If there’s one thing that we can be sure 2024 will bring, it’s the fact that we’ll all be using AI tools like ChatGPT more frequently. That’s why today we’re having a little fun. We’ve decided to pit ChatGPT against Steve Malley, Global Director of EOR, our senior expert on how to properly evaluate the best time to transition from Employer of Record (EoR) to a legal entity. As you’ll see from today’s Q&A, there’s more to EoR transitions than meets the eye (even if that eye belongs to the world’s most powerful AI engine).

Without further fanfare, ChatGPT, meet Steve.

Here’s the question we asked ChatGPT:

“When is the right time to transition from EoR to payroll with owned entities?”

ChatGPT’s response on the right time to transition from EoR to legal entity:

The right time to transition from an Employer of Record (EOR) to payroll with owned entities typically depends on several key factors. These include the scale of your operations, the stability and long-term commitment in a particular market, the complexity of local employment laws, and your organization’s readiness to handle compliance and administrative responsibilities.

Generally, a transition is advisable when the company has grown sufficiently in a foreign market to justify the investment in setting up a local entity. This is often when the number of employees reaches a point where the cost savings and control over employment practices outweigh the convenience and cost of using an EOR. It’s also crucial when a company needs a physical presence to enhance business operations or when it desires more direct control over its workforce.

Additionally, the transition should be considered when the company is confident in its ability to manage payroll, tax, and legal compliance in-house or with local partners, as these responsibilities become significantly more complex and risky without the EOR’s infrastructure and expertise.

HSP’s Steve Malley responds:

Employer of Record (EoR) solutions are often the starting point for businesses hiring talent abroad (specifically, outside of the company’s home jurisdiction). However, given that an EoR is rarely an effective permanent solution for most companies, you’ll want to consider when it makes business sense to transition from EoR to establishing a legal entity. 

Because this transition is typically high-stakes and complex (involving everything from setting up the entity itself to managing payroll, accounting, and taxes), you absolutely need to get it right. It’s not just about timing—it’s about all the financial, legal, and other compliance-related factors that comprise setting up a legal entity. In fact, most companies lack the in-house expertise to manage the transition effectively, so consider bringing on an expert in entity management to avoid costly missteps or compliance issues. That said, if done at the right time, transitioning from EoR to a legal entity can be a crucial driver for your company’s growth. 

Here are some factors to help you evaluate whether your company is ready for a transition.

Your growing headcount in a country can be more expensive under EoR.

For starters, cost will become a significant factor when your company’s headcount in a country reaches a certain threshold. That might be the first thing you notice. For example, if your business is paying around $700 per month for ten or more workers, the costs you incur through your EoR solution could be double when compared to the expenses you can expect from transitioning to an entity. In short, when the cost of using an EoR service exceeds that of managing these tasks internally, transitioning from EoR to a legal entity becomes a financially sound decision for your globally expanding business.

The types of hires you make under EoR can expose you to Permanent Establishment (PE) risk.

The nature of the hires under your EoR provider should also influence your decision to transition from EoR to a legal entity. If your company employs revenue-generating individuals or if you’re generating revenue in a country where you’re using an EoR provider, you may well face PE risk—which can lead your company to face unexpected tax liabilities and compliance issues. You can sidestep this by establishing a recognized, official presence in that country—a legal entity. 

EoR can hinder the success of Mergers and Acquisitions (M&A).

Because M&A can be a stressful time for all affected employees, a smooth transition can pave the way for a more successful M&A. A key part of this can be ensuring employee trust and confidence through the restoration of employee benefits. Unfortunately, your EoR provider may not be able to support this. If you find that you are facing limitations in EoR arrangements around prior employment agreements (use proper due diligence during your M&A to flag this), consider a transition from EoR to a legal entity to ensure that you can effectively manage your changing global workforce. 

