More and more companies are looking to expand their business globally. Why wouldn’t they? In this interconnected world, spreading the net as far out as possible has many benefits.
Considering factors like the globalization of the economy, the shortage of skilled workers in certain industries, and the development of new technologies to improve remote working, it’s just a logical next step for leaders and business owners to try tapping into other hiring pools consisting of talented individuals, reduced costs, and new market opportunities.
Although it comes with a proven satisfactory Return on Investment (ROI) rate, there are things you need to pay close attention to when hiring talents internationally.
Potential Challenges for Companies When Hiring Global Talents
- Employee misclassification act
When first testing a new market, businesses often hire independent contractors to conduct market research and build a local presence for their brand. While hiring contractors is quick and easy, it can also lead to employee misclassification issues. Employee misclassification happens when a worker is treated and taxed as a contractor but is engaged by your company as an employee.
An example of this would be hiring a full-time data scientist from Indonesia to join your Research and Development team, but instead of doing it through an employment agreement, you do it through a commercial contract.
In that case, the worker has the responsibility of a full time employee without the rights, such as minimum wage, overtime pay, time off, access to benefits, and protection from unlawful termination.
The rules regarding employee classification vary from one country to the next. A minor mistake in understanding local labor law could expose you to risks that are not worth taking.
- Complications in attracting and hiring the right talent
Many companies want to hire international employees because this allows them to access talent unavailable in their home market or out of their hiring budget to retain.
One thing that most companies have yet to realize is that attracting and hiring the wrong talent costs them up to 2.5x the salary of the hired talent.
When aiming to attract and hire talents that are the right fit for your company, it’s crucial to have a deep understanding of how the same industry operates in the country you’re targeting.
This includes being well-versed in the local market’s work policies, employee benefits, and other key factors. This can be challenging when you’re unfamiliar with local customs and have limited time or lack of experience to do your own market research.
- Time and budget constraints
Hiring employees abroad might seem like a path only accessible to those well-established big corporations backed by seemingly unlimited funds and robust legal and Human Resource teams. And we understand why.
In Indonesia, for example, there is a minimum of IDR 10 billion minimum paid upfront capital to set up a company. For small-to-medium size businesses, setting up their companies abroad just to hire a few employees is a very costly and lengthy process that’s out of reach with the resources they have.
- Lack of Flexibility
Setting up a branch office or subsidiary not only requires a big upfront investment but also ties your company to the new market. Exiting the market then becomes a lot more complicated since the legal entity must first be de-registered.
This puts off companies whose purpose is to test a new market before making further commitments since their flexibility is at stake, and it puts extra layers for a quick and easy market exit should things don’t work the way they expect them to.
Let’s say you hired employees from Indonesia, and it’s a new terrain for you. Down the road, it turned out that you encountered a few problems, such as culture clash, logistical hurdles, and tax complexity, and then decided to end things.
The difference between hiring with EOR vs setting up your own entity in Indonesia is that with EOR, you can exit the market within days to a few weeks at maximum and don’t have to go through a complicated legal process of de-registering your company.
- Work overload for the payroll and HR teams
Hiring employees in different jurisdictions requires being familiar with all the local laws and regulations regarding mandatory benefits, tax liabilities, and employment obligations. This usually involves a lot of research work for the payroll and HR department in the beginning that will take up long hours spent outside of doing their usual tasks.
This usage of internal resources prevents companies with a limited number of employees from fully exploring the possibility of hiring outside their country.
- Compliance risks
Even thorough research doesn’t always guarantee full compliance with local employment law. There is only so much business owners and their teams can do, especially when ensuring 100% compliance to guarantee smooth and problem-free global hiring.
This is mainly caused by the fast-changing labor laws in many countries that leave keeping yourself constantly up to date a tedious task, and missing even the littlest detail significantly increases your compliance risks in the new market.
The good news is that Employer of Record (EOR) can help with solutions so that global hiring can be widely accessible even when your company has limited time, financial, and knowledge resources.
