Is a Global Payroll worth hype?

TL;DR: Yes, but you have to be big enough. Toyota-sized enterprise fits Global Payroll, yet many unicorns don’t. And here is why.

Well, before you go big you need to have an HR team. Though Global Payroll services declare they can replace the whole HR, literally it is not the whole truth.

GameDev and IT teams and digital agencies hire staff overseas to enter new markets or find unique talent.

Employees want to work with a foreign company, as with a local one, so that insurance and social payments are preserved. By competing for the best heads, the company meets these requirements and opens an office in the country where the employee is located.

It seems obvious, but such a change in the labour market needs to be highlighted: people in 2021 choose the employer who is present locally.

Not every company has branches worldwide, and then modern HR solutions come to the rescue: EOR, GEO, PEO and contract solution platforms. Let’s take a look at the pros and cons of each.

Employer of Record (EOR) is a third party local entity, placed as an intermediary in an existing employee-employer relationship. The EOR is charged with carrying out the legal and regulatory requirements of immigration, employment and payroll, but does not participate in day to day work activity.

GEO (Global Employment Outsourcing) — is an international solution for hiring employees abroad without having a branch or subsidiary in a foreign location. The GEO structure utilizes ‘employers of record’ in each country of employment, who are already set up and ready to onboard and payroll a new employee.

PEO (Professional Employment Organization) — another type of third-party service that fulfils a similar, although less comprehensive, role than a GEO. A PEO is most commonly used in countries like the US, where different employment and reporting requirements exist between states and regions.

Contract platforms are made to manage widely distributed teams of digital nomads. Those platforms work as a single hub for the client: they collect payment data of freelancers, submit, transfer money to the performers and are responsible for the result. The client does not need to think about the freelancer’s residency, tax status or payment gateways. Some platforms are willing to locate intellectual property rights from performer to client.

Each of the solutions saves energy on onboarding foreigners and money on substitution. All options are suitable for organizing a sales department on a new one or launching marketing activities with the help of your own regional team. It remains to compare rates and choose. First of all, let’s take a look at the individual solutions so that you can imagine which one is right for you. Let’s start with the cons.

1. It won’t replace the HR department as it promised. Despite the transfer of administrative concerns for hiring, several employees of your company will still have to control the work of the intermediary entity and manage the software they offer.
2. If your company is big enough, then EOR (for example, Deel or Oyster services) will become yet another service with a monthly fee. If your business is relatively small, then it is more rational to start working with foreigners on a freelance basis. Go through the trial period or the first couple of projects together, and then calculate the costs and plan further growth.
3. Most Global Payroll services are not responsible for the outcome — they only help you by tracking payments and taxes. In case of complaints against the employee, the service can take the position of an impartial observer. Study the terms of the contract carefully.
4. Surprisingly this model limits its use on both sides. When we talk about savings on-site in the country, we mean a noticeable number of employees — 10 or more. In this case, the service cost will be comparable to the maintenance of the representative office. Speaking of one or two specialists, you are unlikely to open a special office for them. So the niche where the EOR solution is quite rational is in the range of 5–8 people in each specific country.

What about contract platforms?

1. The ultimate power of such platforms lies in the versatility of documents: your company works under a single agreement with the platform, and freelancers accept the terms of the basic offer. This versatility may not suit individuals from certain countries with strict reporting forms or some serious restrictions on self-employment.
2. Mainly platforms try not to be responsible for the result, shifting it to one of the parties. However, controversial situations arise extremely rarely because such platforms, as a rule, record a ready-made result, which only needs to be digitally formalized.
3. Contract platforms are not suitable as a substitute for real labour relations. If besides the result of the specialist’s work is important to you, but also his physical presence in the office from 9 to 18, such a relationship must be formalized under an employment contract. Not all foreign specialists are ready to work 40 hours a week as freelancers in their hometowns. There are offers from local companies with all the benefits.

Existing exceptions when the platform adapts the documentation for a specific country, communicates the result and is responsible for it are rare. For example, the online service Arbonum, where, in addition to this, intellectual rights are instantly recorded and transferred. Other platforms are closer to freelance marketplaces than HR services.

EOR is a rather cumbersome solution for a trial period, a mid-term project and some types of foreign contractors. In such a situation, it is more logical and easier to organize the onboarding of foreigners in a contract platform. Arbonum is here to help.

When plans to enter a new region imply multiple increases in the staff and, if necessary, arrange a specialist as a staff member — then EOR is the future of the labour market.