EoR: Your Start, but Not Your Endpoint

It’s common (and advantageous) for companies to start with an EoR solution for their first international hires. Doing so serves as an important stepping stone towards broader international market expansion. However, think of EoR as the beginning of your global HR expansion strategy, not the endpoint—you are not bound to this approach indefinitely. As your business grows and the global landscape changes, transitioning to a legal entity can offer you more control, compliance, and cost-effectiveness across your growing international operations.

As part of your growth strategy in the global marketplace, be sure to regularly evaluate whether it’s time to transition from EoR to a legal entity.

ChatGPT versus HSP: Real-world HR experience wins every time

In contrast to ChatGPT’s generic response, our perspectives—as experts with real-world experience—show that there is no “one size fits all” approach to transitioning from EoR to a managed entity. Every company is different. While fundamental principles apply overall, how those principles are applied is a differentiator to a streamlined, efficient, and cost-effective transition. That’s where experts with proven, country- and region-specific expertise can make all the difference.

While there are many service providers who bring large-scale, standardized solutions to global HR challenges, an HR expert with a tailored approach and real-world expertise will always deliver the right results for your company. In fact, our clients frequently share how much they appreciate that HSP has become an essential extension of their internal teams. 

“HSP has the ability to make our problem theirs and act as an internal extension of our team.”
(Jesper Oestergaard, Head of Global Mobility and Payroll at FLSmidth. His team partnered with HSP to launch a successful global payroll implementation in this recent case study.)

The HSP high-touch, hands-on approach sets us apart and is a cornerstone of the personalized, bespoke solutions we deliver. Contact us today so that we can start delivering your custom solutions.

Have we started to see the great separation in the Employer of Record (EoR) industry? Companies like Deel, Remote, and Rippling announced product enhancements to differentiate them from mainstream EoR-only providers. Payroll acquisitions, Professional Employer Organizations partnerships, and a broader offering around the full-stack HR experience can lead us to one conclusion. EoR as an industry is being disrupted again.

Today, we’re focusing on indications that it might be time for you to consider moving away from EoR services. Here’s a list of three common drivers for graduation from EoR as your global employment landscape evolves.

1. Headcount in country

Employer of Record is a quick-to-market, mitigated risk solution that helps empower companies to tap into global talent. Undoubtedly, the “arms race” in global expansion from the over two billion dollars of outside investment has placed companies like Deel, Remote, Rippling, and others into the spotlight. They have world-class sales organizations and multi-million-dollar marketing budgets aimed at selling you on EoR. So, what happens when it goes well? Additionally, headcount can be a leading indicator that it’s time to consider an EoR transition. There are many reasons for this, but let’s start with the most obvious one. Cost. If you’re paying $700 monthly for ten workers or more, the platform costs alone would likely be double what you expect for your EoR to entity transition from local payroll to benefits, bookkeeping, and HR support.

2. Types of hires on EoR

Permanent establishment (PE) risk comes from employment engagement and revenue recognition. If you’re hiring loads of revenue-generating people or recognizing revenue in a country where your company utilizes an EoR provider, you may be operating under a PE risk. The remedy for PE risk is infrastructure. This takes planning and time. Consider the timeline for the EoR to entity transition: setting up a bank account, registering your own legal entity, finding a local payroll provider, aligning benefits, and transitioning employees to your newly found entity. This process can take up to a year or more in some countries, depending on external influences.

3. M&A

Let’s face it. There are plenty of companies that are struggling in this current economic environment. If M&A is part of your strategy for global growth, EoR may not be an option for you to utilize at all—you need to consider an EoR transition. Restoration of benefits and employee confidence are key factors in a successful transaction. Limitations typically found with EoR providers around prior employment agreements and other factors may create a necessity to move away from EoR as a mechanism for global workforce management. It’s easy to overlook, but deals can fail if the right diligence is not performed at the front end. Preparing for an EoR to entity transition exercise can help negotiations, especially with durations of things like the Transition Service Agreement (TSA) and the culture mesh of bringing multiple companies together under a newly formed business.

Let’s discuss your needs.