How does an Employer of Record Help Solve These Challenges?
Ensuring regulatory compliance
One of the key benefits of EOR is its role in ensuring regulatory compliance, which involves adherence to local employment and labor regulations. When you have a specific country in mind to hire employees from, an Employer of Record service helps navigate the country’s employment laws, tax laws, and business regulations to make sure you avoid missteps that can lead to costly penalties and maintain a clean legal slate.
One of the key benefits of EOR is its role in ensuring regulatory compliance, which involves adherence to local employment and labor regulations.
If you want to hire employees from Indonesia, an Employer of Record service gives you access to local professionals who understand the complexity of local employment and labor regulations in Indonesia. They will help you immensely in navigating Indonesia’s employment laws, tax laws, and business regulations to ensure you avoid missteps that can lead to costly penalties and maintain a clean legal slate.
Providing cost-effective business expansion
By using EOR services when hiring global talent, you can bypass the expenses linked to traditional expansion methods like entity establishment and other costs associated with administrative overheads that can cripple your hiring budget.
In Indonesia, for example, the minimum capital requirement for a foreign investment company is a total investment of at least 10 billion rupiah (US$696,000), and the administrative cost of setting up a company starts at USD 2,500. Setting up a company also involves a hefty investment of time and resources to understand the local tax, payroll, and employment laws when it’s time for hiring. EOR services can slash administrative costs by more than 80%.
Streamlining Human Resources management
Think of an Employer of Record (EOR) service as a helping hand so that you don’t have to drain your HR team’s resources and energy, and they can focus on doing their business as usual.
The scope of an EOR’s duties is broad. These are examples of things that EOR service takes care for you:
- Payroll. Ensure that your employees are always paid on time.
- Employee benefits. Align your company’s goals and the facilities given to the employees to attract talents and decrease turnover.
- Employment contracts. Define clear responsibilities and help to protect your business interests.
- Employee terminations. Ensure that everything is conducted lawfully and smoothly in the event of termination.
This outsourcing allows your HR team to channel their efforts into strategic objectives, fostering productivity and growth.
Accelerating market entry
EORs provide an expressway into new markets. You don’t have to worry about the bureaucratic hurdles linked to traditional expansion methods like setting up a foreign entity slowing your expansion pace. EORs offer a speedy alternative, enabling you to penetrate new global markets rapidly and seize opportunities quicker than your competitors.
Mitigating legal and financial risks
EOR services help to alleviate these risks by managing all employment-related liabilities. They ensure strict adherence to labor laws, handle payroll tax compliance, and manage potential employee disputes with the local government. This risk management aspect of EORs allows your business to expand with confidence and peace of mind.
Letting you focus on your core business functions
When the intricacies of global HR management weigh down your business, it’s easy to lose sight of your core competencies. With an EOR handling all employment-related matters, your business can channel its energy into what it does best. This increased focus can stimulate innovation and drive business growth.
Encouraging scalability
Scalability is a crucial element of a successful global business strategy. Whether you’re a budding startup seeking your first overseas expansion or a well-established multinational corporation looking to streamline your global workforce, an EOR offers a scalable solution. With an EOR, you can flexibly adjust the size of your workforce to meet your business needs, all without worrying about the complexities of HR management.
Sharing benefits from expertise and knowledge
The expertise and knowledge that an EOR brings to the table are invaluable. EOR service comes with extensive, in-depth knowledge of employment laws and best practices of the country you’re looking to hire in. These insights can help you make more informed global expansion decisions, saving you from potential pitfalls and costly errors.
Are You Looking to Hire in Indonesia? Find Out When You Should Use an Employer of Record
If you’re looking to explore the untapped potential of Indonesia’s talented and relatively affordable workforce with diverse on-demand skills, identifying the right time to integrate an Employer of Record (EOR) into your business strategy is crucial to harness the benefits of EOR fully.
