When a UK business starts to see significant growth in their home market, for many, the natural progression will be to explore international expansion opportunities. Unfortunately, the double-edged sword these businesses face is that while overseas markets present lucrative opportunities to increase their profitability, establishing the required infrastructure to do so can be incredibly challenging.
Companies are confronted with charges they cannot afford, regulations they do not understand and a demand for time they simply do not have. This is an age-old problem, but never has it been closer to the forefront of conversation than in the current political climate with the UK’s impending exit from the EU.
As cultural and geographic neighbours, Europe will always be one of the UKs most important trade partners. But as political relationships strain, and complexities to doing business on the continent mount up for UK businesses, how do you simplify and streamline the process of overseas expansion?
Many businesses are now using an employer of record service (EOR) which is a third-party organisation that deals with all of the formalities associated with expansion abroad. In order to understand how crucial an EOR might become in the next few months, it is first important to establish exactly what it does.
It saves precious time
Time is a commodity that most businesses are short on and as the old adage goes, time is money. If you simply want to register a new entity in Germany or Spain for example, this process can take anywhere between 15 and 60 days. On the other hand, if you want to start a business abroad from scratch, this can take up to 90 days to complete. This might seem like an exaggerated time frame but the problem arises from businesses underestimating the length of time required for sorting out documentation, hiring new staff and getting to grips with payroll and tax regulations.
It is also noteworthy that when a UK business opens a new office in an EU country, with the exception of Ireland, all of these countries will require that documentation is translated into the official language of the host country. This is a timely and not to mention costly process which can often set a company further back on their timeline than anticipated. And all this is before you factor in what might happen when Brexit negotiations are finally concluded. An EOR dramatically reduces the time this all takes because it is a pre-existing legal entity already set up in the required country (or countries).
It allows money to be spent more wisely
In the UK, there is no such thing as a 13th or 14th month bonus, but if you were setting up a branch of your business in Portugal or France this would be something you would need to know in order to prepare financially. You would also need to be aware of the costs associated with statutory requirements such as localised and translated employment agreements, pension enrolments, housing allowances, payroll tax requirements, private healthcare and anything else above and beyond the cost of just setting up an entity.
It is crucial to be informed of country-specific regulations to enable better forecasting and cost modelling to make sure any business plan for overseas expansion is financially sound. An EOR though, will have gone through much of this pain on your behalf, enabling businesses to set up shop abroad for a fraction of the cost and with local requirements for doing business already taken care of.
It protects businesses from unexpected legal hiccups
These requirements are not only country-specific but become more complicated still when altered either due to age or at a regional level. Looking outside the EU for a minute, but staying in the European Single Market, it is probably not all that well known that in Switzerland, those under the age of twenty are allowed by law one week more annual leave than their more senior counterparts. This is just one of the many regulations that, although it only relates to a small demographic, could cause problems in the future if it were not adhered to in the absence of an extensive cultural knowledge or EOR.
Deciding to bypass these complications all together by employing foreign workers from a UK headquarters rather than setting up an entity abroad could also lead to very serious breaches in employment and tax laws. This leaves EOR as the only economically and legally viable solution to the problem of global expansion for all but the largest companies. And even then, many larger entities with small satellite offices in foreign states should consider the flexibility an EOR provides when it comes to expanding, on boarding, managing and paying employees worldwide.
How Brexit will affect the way UK businesses operate in the EU remains unclear, but that doesn’t mean they should be paralysed into inaction. By cutting down the time and cost of setting up an overseas entity, an EOR enables companies to expand their business with confidence, and a flexible on-demand service that flexes with international requirements and legislation.