Are you planning to take a global leap and start hiring across borders? If so, you’ve probably already thought about partnering with an employer of record (EOR) vs. opening a subsidiary/entity in your new market.
Expanding into the global market opens up a diverse world of opportunity, which can lead to more revenue and profit. However, you don’t want to sink too much money into a new venture without understanding your new market. No matter what path you take, one thing is for sure: A successful approach to international expansion requires understanding the country’s local labor laws.
Here’s everything you need to know about partnering with an EOR vs. opening a subsidiary.
An employer-of-record provider, or an EOR, helps companies onboard workers quickly and without establishing an entity or building a local HR team abroad.
An EOR is responsible for local HR processes, such as:
Maintaining compliance with local employment laws and other regulations
Drafting employment contracts in the correct language
Managing payroll and taxes, including withholdings and deductions payments as well as things like 13th- and 14th-month payments
Administering local benefits, such as private health insurance and mental health resources
Registering with local social security institutions, foreign tax authorities, and other government institutions
Navigating sticky situations, including terminations and severance (layoffs in the US are much different than layoffs in foreign countries)
As the legal employer for your international workers, the EOR shoulders responsibility for maintaining compliance, saving companies time, money, and resources. Partnering with an EOR means no upfront capital costs.
An employer of record is a seamless, growth-driven solution. It’s a low-cost and low-risk approach to expanding across borders.
Partnering with an EOR can help companies standardize and reduce employer costs abroad, correctly classify workers, and avoid needing to pay for unnecessary expenses, such as office space, local accountants, legal experts, and additional HR staff.
Each company recruits and builds their own team. The parent company maintains all of the intellectual property and manages their workers day-to-day duties without worrying about paperwork abroad.
Companies that work with an EOR are better equipped to:
Retain key talent
Explore new markets
Focus on running business, delivering products, and offering services
Hire employees quickly, often in minutes, without worrying about visa applications or relocation expenses
Tap into international talent pools
Build local HQs of 20-100+ workers without an entity
Pay workers across borders seamlessly, without hidden fees
In general, companies partner with an EOR provider when they need to hire full-time employees in countries where they don’t have an entity. An EOR provider can help companies scale up their operations after major company events, such as a venture capital raise, mergers, or acquisitions.
You might benefit from partnering with an EOR if…
Your recruiters or hiring managers have found top talent but navigating relocation and visa applications would be too costly
You want to establish a hub abroad, tap into local talent pools in under-the-radar markets, and build a recruiting brand in a new market
You want to hire 1-2 workers, or a team of 20+
You want to avoid draining resources on building out an HR function abroad
You are thinking about hiring in multiple countries at once
You don’t have the resources to find local legal or accounting experts
You need help with hyper-local features, such as PTU in Mexico or LMIA in Canada
Unlike a branch office or a representative office, a foreign subsidiary company is a completely separate legal entity for tax purposes. A foreign subsidiary is owned or controlled by an overseas company, known as the parent company or holding company.
Opening a foreign subsidiary reduces the risk of the parent company, even though the parent company holds 50-100% of the subsidiary’s stock. If the parent company owns 100% of the foreign subsidiary, it’s referred to as a wholly owned subsidiary. With a wholly owned subsidiary, the parent company can appoint directors to the governing board and sell the subsidiary without shareholder approval.
Setting up a subsidiary can cost hundreds of thousands dollars and take 6+ months to complete. To set up a subsidiary, you will need to:
Set up a local bank account
Register with local and federal government institution
Establish a local business address
Keep up on ongoing compliance risks
Appoint a board of directors
Meet minimum capital requirements
Attend in-person meetings to manage logistics abroad, such as visiting an embassy
Create localized benefits & compensation packages, as well as draft compliant employment contracts
Monitor minor changes in local, state, and federal statutory laws
Dissolving an entity can be quite difficult, so it’s best to evaluate all of the risks first. If you end up closing the entity, you will need to pay tear down costs, which can be unpredictable.
For some businesses, establishing an entity abroad makes sense if…
You’re focused on selling physical or digital products and offering services in a new market
You have a successful track record in similar markets (e.g., you have a foothold in Mexico and want to expand elsewhere in Latin America)
You’re hyper focused on establishing brand awareness for your global presence
You have local, on-the-ground experts to navigate legal and tax issues, including business tax, income tax, profit tax, and value-added tax (VAT).
Access to capital is not an issue
Foreign tax incentives make sense for your business model
Diversifying your company’s financial portfolio is a priority
Why are my global expansion goals? Business expansion plans look different for every company. Starting with an EOR makes the most sense, as you have a low-risk, cost effective way to access a greater talent pool and enter a new market without an entity.
How much do I have budgeted for legal experts? Legal fees add up quickly, especially if you’re not well versed in local laws. An EOR already has legal experts on board, which makes it the best option for companies on a budget.
Do I have the time? Companies looking to open an entity or subsidiary without an EOR need to open bank accounts abroad, comply with laws and regulations across borders, find vendors for payroll & benefits, and establish an on-the-ground HR team. You will need to be willing to invest a significant amount of months, if not years, into your business.
How much upfront capital do we have? Establishing an entity can cost your organization thousands of dollars, which slows growth. Using an EOR enables you to hire international workers in minutes, since the EOR provider already has a physical and legal presence in the country.
Are you looking for solutions to test the waters internationally? If you’re only looking to hire talent, and don’t need a legal presence in the country to sell products or offer services, partnering with an employer-of-record solution makes more sense.
Are you looking for a solution with the potential to scale up without establishing an entity? Using an EOR can help you scale up your operations seamlessly. An EOR will have the local expertise you need to remain compliant with all employment laws.
An EOR like Via can help you build local employment hubs of 20-100+ workers in a new market, with the full menu of local features, including best-in-class benefits and seamless payroll.
Many companies want to expand to the global marketplace but do not have the in-depth knowledge of beginning the process compliantly and how to hire talent compliantly. Via makes hiring employees and building your global team seamless. Via’s digital employer-of-record platform helps you manage local human resources processes for direct global employment such as work visas & permits, hiring & onboarding, benefits, global payroll, background checks, and more. Our team of local labor lawyers and on-the-ground experts ensure that your company remains compliant while expanding your business abroad. As your global employer-of-record/entity, Via assumes responsibility for employment liability, so that you can focus on what matters: recruiting and managing your team.
With Via’s transparent pricing, you can pay full-time employees or contractors with no hidden set-up fees, no foreign exchange or transaction fees, and no minimums–start with 1 employee and scale up at your own pace.