Here are a few scenarios where you should consider using an EOR when hiring Indonesian employees:
Just entering Indonesia as your new market
If your business is considering expanding to Indonesia and you’re unfamiliar with the country’s regulations, an EOR can provide a quick and efficient entry point. The EOR service Livit provides has the local expertise and hands-on experience in navigating legal and regulatory environments, significantly reducing your time and resources to enter the Indonesian market.
Wanting to test the market in Indonesia
If you’re looking to introduce your products or services in Indonesia but are unsure about their potential success, employing an EOR can be a less risky approach to market testing. This way, you can gain insights about the Indonesian market without setting up a full legal entity.
Engaging talented Indonesian individuals
Indonesia is home to emerging talents and a relatively more affordable workforce with high-demand skills in industries such as tech, hospitality, and wellness. If your goal is to recruit the best talent from the country, an EOR can be instrumental. It enables you to employ Indonesian nationals without the need to set up a foreign entity, helping you tap into Indonesia’s talent pool effectively and legally.
Doing temporary or project-based work
Setting up an entire foreign entity in Indonesia can be cost-prohibitive and unnecessary for short-term, project-based work. In such cases, an EOR is an ideal solution, taking on employment responsibilities for the project’s duration and eliminating the need for a long-term commitment.
Simplifying global HR operations
As your business grows globally, so will your HR responsibilities. If managing a global workforce becomes overwhelming for your HR team, an EOR can step in to streamline operations, allowing your team to focus on strategic initiatives.
How to Select the Right Employer of Record in Indonesia
Choosing the right Employer of Record (EOR) is a strategic decision that can significantly impact your global business operations. Here are some factors to consider when selecting the best EOR for your hiring needs in Indonesia:
Choose EOR that owns business entities in Indonesia
The highest level of legal compliance is typically offered by EORs that own business entities in the countries you want to hire. If you’re going to tap specifically into Indonesia’s talent pool, working with an established and trusted EOR services provider in the country is the best option.
Before you start working with an EOR, ensure they own a local entity and have the necessary expertise to properly manage locally all the payroll, health benefits, taxes required, and any other benefits or compensation you might offer, such as stock options.
Prioritize industry experience
An EOR with experience in your specific industry can offer valuable insights and guidance. They will understand your unique challenges and business dynamics and have proven solutions tailored to your needs. Livit, for example, has been specializing in tech hiring and has had successful hires from CTOs, developers, and digital marketers.
We facilitated 250+ hires with 120+ client nationalities as part of our hiring experiences.
Check the range of service
Ensure that the EOR provides a full suite of services that align with your needs. The more comprehensive the services, the more you can streamline your global operations.
Livit partners up with PT. Solusi Pragmatis Indonesia can help you employ both local and foreign citizens, run payroll, manage employees’ taxes, prepare necessary legal documents, and sponsor work permits for foreign workers in Indonesia.
Pay attention to customer support
Strong customer support is crucial. The EOR should be readily available to answer your queries, provide guidance, and resolve issues promptly. With Livit EOR, you can rest assured that you’ll speak directly to our board members for a swift and tailored solution to your hiring needs.
Pay attention to technology and integration
The EOR should leverage modern technology to deliver its services efficiently. Also, ensure that their system can seamlessly integrate with your existing software. At Livit, we offer an integrated platform for managing payroll, benefits, and other HR functions.
Decide on pricing
Lastly, pricing is an important factor. The cost of EOR services should align with your budget. Be sure to understand what the fee includes and if there are any hidden charges.
Conclusion
Understanding what an Employer of Record is and appreciating its benefits is crucial for any business intending to thrive in the global marketplace. The reasons for using an Employer of Record are diverse and compelling, offering everything from regulatory compliance and cost-effective expansion to streamlined HR management and mitigating risks.
In today’s rapidly evolving global economy, an EOR can be the strategic partner that empowers your business to flourish beyond its traditional borders.
