is a service where a third-party entity becomes the legal employer of workers, handling payroll, HR administration and compliance on behalf of the client company. It provides a seamless solution for companies seeking to scale their operations internationally while maintaining focus on their core business activities.

With EOR, companies can simplify the process of scaling operations internationally. EOR enables seamless onboarding, payroll management and HR administration, leading to streamlined operations and reduced administrative burdens. Moreover, partnering with an EOR provider ensures compliance with local regulations and mitigating legal risks. 

Let us discuss the EOR pros and cons and help you make the right decision. We will cover:

Employer of Record (EOR) Benefits:

Some of the core pros of partnering with an EOR are:

  1. Save resources - EORs allow companies to save their operational costs by outsourcing HR and administrative tasks. It simplifies HR processes through automated systems and centralised platforms, reducing administrative burdens and improving efficiency.
  1. Compliance assurance - EORs ensure compliance with local laws and regulations, reducing the risk of legal penalties and fines. It mitigates risks associated with global expansion by ensuring compliance with local regulations and managing payroll and benefits administration.
  1. Fast onboarding - While traditional businesses can take a few weeks to onboard new hires, Rapid helps businesses to complete onboarding digitally in just 5 minutes! The entire process from KYC to documentation is completed digitally without any hassle.
  1. Local partnerships - EOR providers offer access to a network of experts in different markets, providing valuable insights and guidance for successful global expansion.
  1. Easy expansion - With EORs, companies can expand into new countries or regions within 6-9 months, eliminating the need to go through complex legal and administrative setups. It streamlines market entry by handling legal and administrative processes, ensuring a faster and smoother expansion experience.
  1. Attract and retain top talent - EORs enable companies to tap into a global talent pool, attracting and retaining top performers from diverse backgrounds. They are connected with local recruiters to find the top talents.
  1. Flexibility and scalability - EORs allow companies to scale their workforce up or down quickly and easily, adapting to changing business needs. Companies can hire or fire employees as per their needs and evolve in a dynamic business environment.  
  1. Easy to test markets - EORs provide a low-risk way to test new markets, allowing companies to evaluate market potential before making significant investments.
  1. Focus on core competencies - By delegating HR and administrative tasks to EOR providers, companies can focus their resources on core business activities and strategic initiatives.
  1. Local knowledge and support - EOR providers offer local expertise and support, helping companies navigate cultural, legal and operational challenges in each market.

Cons of Employer of Record (EOR):

Even though EOR services provide countless advantages for companies seeking to expand their global workforce, it's important to be mindful of potential challenges and drawbacks. 

  1. Limited customisation options - Companies get limited options for tailoring HR processes and policies to their specific needs. EOR providers offer standard solutions to all companies that do not align perfectly with their unique requirements.
  1. Dependency on third-party providers - By relying on an EOR provider, companies lose control over their HR functions, potentially leading to a dependence on the provider for critical tasks and decisions.
  1. Higher costs in the long run - While EOR services offer convenience and expertise, companies may incur higher costs over time, including service fees or hidden charges.
  1. Potential communication challenges - Companies may encounter communication barriers due to working with a third-party provider, especially if there are language or cultural differences. Effective and timely communication is essential for seamless operations.
  1. Limited employer branding opportunities - Companies get limited opportunities to showcase their employer brand and culture as the workforce is employed by the EOR provider. This can impact the company's ability to attract top talent and differentiate itself in the market.
  1. Limited employee engagement and retention strategies - An EOR may restrict the company's ability to implement specific employee engagement and retention strategies tailored to its unique organisational culture, potentially affecting employee satisfaction and loyalty.
  1. Compliance risks in some countries - EOR providers may have limitations or face challenges in ensuring full compliance with local laws and regulations, especially in regions with complex labour laws (e.g. India). This can expose companies to compliance risks and potential legal consequences.
  1. Potential limitations in scaling operations - As companies grow and expand, they may face scalability limitations with their EOR provider. The provider's capacity to support larger workforce needs or operate in new markets could pose challenges.

Is There a Better EOR Solution?

Imagine setting up an EOR service with just 5 minutes to onboard new talent!

Rapid is an EOR platform for companies looking to hire tech talent in India without setting up a legal entity. You can easily set up in minutes, onboard full-time employees and diversify your workforce with ease. Rapid provides you:

  • Transparent pricing with no hidden fees
  • Comprehensive services for all HR operations
  • Flexibility to set company policies and build employer brand
  • Scalability for managing large teams in India while ensuring compliance
  • Integration with essential tools for effective communication and collaboration
  • Dedicated support to enhance your experience
  • Digital onboarding for faster hiring
  • Local expertise in Indian labour laws and regulations 

With our EOR solution, you can confidently navigate the intricacies of HR management in India, focusing on your core business objectives while we take care of your HR operations.

EOR vs Owned Entity: Which One to Choose?

Imagine that a global technology company, TechGen, wanted to expand. Here's what their experience would look like: 

TechGen, a global technology company, decided to expand its workforce in India to tap into the country's rich talent pool by establishing a legal entity. Here’s what their experience looked like:

  • Cost considerations: TechGen estimated initial setup costs in India for 500+ employees to be around $50,000, including registration fees, legal consultation and office expenses. Ongoing compliance expenses, employee benefits and taxes further strained their budget.
  • Complex process: Setting up a legal entity in India was time-consuming, lasting 6-12 months. This delay hindered their recruitment plans and overall operational timelines.
  • Compliance challenges: Compliance with Indian labour laws, tax regulations and statutory requirements posed significant hurdles. Engaging local legal experts was necessary to navigate the complex landscape.
  • Operational restrictions: Until they established a legal entity, TechGen faced limitations in direct hiring, contract signing and conducting business transactions in India.
  • Local market knowledge: TechGen lacked a deep understanding of the Indian market dynamics, cultural nuances and business practices. Extensive research was required to gain insights and adapt their expansion strategy.

To overcome these challenges, TechGen explored alternative solutions and discovered EOR services. 

Partnering with an EOR provider allowed them to bypass the need for a legal entity, simplifying their expansion efforts and minimising administrative burdens. Within 2 months they expanded their workforce in India, leveraging the EOR's local expertise streamlined processes and compliance support.

Which Does Your Business Need: EOR Or Owned Entity?

Answer the following questions to enhance your understanding of your business goals and needs:

  1. What are your aspirations for the growth and expansion of your business in the long run?
  2. How important is it for you to have control over HR functions and maintain autonomy in decision-making processes?
  3. What is your budget for establishing and sustaining an owned entity in the target market?
  4. Do you possess the internal resources and expertise required to handle the legal, tax and compliance aspects of establishing an entity?
  5. How crucial is it for you to have a local presence and build a strong employer brand in the target country?
  6. How much flexibility do you need to scale your operations up or down based on market demands?
  7. What level of administrative burden can your team handle effectively without impacting core business operations?
  8. Do you have the necessary knowledge and experience in managing payroll and benefits for your employees in the target country?
  9. What are the legal and regulatory complexities specific to the target country and do you have in-house experts or external support to navigate them effectively?

By answering these questions, you can gain valuable insights into your business requirements and make informed decisions regarding the most suitable approach for expanding your workforce internationally.

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