When Should a UK Company Use an Employer of Record for International Hiring?

A Safeguard Global customer picked up a few employees in Sweden it hadn't planned for through an acquisition. Setting up a legal entity there, like in most countries, can take anywhere from a couple of months to nine months depending on the legislation and forms. So, the company covered those employees with our Employer of Record (EOR) solution for three months in total, eventually moving them onto the new entity once it was ready. It meant that the company didn't carry the burden of misclassification or try to rush something they had no control over.

That's the real decision of the EOR-versus-entity question for UK companies hiring abroad. It's rarely a single choice made once. It's a sequence of calls made as circumstances change, and getting the order wrong costs time, money or compliance exposure. Ashleigh Graham, Global Solutions Manager, UK works with UK businesses hiring internationally in her role at Safeguard Global. Here's how she helps a company determine when to reach for an EOR and when to build an entity.

When should a UK company start pursuing a hire abroad?

When a UK business is just starting to throw a few ideas around, thinking about hiring abroad, that's when it's worth having a conversation. There's a lot of information floating around. A colleague or someone who knows someone at a different business says, Hey, you should do it this way” or this is how we did it.”

Usually, hiring abroad comes down to scenarios like these:

• You want to penetrate a new market.
• You're expanding into a new territory.
• You want to hire for a certain position or someone you’ve already identified.

Even in those early stages, before budget reviews, it's great to have a conversation with us because we can provide more insight, especially if you don't know what countries to go into or where a good source could be. Once you've got a country picked, there are a few things to take into consideration ahead of getting that budget approval or putting the job description out. We can guide and support them through that journey.

Are most UK companies hiring one or two people abroad, or building a bigger team?

For the majority of the businesses I speak to, it's one or two hires. But they already have a picture of where they want to get to, more employees in a country. A business may come to us and say, if this goes well, we want to set up an entity or we want another 15 people doing this role. That's ultimately where they want to get to.

But when they come to us, they want to test it out. They want a trial to see if this is going to work. To see if it gives them the flexibility to adjust how they employ and can support a worker in a different country.

What's the most common wrong call UK companies make between an EOR and an entity?

A lot of businesses still don’t understand that an EOR is an option at all. There are still a lot of people who don't know EOR exists, so it's foreign to them to know there's another option out there. The common approach for a lot of UK businesses is to set up overseas contractors first and then set up an entity. But even just the contractor element comes with its own risks and issues. For a lot of UK businesses, it's more of an educational piece, not understanding what the options are when it comes to hiring internationally. And even when they do know what the options are, it then becomes about understanding how they as employers can work in those particular countries with all the different local rules.

When is an EOR the right call and when should a company set up an entity instead?

We had one business looking at expanding into Europe for the first time. They were looking at potentially hiring in a couple of countries, opening a few roles that were going to be working remotely from home. If you've got one person in Germany, one person in France, and one person in Norway, it's probably easier to go down the EOR route to see how you get on with those particular countries, rather than looking at setting up an entity in each country. And because those countries do have quite strict rules around misclassification exposure, EOR was an easier approach.

Another example was a customer that, through acquisition, already had a few people in Sweden. During the acquisition, they realised they had quite a few people working as contractors in Sweden, but because they were looking at expanding more in that country as part of their longer-term goals, we went through the options and timelines with them to work out what the best solution was.

For them, the end result was that it made sense to do an entity setup. But because those individuals had been contractors up to that point, we arranged a short-term EOR as an interim solution because with the entity setup, it takes quite a bit of time. For that one, we provided EOR coverage during the setup, which took about three months. Those employees went over to their entity once it was all set up. It meant they didn't have to try to rush something through that they had no control over. So, it just made it an easier transfer.

At what point does a company that started with an EOR need to think about an entity instead?

When it comes to having a country where there are multiple hires, that's one of the first key indicators for a lot of businesses. If you have employees in the double digits in a particular country, that's when we would start to see that switch. Is EOR going to be the best approach, is that going to be the most stable thing for those employees, with more and more people in that country, maybe different roles as well coming through that give them increased exposure?

When you’ve got employees in the double digits, it becomes more of an investment piece, and that's when it is worth reviewing whether to go down the entity road rather than EOR. EOR is great, and we also do a lot of long-term EORs, but once there are quite a few people in a certain country we start asking customers what their long-term plans are. Are they looking to expand any more, is this short term or long term? It’s really about digging in to understand what the goals of the organisation are, which lets us advise on whether EOR is still the best route or if an entity setup is.

And there is always that flexibility. Some businesses go EOR, then entity setup, and they're happy continuing from that side. Others go EOR, then entity setup, then go back to EOR and dissolve that entity, because they're looking at moving away or maybe they don't have as many hires in that particular country to make that a sustainable choice.

It is very much an open conversation. It's never a commitment where you have to have this or else. It's all about flexibility, giving them all of the options when they need it.

EOR or entity at a glance

Can you give an example of when visa sponsorship changes a company's plans?

One hundred percent. So, there are certain countries where it's very difficult from an EOR perspective to support visa sponsorship because of local rules or provider restrictions. Southeast Asia is a good example. I recently worked with an organisation that was looking to expand into Southeast Asia, but because it’s tough to get visas and immigration sorted in the specific countries they were looking at, it ended up being the case that EOR wasn’t the solution, so we had to then think through with the customer what would the alternative options be.

We took a step back and provided some analysis and guidance around how, if they were to set up an entity, they might be able to sponsor an expatriate employee in the future, depending on local requirements.

We always understand that if it's candidate- or worker-led, it's not something where we're going to want to shift or change that conversation. We always look at how we can adapt and support the customer in a way that's best for their end result.

What should someone do if they've got an open role abroad and no plan yet?

One thing I find quite a lot of the time is that it's reactive. A new customer will often come to us AFTER they’ve found their ideal candidate abroad, but that can sometimes be a bit too late because candidates want to know HOW they are being employed and all the details around it BEFORE accepting the role. Sometimes we find customers have promised candidates certain things, and then we’ve had to let them know it's not compliant in that way in that country.

So, it's always a good idea to find an expert to guide you through the different countries and the different rules and regulations to know. For example, when it comes to UK businesses looking at hiring in the US, one thing I find comes up is notice periods. UK businesses may be used to a month’s notice, whereas in the US, at-will employment is common, though the rules vary. So it's a different terrain, and private medical is a different option too. When you’re comparing country options, it's always best to have someone break it down for you — to be clear on what you need to know and understand and what the key comparables are to what you're used to in the UK. So, when you find the right candidate in a new country, you've got the support needed and you can move forward in the most effective way.

What would you tell a UK company considering its first hire abroad that isn't sure it needs an EOR?

Speak to an EOR expert or, if time is on your side, start with these tools and resources that are there to help and support.

• Intelligent Workforce - Safeguard Global’s free tool that helps compare potential hiring countries and estimated employment costs.
• Free country guides - Learn more about EOR, recruitment, employment law, payroll, employee benefits, work visas and immigration, and setting up a business across 187 countries.

So, even if EOR isn't something that you have in mind, have a conversation with an EOR expert because a 20-minute conversation isn't going to hurt. But if you go down the road of assuming or not really understanding, you could be in a world of pain in the future that could have been avoided. It's easier to be proactive and understand all your international hiring options rather than assuming. So, for any business that is looking at hiring internationally for the first time, my biggest advice is to have a conversation before you start acting.

Talk through international hiring