The global business landscape has transformed in recent years, exposing companies to higher levels of risk than ever before.
Whether dealing with supply chain disruptions, heightened cybersecurity attacks, unprecedented threats to public health, rising geopolitical tensions or unfolding environmental issues, companies today must expect the unexpected.
Because regulatory compliance varies from country to country, multinational companies (MNCs), face an even larger and more complex risk footprint.
It’s not all doom and gloom. The Employer of Record (EOR) model can help mitigate many of the risks of hiring in unfamiliar talent markets overseas. When implemented correctly, hiring through an EOR allows companies to avoid the hassle of keeping up with regulations and requirements, while building successful cross-border teams compliantly and efficiently.
Here are five ways the EOR hiring model can reduce your corporate risk footprint:
Streamlining cross-border HR
Cross-border HR is burdened by regulatory compliance risks, particularly when the company’s HR department is expected to manage a range of labor and immigration laws. It is difficult enough to keep pace with evolving regulations in one jurisdiction, let alone in multiple countries.
To add another layer of complexity, regulations in some countries vary significantly across states, provinces and cities. Failure to follow any law can tarnish brand reputation, incur costly fees or present more serious sanctions.
By partnering with an effective EOR, the company frees the internal HR team from having to juggle another country’s complex labor framework. Instead, the EOR is responsible for fulfilling all requirements, including contributions to statutory benefits, taxation, retirement, unemployment insurance, etc.
The EOR also ensures HR processes – such as onboarding, payroll processing and termination – are carried out correctly.
Protecting intellectual property
International hiring can put a company’s proprietary assets at risk. In today’s increasingly global and remote world business landscape, company data is stored across devices and clouds that are sometimes not even owned by the company. As a result, it becomes especially difficult to protect intellectual property (IP).
Each country manages its own framework for safeguarding IP, with some maintaining more protective measures than others and others having looser restrictions that may put IP at greater risk. Some companies have experienced firsthand how damaging IP infringements can be to the bottom line.
The EOR hiring model may serve as a more secure alternative, reducing the risk of a worker walking away with IP they created while working for the company.
Restructuring operations for market conditions
Following more than two years of market volatility amid the COVID-19 pandemic, the global economy is still suffering shockwaves.
Most recently, skyrocketing interest rates, intensified inflation and an ongoing energy crisis are signaling a possible global recession. However, the labor market remains tight. For example, a recent CNBC CFO Council survey suggests businesses in the U.S. are still in hiring mode with more than half (54%) of CFOs expecting headcounts to increase over the next year while only 18% expect staffing cuts.
Without an agile hiring strategy, companies may not be able to adapt to down market conditions nor take advantage of eventual market upswings.
The EOR hiring model enables companies to quickly restructure their global footprint and gain flexibility in hiring. Companies can select the most cost-effective, valuable talent – which can potentially save them big dollars during a time they need it most.
Reducing risks in corporate transactions
The expectation for companies to grow fast and save money often leads to myopic choices, which can become costly in the long-term and sink a company’s market value ahead of a corporate transaction, such as an IPOs, wind down, carve out or M&A.
For example, while engaging an individual as an independent contractor (IC) can contain your fixed costs, it is not always a suitable substitute for permanent employment. If the relationship is not managed properly, it can also expose a company to legal and operational issues.
The weaknesses of short-term solutions are likely to come into clear view under the microscope ahead of a corporate transaction. Before any transaction is concluded, regulators apply due diligence to identify red flags in IP protection or compliance for misclassified workers. Not only are these situations harmful to a business’s profitability, they can delay or even cancel a deal.
The EOR hiring model helps to mitigate underlying HR risks while simultaneously bolstering business development, corporate culture and talent retention.
Navigating the new world of travel and work
According to data from Ladders, 25% of all professional jobs in North America will be remote by the end of 2022 and remote openings will grow through at least 2023. While remote work may have initially skyrocketed out of necessity during the COVID-19 pandemic, the remote work revolution has forever changed the world of travel and work.
As remote work grows, so too is the concept of a “workation” where an individual gets to travel and work from a different location. However, before giving workers the benefit of working from anywhere, companies must consider regulatory compliance risks.
The EOR model protects both the company and worker by alleviating the risks of labor-related audits, permanent establishment, global tax liability and visa-related issues.
When a company has the right EOR partner at their side, they gain agility in engaging the right talent to get the job done – regardless of where in the world a worker is located.
Perhaps most importantly, by mitigating risks and knowing their business is operating compliantly and securely, the company can avoid most of the headaches of cross-border hiring and focus on the core business activities that raise the bottom line.
Download our ‘What is an EOR?’ guide or contact us to talk with an international HR expert about how an EOR solution can reduce your corporate risk footprint.