Sourcing skills in the UK can be difficult enough, but HR faces a world of challenges when trying to build global teams or supporting the business to enter new markets. What is the ’employer of record’ model and could it help?
It’s easy to assume that the rise in remote working – and an increase in so-called “digital nomads” – since the pandemic has benefited employees more than bosses. The term digital nomad seems to conjure up images of working in a laptop with a view over the sea, tagging oneself in a picturesque Instagram post while a frustrated manager back at headquarters chases up a deadline.
But this movement has also swung in favour of employers who are struggling to fill vacancies with local talent. As a result, the employer of record (EOR) market has swiftly grown and evolved in the past two years and will grow at a rate of 6.5% per year to be worth around $205 million (£159m) by 2029, according to analysts.
What is an employer of record?
When a business uses an employer of record, they work with a third-party organisation that becomes the full legal employer of specified overseas workers or teams, managing everything from visas and right-to-work issues to onboarding, pay, and taxation.
Because the companies that offer EOR services do so for multiple organisations, they are able to deploy technology and expertise at scale, so can handle any issues more quickly and consistently than might be possible with an in-house HR team. “Companies want to expand and hire without the red tape from different countries across the world,” says Rick Hammell, founder and CEO of Atlas, an EOR company.
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Hammell used to work as head of HR for a US government agency that had often needed to hire specific skills that were available in numerous different countries.
“We’d end up having to set up separate legal entities or the office would say ‘we don’t do that country’ and we ended up with visas not being approved, employees not being onboarded and some not getting paid,” he adds. “It created a poor employee experience.”
He worked with his technology department to find a solution, which later became Atlas. “We learned how to do business in those countries, do the payments and onboard. Then it was about making it scalable and being able to replicate it so we could build technology on the rules and regulations of doing business in different countries.”
Global flexibility
In the UK, Brexit has been a major driver in the adoption of EOR solutions because of the added complexity of hiring EU-based staff, claims Hammell.
“Using EOR can cut through this complexity,” he says, “plus there is the added impact of Covid, which led to an exodus of talent from the UK. Using EOR means they can retain some of that talent, or move into a new country with the flexibility of not having to fully commit to setting up a whole new entity.”
Fellow EOR company Deel reports that 89% of hires that go through its system are from outside customers’ own countries, and it witnessed a 250% increase in global hiring between January 2022 and May 2023.
“The post-Brexit, post-Covid return-to-work order threatened to slow this market down, but it hasn’t at all. Companies realise they don’t have to hire someone from within a 30-mile radius,” says Matthew Monette, country lead and head of expansion for UK and Ireland. Another key factor is senior executives pushing for greater diversity across the business; as is the opportunity to have a “follow-the-sun” business model where any issues not resolved by local teams can be picked up by those in another time zone.
Deel has been working with challenger bank Revolut to hire more than 150 employees during its global expansion, and relocate more than 10 to countries including the United Arab Emirates and Switzerland. “It’s a competitive business with rapid times to launch and to hire for those launches – there are massive pain points if they miss a step, as a competitor can get in,” Monette explains.
The company has been able to hire employees in countries targeted for expansion well in advance of setting up an entity there, which gives it a head start, and HR “one less thing to worry about”, according to HR manager Luka Besling. While there is a cost- and time-saving element to outsourcing global employee management in this way, says Monette, the “softer” advantages of having a global team and accessing the very best person for a role – regardless of location – far outweigh this.
Immigration advice
It’s important to note that, as yet in the UK, the employee of record (EoR) model is not specifically addressed within immigration guidance, however.
“Although the model differs from the set-up of a conventional recruitment agency, it has a number of similar elements which are expressly prohibited under the current UK immigration provisions,” explains Jenna Linney, a manager and solicitor at immigration law specialists Fragomen.
“Equally, UK Visas and Immigration (UKVI) does recognise that there are situations where a sponsoring company may facilitate client contracts of services with the support of their employees who may incidentally be sponsored workers.
“Given the complexities, if a company is considering an EoR model, it is critical to seek professional immigration advice at the earliest opportunity.”
Companies realise they don’t have to hire someone from within a 30-mile radius.” – Matthew Monette, Deel
Liz Li, chief product officer at Velocity Global, argues that EOR companies differ from agencies in that the latter finds the talent, while the EOR provider onboards the employee and ensures they are paid and contracted according to the local requirements of that country. Their manager is responsible for assigning work and career progression.
“If an employee wanted to request time off, they would initiate that through the company they’re working for, and we would execute that through the payroll if it’s signed off,” she explains. EORs’ expertise of international markets is embedded into software platforms so much of this can be automated, creating cost efficiencies and economies of scale for users.
“We can open up the global talent pool,” she adds. “We’re seeing many companies onboarding software engineers who work remotely, or salespeople so they can expand into new markets.”
Economies of scale
The underlying technology allows larger companies to standardise or enhance benefits or terms and conditions across markets while still remaining compliant with local requirements, she adds. “Our job is to make sure the offerings are compliant but companies can have flexibility on top of that,” says Li. It can also remove the hefty upfront costs of researching a new market, which can cost thousands and may not result in a company establishing an entity there.
Moving forward, the EOR market’s evolution could accelerate with the help of artificial intelligence. Safeguard Global, another EOR company, recently launched its ChatSG tool using OpenAI’s ChatGPT architecture that allows users to ask questions about global employment issues in more than 40 languages.
Questions that traditionally require multiple days to find answers can be answered in seconds leveraging AI’s natural language processing capability, it claims, on topics such as employment law, benefits and employee policies.
Bjorn Reynolds, Safeguard’s CEO, believes it will be a “game-changer” for this market. “ChatSG learns and improves based on continuous input and feedback from our experts. In a world where agility and knowledge are competitive advantages, having immediate access to the right information quickly is key,” he says.
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With HR professionals facing a chaotic mix of pressure on budgets and difficulty sourcing skills, an EOR provider could sound like a good fit. “The macroeconomic climate is pushing companies to do more with less, and hiring globally is one way to do that,” Li concludes. “It’s a way to be more robust by spreading your workforce out globally and use different cost structures, but there’s room for much more awareness.”
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