The Hidden Costs of Building a Global Team Without an EOR

Expanding your business internationally can unlock new growth opportunities. However, it also comes with hidden costs that many companies overlook. Hiring global talent can seem like a straightforward process. But, the financial and operational challenges can add up quickly.

Here’s what you need to consider before building a global team.

Setting up legal entities in each country

One of the biggest hidden costs of global hiring is establishing legal entities in each country where you plan to hire employees. Many nations require companies to register a local business entity before they can legally employ workers. This involves significant financial investment and administrative complexity.

Costs of entity setup

Registering a legal entity often includes legal fees and government registration costs. Sometimes, it also involves hiring local experts to navigate complex regulations. For example, setting up a subsidiary in Germany can cost between €10,000 and €25,000. In China, it can exceed $50,000 due to capital deposit requirements and regulatory fees.

Ongoing compliance and maintenance

Beyond the initial setup, maintaining an entity requires continuous compliance with local laws. This means managing tax filings, payroll processing, benefits administration, and financial reporting. In some countries, annual compliance costs can range from $10,000 to $50,000 per entity. Failure to comply with local regulations can result in hefty fines and operational disruptions.

Payroll management and tax compliance

Handling payroll for a global workforce isn’t just about sending salaries. Payroll involves understanding local tax laws, social security contributions, and reporting requirements. Each country has unique tax regulations that employers must comply with. This requires careful planning and legal guidance.

Variations in payroll regulations

Different countries have specific payroll cycles, tax deductions, and benefit contributions. You, as an employer, must follow them to maintain compliance. For instance, in France, employers contribute around 45% of an employee’s salary to social security programs. In the U.S., employer payroll taxes typically range from 7.65% to 15.3%.

Hidden administrative costs

Managing payroll across multiple countries means hiring specialized accountants. It could also mean subscribing to payroll software or working with local payroll providers. These costs can quickly add up, with global payroll providers charging between $200 and $500 per employee per month. The actual price depends on the country and the complexity of payroll regulations.

Employee benefits and statutory requirements

Each country has distinct rules regarding employee benefits. You must consider expenses related to healthcare, pensions, and paid leave. Employers must offer benefits that comply with local laws, which may be more expensive than anticipated.

Mandatory contributions

In many countries, employers must contribute to retirement funds, health insurance, and unemployment programs. In Brazil, for example, employers are required to pay a 13th-month salary at the end of the year. This effectively increases labor costs by over 8% annually. In the UK, companies must contribute at least 3% of an employee’s salary to a workplace pension scheme.

Cultural expectations for benefits

Beyond legal requirements, employees in different regions may expect additional benefits. These could include perks such as meal vouchers, transportation allowances, or annual bonuses. In Japan, companies often provide commuting allowances, costing around $100–$300 per employee per month. In Mexico, employees typically receive grocery vouchers worth around 10% of their salary, adding to employer costs.

Navigating labor laws and employment contracts

Employment laws vary widely from country to country. These cover areas such as termination policies, probation periods, and working hour restrictions. Misinterpreting these regulations can lead to costly legal disputes.

Risk of non-compliance

Not adhering to local employment laws can result in lawsuits, fines, and reputational damage. For example, wrongful termination in Germany can lead to severance payments equal to half a month’s salary per year of service. In Spain, employers who fail to comply with labor laws can face fines exceeding €6,000 per violation.

Complexity of multi-country policies

Creating standardized policies across multiple countries is challenging. Each jurisdiction may have different requirements. Customizing employment contracts for each location requires legal expertise and ongoing adjustments. In many regions, legal consultation fees range from $300 to $600 per hour.

The cost of hiring and managing remote teams

Beyond legal and financial considerations, managing a distributed workforce involves additional costs related to technology, productivity tools, and team cohesion.

Investments in collaboration tools

Remote teams rely on digital tools for communication, project management, and workflow automation. Subscriptions for these tools can become a significant expense. Platforms like Slack, Zoom, and Asana cost between $10 and $30 per user per month. For larger teams, this can amount to thousands of dollars annually.

Maintaining company culture and engagement

Building a strong company culture across time zones requires intentional effort. Companies must invest in virtual team-building activities and leadership training. They should also consider other employee engagement programs to maintain cohesion. Depending on the location and scope, organizing virtual retreats or global meetups can cost between $1,000 and $3,000 per employee per event.

How an employer of record (EOR) can help reduce costs

The costs of managing a global workforce can be significant. However, partnering with an Employer of Record (EOR) can provide a cost-effective alternative. An EOR serves as the legal employer on behalf of your company. They handle compliance, payroll, benefits, and other employment-related responsibilities in multiple countries.

Eliminating entity setup and maintenance costs

An EOR already has established legal entities in various countries. With EOR, businesses can avoid the high costs of setting up and maintaining their entities. This can save tens of thousands of dollars per country while ensuring full legal compliance.

Simplifying payroll and compliance

An EOR manages payroll, tax withholdings, and statutory benefits. They also ensure compliance with local laws. Instead of hiring multiple payroll providers or legal consultants, you can cover it with a single EOR partner. This reduces administrative overhead and unexpected penalties.

Managing employee benefits efficiently

EORs provide access to locally compliant benefits packages at competitive rates. This helps companies meet statutory requirements while reducing costs. For example, an EOR can negotiate group health insurance plans that are more affordable than what an individual company could obtain on its own.

Reducing risk and liability

By handling employment contracts and compliance, an EOR mitigates legal risks. This shields your company from costly labor disputes. It is particularly valuable in countries with complex employment laws. It is also important in countries where non-compliance can lead to severe financial penalties.

The hidden costs of hiring and managing a global team

While global expansion offers many benefits, the hidden costs of hiring and managing a global team can be substantial. From legal entity setup and tax compliance to employee benefits and cultural differences, businesses must carefully evaluate these financial and operational challenges before scaling internationally.

However, by working with an EOR, companies can simplify global hiring. It will also help reduce costs and ensure compliance. Partnering with an EOR makes international expansion more efficient and sustainable.

FAQs:

What are the biggest hidden costs of hiring a global team?

The largest hidden costs include setting up legal entities and payroll compliance. The second major cost is mandatory benefits and legal fees related to labor laws. Managing these factors requires substantial financial investment and expertise.

How can an Employer of Record (EOR) help reduce global hiring costs?

An EOR eliminates the need for costly legal entities. It also ensures compliance with local labor laws and handles payroll and benefits. Hiring an EOR can significantly lower administrative and legal expenses.

Is an EOR more cost-effective than setting up a legal entity?

Yes, for many companies, an EOR is a cost-effective alternative. Entity setup can cost upwards of $50,000 per country, whereas an EOR provides a compliant hiring solution at a fraction of that cost.