Navigating global employment compliance through an EOR

Businesses are increasingly expanding their operations internationally. This reach brings immense opportunities but also presents complex challenges, especially when it comes to complying with local labor laws and regulations. To navigate through this, companies are turning to Employer of Record (EOR) solutions.

An EOR takes responsibility for HR, such as performance management, global employment compliance, payroll, benefits, onboarding, and offer letter generation. This means that by partnering with an EOR solutions provider like Global Squirrels, your business can effectively manage its global workforce while ensuring compliance with local or global employment laws. This blog will delve into the intricacies of EORs and how they can help your business navigate through the complexities of global employment compliance.

Understanding EOR and global compliance

EOR stands for Employer of Record. It acts as a legal employer for a business, taking the HR responsibilities and liabilities associated with hiring employees in foreign countries. An EOR is an essential part of enabling your business to onboard candidates you are working with or looking to hire, especially when hiring internationally without the need of setting up a legal entity.

The meaning of global compliance is to adhere to laws and regulations internationally, such as employment laws, tax withholding, benefits, and other statute laws. This is where an EOR comes in to take the responsibility of handling all these intricacies and ensure that your business is consistently following the legal requirements to keep your business away from non-compliance risks and penalties.

Let us discuss this in more detail below.

The role of EOR in compliance management

EORs are a great asset to global employment compliance and employee management. You can rest assured that your international operations are efficient and smooth as EORs work dedicatedly with your business to help you stay updated on changes in local laws and regulations, which is crucial for maintaining compliance. They conduct regular audits and assessments to ensure that all practices align with current legal standards.

Additionally, EORs look into employee benefits programs, ensuring they meet local regulatory requirements. This includes health insurance, retirement plans, and other essential benefits that contribute to employee satisfaction and retention.

How does an EOR protect from permanent establishment risks?

A Permanent Establishment (PE) is a legal concept in international tax law that refers to a fixed place of business in a foreign country through which your company performs significant business activities. If a company from one country has a PE in another country, it may have to pay taxes in that country on the profits earned through the PE.

In simple terms, it means that if a foreign company sets up an office factory or even has a dependent agent in another country, it may be required to pay taxes there, as it is considered to have a substantial business presence in that country. This can lead to significant liabilities, including corporate income tax, Value-Added Tax (VAT), and compliance with local tax regulations, which can complicate international business operations.

How EORs eliminate PE risks

Legal separation

EORs create a legal separation between your company and your workforce in the host country. By acting as the official employer, EORs assume all employment responsibilities, thereby reducing the likelihood that your company will be deemed to have a taxable presence in that jurisdiction. This separation is critical; if employees are classified as working directly for your company, it could trigger PE status.

Compliance expertise

EORs possess in-depth knowledge of local labor laws and tax regulations. They ensure compliance with all employment-related obligations, such as payroll processing and tax withholding, which minimizes the risk of inadvertently creating a PE. By managing these complexities, EORs help foreign companies avoid legal pitfalls arising from non-compliance.

Risk mitigation

By handling employment and compliance matters, EORs diligently ensure that your company’s presence remains non-taxable. This proactive approach protects your business from unexpected tax liabilities and potential disputes with local tax authorities. Furthermore, EORs manage statutory benefits and contributions, further insulating your company from compliance issues.

Why choose an EOR over setting up your entity to hire offshore talent?

Choosing an EOR over setting up your entity offers several strategic advantages, particularly if you are looking to expand your business internationally.

Cost efficiency

• Reduced setup costs: Establishing a legal entity is costly as it involves significant investments in registrations, legal fees, and operational costs. An EOR eliminates these expenses by providing a streamlined solution model with affordable monthly fees.
• Lower operational overheads: With an EOR, you do not need to maintain separate HR or payroll departments in new markets, further reducing costs associated with employee management.

To known more about the difference between Employer of Record vs legal entity.

Speed and flexibility

• Quick market entry: EORs allow for rapid hiring and market entry, often within days or weeks, compared to the months it typically takes to set up a legal entity. This agility is crucial for your business if you want to capitalize on emerging opportunities or test new markets without long-term commitments.
• Scalability: EORs facilitate easy scaling of operations, enabling businesses to adjust their workforce size quickly in response to market conditions without the complexities associated with managing a legal entity.

Compliance and risk management

• Legal compliance: EORs handle compliance with local and international labor laws, tax regulations, and employee benefits, reducing the risk of legal issues that could arise from non-compliance. This is particularly beneficial if you are unfamiliar with local regulations.
• Risk mitigation: By using an EOR, your business can transfer the legal liabilities associated with employment to the EOR. This helps eliminate risks related to payroll disputes and compliance failures.

Why choose Global Squirrels’ EOR solution over other outsourcing agencies?

Global Squirrels is a staffing and payrolling platform that allows your business to find and onboard candidates who meet all your requirements without the worry of complying with local and international labor laws. Our platform works on a subscription basis that allows you to handle all HR roles including performance management, timesheet management, payroll & benefits management, compliance with laws, and generating offer letters. Let us discuss this in more detail.

Our platform helps you find and onboard candidates through the Orange plan. Simply fill in your requirements based on the skills you require, the qualifications you expect, roles and responsibilities, and the job role. Once done, our platform will allow you to choose the country you want to hire from. After submitting, our platform will provide you with curated profiles that are pre-screened and background-checked. You can choose the candidates you wish to interview by reviewing their profiles. Finally, after interviewing the candidates, you can select the ones you want to onboard, and our platform will begin with the onboarding process.

Global Squirrels eases and streamlines your payrolling process by enabling you to pay and manage all your employees via a single platform. You just need to sign up and select the Purple plan if you already have sourced talent and want to onboard him/her. In this plan, our platform will handle the payroll and benefits administration, leave management, timesheet, and task assignment. In addition, we will handle any pay increase and termination of the employees seamlessly.

Are you ready to streamline your hiring and payrolling process? Request a demo!