At HSP Group, we know that EoR is rarely a long-term or permanent solution. We specialize in guiding businesses from EoR when launching operations in-country to the time when establishing their own entity is the right choice. Our EoR Cost Calculator can help reveal when this transition makes financial sense. Through our comprehensive, employee-centric process, we ensure a compliant, cost-effective, and efficient transition for your growing business.

Contact us today to speak with one of our EoR experts and learn more about Employer of Record services.

Challenges of Hiring Across Borders 

The vast expanse between the dream of building a cross-border team and its realization is dotted with complexities. When hiring across national boundaries, one must traverse legal mazes, grapple with varied cultural nuances, and balance the scales of fair compensation, including: 

• Legal Intricacies: Every country has its own web of employment laws and labor standards. 
• Tax Implications: Balancing domestic and international tax laws requires an intricate dance of financial and legal knowledge. 
• Cultural Nuances: Despite shared borders, the US and Canada boast unique workplace cultures. 
• Compensation Dynamics: With varying living costs and market standards, setting a fair wage is a delicate balance. 

Methods to Tackle These Challenges 

In the face of challenges, innovation and strategy emerge as the torchbearers. The key to successful cross-border hiring is not just identifying the hurdles, but also having a well-defined roadmap to navigate them. From leveraging third-party expertise to fostering cultural harmony, the solutions are as multifaceted as the challenges themselves, including: 

• Employer of Record (EoR): Acting as a third-party, an EoR hires the remote employee on your behalf in their respective country. 
• Cross-cultural Training: Immerse your teams in the rich tapestry of US-Canadian workplace cultures. 
• Consistent Communication: Building bridges across borders begins with open channels of dialogue. 

What incentives or regulations have been put in place to foster hiring employees in both USA and Canada?  

To bolster cross-border employment and economic collaboration, both the US and Canada have introduced a slew of incentives and regulations: 

• Trade Agreements: The United States-Mexico-Canada Agreement (USMCA) encourages smoother business operations across these countries, influencing hiring practices and corporate collaborations. 
• Tax Incentives: Both nations have schemes that benefit businesses with cross-border operations. For instance, certain tax credits or deductions can be claimed for employing international remote workers. 
• Streamlined Work Permits: While remote work might not necessitate visas, if there’s a need for physical presence, programs like the US’s TN visa for Canadians facilitate easier mobility between the countries. 
• Joint Training Programs: There are cooperative programs and grants in place that promote cross-border skill development, fostering a shared workforce pool. 

 

Security and Data Privacy Considerations 

In an era where data is often likened to gold, its security and privacy become paramount. When managing remote teams, especially across international borders, the stakes are elevated. Adhering to multifarious regulations and ensuring that technology doesn’t become the Achilles heel demands both attention and expertise, including: 

• Regulatory Navigation: Both Canada and the US have stringent data privacy regulations. 
• Secure Tech Stack: Employ communication and collaboration tools that satisfy international security standards. 
• Regular Audits: Frequent checks ensure continuous compliance and nip potential security threats in the bud. 

 

Long-Term vs. Short-Term Hires: Differing Considerations 

The nature and duration of employment play a pivotal role in shaping the hiring strategy. While both long-term and short-term hires have their unique merits and considerations, it’s essential to discern which aligns best with the company’s vision and immediate needs, including: 

• Commitment & Training: Long-term hires often require a deeper investment in training and onboarding. 
• Contractual Obligations: Short-term hires might be project-specific, requiring clear contracts detailing the scope of work, timelines, and compensation. 
• Flexibility: Short-term hires provide flexibility to address fluctuating business needs, while long-term hires offer stability. 

 

Advantages of Hiring Remote Workers Across the Border 

As with any venture, the allure of cross-border hiring lies in its benefits. From a broader talent pool to cost efficiencies and from innovation through diversity to unprecedented adaptability, the perks of expanding your team beyond the confines of a single nation are manifold, including: 

• Broader Talent Spectrum: Dive into a talent ocean with millions of potential candidates. 
• Financial Efficiency: Strategically hiring from areas with lower living costs can be an economic boon. 
• Innovation Through Diversity: Mix Canadian and American perspectives for richer brainstorming sessions. 
• Adaptability: A geographically dispersed team is less vulnerable to local disruptions.  
• Immigration flexibility: US companies applying for H-1B Visa on behalf of talent may not be selected in the lottery, parking employees in Canada keeps them in time zone while allowing better personal security and still allowing for re-application to the US.  

