Taking your business global is a daunting task. If you’re investigating how to set up an entity in another country, you’ve likely realized it requires a great deal of planning. Entity setup can be time-consuming and lead you to consider alternatives, such as an Employer of Record (EOR).
Your business’ needs and goals will dictate your best option. Upfront costs, ease of getting started, and the ongoing legal and financial commitment should be evaluated. Companies should understand taxes, compliance, and payroll regulations before expanding into new markets – an investigation which can drain your internal resources.
To facilitate your research into how to set up an entity, how to pay international employees, and how to work with an EOR, we gathered all the need-to-know data on expansion via entity setup and via an EOR.
What does setting up an entity entail?
A legal entity, in the form of an overseas branch or foreign subsidiary, gives your business a physical and legal presence in another country. Companies need this in order to decide how to pay international employees.
A legal presence means that you have registered with the local authorities, have enough capital requirements to open a local bank account, and have a team of legal, HR, and financial experts on the books to help your company ensure ongoing compliance with local laws and regulations.
What does working with an Employer of Record involve?
With an EOR, you don’t need to have a legal presence in-country. The EOR has entities in place in your target countries and serves as the legal employer, while you manage your employees’ day-to-day directly.
An EOR will handle payroll, taxes, and benefits, along with all HR issues. This allows you to focus on training and growing your teams’ skills. Think of an EOR as a partner that you are paying to absorb all the risk that you would otherwise take on with entity setup.
Side-by-side comparison:
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How do I choose between international entity setup and an Employer of Record?
Here are three simple questions to help you make a decision between the two most popular international expansion routes.
1. What is the scale of this expansion project?
Match the solution to the scale of your project. If you’re only planning on hiring a small number of employees, especially if they’ll be based in different countries, an EOR will save you having to set up multiple entities and learning the ropes in each location.
However, what if you’re only expanding to one target country? It might make sense to begin the process of entity setup and hire your employees in the meantime through an EOR. With no time restrictions on starting operations, you’ll be able to get your business running, and transfer employees to your own entity when ready.
2. Are we ready to commit to this market?
If leadership is convinced that entering this market is best for business, or if you already have loyal contractors in the country who you’re keen to make permanent employees, entity setup can be a worthy commitment. You want to be certain the initial investment will go to use for years after market entry.
On the other hand, if you’re just looking to dip your toes in a new market to test demand, an EOR is a route to quickly and affordably do so with a small headcount.
[bctt tweet=”If your expansion doesn’t yield the results you hoped for, hiring via an EOR makes it easy to cease operations and refocus on a different market.” username=”globalpeo”]
3. Is the competition a step ahead?
Let’s say that you have been planning to establish a physical presence in a new market, but your competition might beat you to that same market. You’re faced with the need to fast-track your project and onboard employees as soon as possible.
An EOR will help you start your operations rapidly, while you continue to plan your future entity. This strategy allows you to get your foot in the door and secure the best talent, while evaluating entity setup.
Narrow down your options
If you’ve decided to enter a new market quickly, or swiftly grab the top talent before the competition does, Globalization Partners can expedite your entry into 187 countries by acting as your global Employer of Record.
Payroll, taxes, benefits, and compliance are handled by Globalization Partners while you manage activities pertaining to your growth. Handing over the legal and HR paperwork allows you to focus on expanding your business. This model is also suited to companies whose employees relocate to countries where they can legally work.
What if your business strategy changes and you want to hire many employees in one location, and long term? Many companies use an EOR as a permanent solution, knowing that they have compliance on lockdown and their employees are well cared for. But if you do decide to navigate entity setup, the consultants at Aadmi can help you through the transitions, providing insight into the various registration options to engage talent across the world.