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Businesses considering expanding into foreign markets are more likely to succeed if they can hire talent in their target countries. To be successful, one of the major factors employers must consider is the extent and complexity of global human resource (HR) management.
For many companies, handling international HR in-house isn’t a viable option. It could be because of the increased workload, the regulatory requirements of international recruitment, time zone differences, logistical concerns, or many other factors. Each organization is different, so the particular needs and challenges faced will vary depending on the company’s unique circumstances and the target country’s HR and employment laws.
Choosing international HR outsourcing is an excellent way for companies to recruit, employ, and manage staff with the support of a professional service with global HR. However, companies must weigh various factors when considering international HR outsourcing options. This article breaks down the pros and cons and explores the methods of outsourcing available to provide a comprehensive understanding of how it works.
What is Outsourcing HR for International Expansion
In the simplest of terms, outsourcing HR is the practice of engaging a third-party service provider to handle the administrative tasks involved in human resource management. This can include managing payroll, employee benefits, taxes and maintaining an employee handbook, and other HR activities. By entrusting a specialist service provider with these time-consuming, more laborious HR tasks, companies can free up resources for other activities such as focusing on performance management and growth objectives.
Outsourcing HR internationally takes this same approach, only on a global level. It allows businesses’ domestic HR teams to remain focused on local employees while international HR specialists handle the heavy lifting of multi-country employment logistics.
HR outsourcing can benefit practically any organization in one way or another, whether it’s a small business, a global conglomerate, or anything in between; It just depends on the particular needs of each company as to what HR support can be outsourced.
When it comes to international HR services, even businesses with an internal HR expert may find themselves struggling with the intricacies of HR activities and processes of a foreign country—or multiple foreign countries. This is especially true for the initial establishment of international operations, as the success of the venture depends on a sturdy organizational foundation to prevent future hurdles hindering progress.
Benefits of Outsourcing HR Services
Some of the most significant benefits that motivate organizations to outsource global HR activities enable businesses to do the following:
Start without establishing an entity
Companies hiring abroad virtually always need to establish an in-country legal entity, such as a branch or subsidiary, before hiring full-time employees in a target country. It’s through this entity that businesses can employ residents.
Setting up a legal entity is different in every country, but it’s invariably a complicated and lengthy process to complete—and also expensive. When venturing into a new region, it’s wise to test the waters before diving right in. Using an HR outsourcing company (or an Employer of Record (EOR) that offers these services) to get started allows businesses to explore the landscape and determine if it’s the right environment for global expansion efforts without the need to set up a legal entity.
Legal Compliance
Every country has its own employment laws businesses must follow, not to mention the possibility of additional regional, territorial, and/or local laws. Additionally, a business’s home country will have specific protocols and procedures to follow when setting up for recruiting and managing international employees, whether they’re permanent or temporary, full-time, part-time, or contractors. International HR laws might cover any of the following:
- Employment contracts.
- Wage and overtime rates.
- Personal data management.
- Work hour maximums.
- Public holidays.
- Paid leave and sick leave entitlements.
- Parental/caregiver leave entitlements and restrictions.
- Healthcare rights.
- Working conditions.
- Termination requirements.
While these laws may be second nature to a local HR specialist working within their own region, they can be unfamiliar and complicated to understand on an international scale, especially when language barriers exist.
An international HR outsourcing organization will be familiar with a target country’s local employment laws, so decision-makers won’t need to invest time and resources into researching them or hiring lawyers.
Simplified International Payroll
Ongoing payroll management is a sizable task for any HR department, even when it’s domestic. There are many facets involved in handling payroll, and each requires a combination of careful attention and expert knowledge. A few examples of major elements of payroll services handled by an HR outsourcing firm include:
- Setting suitable salaries.
- Bonus calculation and application, including adhering to legal mandates.
- Accurate overtime work rates.
- Timing and frequency.
- Holiday and sick pay accuracy.
- income tax and social security calculation and allocation.
When expanding into new foreign markets, each aspect of payroll is conflated; laws vary between countries which essentially means duplicating the workload, as well as the level of expert knowledge required by accounting teams.
Outsourcing payroll to an international HR services provider can relieve some of the responsibilities internal HR and payroll departments face when aligning with all foreign laws and regulations, including those specific to Andorra HR Services. Not only does this negate risks of any oversights or infractions, but it also means companies can take advantage of payroll specialists' expertise to ensure organizations don't lose out on opportunities to cut costs where possible.
Premade Benefits Packages
Part of any successful employment exercise involves offering an attractive and competitive employee benefits package; employees will want to know their role comes with certain benefits. Local law will require some benefits, whereas others might be culturally expected even without specific legislation mandating them. It’s important to know the distinction between what is necessary (from a legal standpoint) versus what is expected, so employers can build the most attractive employment packages and recruit the best talent.
While finding out the statutory minimum wage, paid leave entitlement, and sick day allowances for a particular country might seem simple, it’s not as easy to understand cultural expectations and foreign workers’ priorities. For some, it could be comprehensive health insurance, whereas another country’s population may put greater stock in having a better quality retirement savings.