 

Summary 

Tapping into the combined talent of Canada and the US can offer unparalleled advantages, but it demands a well-informed strategy. With insights on security considerations, understanding the nuances of long-term vs. short-term hires, and addressing common queries, businesses can make informed decisions. These advantages extend to companies all over the world and create tangible impact to your business.  

Embarking on a cross-border hiring adventure? Allow HSP Group to be your North Star. Dive deeper into how our EoR services can simplify your hiring journey. 

Connect with HSP Group Now 

 

EXPANDING a business overseas is a pivotal and key moment for any growing business. 

And as the business landscape continues to evolve, more and more companies are exploring the idea to reap the benefits of going global. For instance, increase in brand awareness, improved margins, and enhancements in overall business operations. 

However, making that transition comes with challenges especially when it comes to hiring people overseas. 

Employer of Record (EoR) solutions can be the perfect initial approach if you’re looking to hire talent outside your home jurisdiction. 

But how does it work? 

Here, one of the leading experts in this field, Steve Malley, Global Director of EoR at HSP Group, shares his insight on the crucial role EoR can play within any growing business, and the importance of finding the right provider. 

How an EoR can help global expansion 

A rapidly implementable and risk-mitigating strategy, EoR empowers businesses to access fresh talent pools whilst removing the need for the establishment of a full legal entity. When executed correctly, this method eliminates any potential breaches of local employment or tax regulations. 

The intricate landscape of foreign employment and tax laws can expose businesses to substantial risks. However, EoR acts as a protective shield, ensuring compliance with local regulations. By leveraging EoR, companies can confidently operate within the confines of the legal framework, significantly minimizing the likelihood of noncompliance. 

It’s important to highlight that EoR solutions offer a particularly advantageous avenue for startup businesses, enabling them to establish a presence in diverse markets with a streamlined financial commitment. 

From the outset, the advantages of EoR are abundantly clear, yet it is crucial to select the right provider to help harness these benefits effectively. 

 

Things to keep in mind when picking an EoR provider 

With the market currently swamped with multiple EoR providers, all of which present their own thoughts and ideas, business owners are inundated with information, making it difficult to make an informed decision. 

That’s not necessarily a bad thing – having multiple options can be great for businesses that prefer to compare scenarios before committing. For example, different providers favor different approaches and recommend varying routes, such as suggesting direct or non-direct EoR. 

All this excess information can, however, overcomplicate the process, which is what you’re trying to avoid through the use of EoR. 

It’s important to do your research and find an experienced provider that can ensure the essentials are covered, such as compliance, whilst also actively seeking to simplify the overall process. 

Furthermore, key areas for consideration when choosing a provider include the transparency of the provider, its knowledge and expertise of different markets, its global mobility, and workforce solutions. 

Three ways to implement EoR 

As part of our main EoR offerings at HSP Group, we have four solutions to choose from: 

• EoR Evaluation – A HSP consulting project designed to assist customers in determining if EoR is the appropriate solution for them, considering their goals and other market options.

• Solutioned EoR – HSP’s approach to ‘white-labeling’ one of the three EoR partners chosen through an extensive RFP process. We have personas for both buyers and EoR providers to ensure the right alignment based on the buyer’s profile.

• Supported EoR – This is a ‘managed service’ offering by HSP, where we act as an intermediary between the end customer and the EoR provider to guarantee an optimal experience.

• EoR Graduate – HSP aids customers in establishing and operating their own infrastructure, enabling them to transition away from the EoR model. This typically involves tasks such as setting up an entity, handling registrations, helping with bank account creation, overseeing payroll, and managing statutory accounting and tax.