Aside from knowing what to include in an employee benefits package, businesses also need to source and strike deals with companies that can fulfill different benefit needs. This can be time-consuming and taxing—understanding the finer details of different deals and policies, and then the ongoing maintenance of those contracts.
An international HR service will be acutely familiar with the target country and know which benefits local job seekers want and expect. Many will have appealing benefits packages ready to go and immediately offer new hires without the need to source or manage each aspect of the packages.
Tackling Terminations for Businesses
U.S. employers can terminate employment contracts at will, meaning they can fire an employee for any reason whenever they choose to so long as it isn’t unlawful. However, this isn’t the same for most countries around the world. Many have strict rules and standards regarding employee termination, especially in relatively litigious countries. A misstep can result in penalties from governing bodies or even risk legal action from individuals who feel they’ve been unfairly let go.
The various characteristics and nuances of different countries and regions mean it takes a clear understanding of local laws and regulations to meet HR compliance when it comes to termination management. Global HR management services should have the experience and expertise to handle these types of situations with care and aligned with local compliance.
Challenges of Outsourcing HR
While there are many benefits to outsourcing international HR tasks, employers must acknowledge some circumstances where it can present challenges. Before deciding if international HR outsourcing is right, decision-makers should consider the impact it may have on business operations.
Culture Shift
Introducing a new entity to an organization is inevitably going to adjust how things function, which can have an impact on team dynamics. Outsourcing HR expertise to a third party can make team members feel detached and less secure in their positions, which may lead to decreased productivity. When applied on an international scale, distance and different time zones may amplify disengagement. However, allocating an internal HR representative to bridge the gap and encourage cultural cohesion may mitigate any issues.
Data Insecurity
The protection of private and personal information handled by HR departments is vital. When internally managed, businesses have complete control over securing sensitive data, whereas bringing in a human resource organization means needing to entrust another company with employee information in order to effectively complete the necessary administrative tasks.
Furthermore, different countries have varying levels of regulatory requirements when it comes to data protection. Outsourcing international HR means needing to have complete faith in the company and its HR specialists.
Budgeting
Cost-effectiveness is a major concern for any form of outsourcing. As a core department for the smooth operation of a business, HR needs to be handled professionally and effectively—and affordably—when outsourced. Striking the right balance of performance quality and cost can seem like one of the toughest challenges to overcome. Therefore, it’s important to do a thorough analysis and due diligence on required services and how much they’ll cost before making a decision on an outsourced international HR solution.
Companies can mitigate potential international HR outsourcing challenges with the right partnership. Like with any other service provider a business considers engaging with, it’s vital to examine every facet and angle of the proposed agreement to ensure it provides equilibrium and real cost benefit to an organization.
Types of HR Outsourcing Services for International Expansion
Companies have several options available for HR outsourcing, each with distinct differences that provide varying benefits and methods of working. It’s worth exploring what these types of services offer to better understand the best HR outsourcing service for an organization’s unique needs.
Administrative Services Organization (ASO)
With an ASO, businesses can get HR services from an external company but retain its employees, their records, and all their documentation as part of the organization. ASOs act like a trusted partner or advisor, which means some of the services they provide are limited.
An ASO will offer legal guidance on HR compliance issues, but doesn’t implement them or assume any liability on the advice given. With an ASO, businesses will need to set up their own entities in target countries, including benefits administration and worker compensation.
While this seems like a fairly limited level of service—which can mean a costly amount of work for an organization—is an attractive option for some businesses. It allows for autonomy and maintaining control over operations while receiving expert advice and HR solutions which they can be selective over. Using an ASO model means organizations get more contact and authority over their employees and, while they do get some of the organizational and administrative benefits of an HR service provider, they will need to do more of the legwork in-house.
Employer of Record (EOR)
An Employer of Record (EOR) provides the simplest, most direct way for organizations to manage their international HR needs. With teams of regional experts, an EOR takes on the management of all HR administration, including:
- Drafting and managing compliant employment contracts.
- Payroll and tax.
- Statutory and company benefit offerings.
- Recruitment and termination administration.
- Ongoing support regarding local labor laws and regulations.
Like an ASO, most EORs provide effective legal advice and guidance for organizations with employees in foreign countries. But where an ASO stops at this point, an EOR will implement and take on additional responsibilities. Additionally, many EORs are already established with legal entities in countries across the world, meaning organizations don’t need to set one up. This is an enormous time- and money-saver when it comes to getting started with recruitment, as well as simplifying the process of maintaining HR administration and operations on an ongoing basis.
EORs technically employ international recruits on a company’s behalf, meaning a large amount of the liability and responsibility for their employment is taken care of, significantly reducing risk while following local laws and regulations.
At Global Expansion, we offer comprehensive Employer of Record services designed to assist organizations in their international operations by providing professional HR administration for employees in hundreds of countries around the world, as well as a full suite of EOR services to help companies expand faster, farther, and smarter.
If you’d like to learn more about the benefits of using an EOR as a global HR outsourcing solution, reach out to our team today.
