“If you deprive yourself of outsourcing and your competitors do not, you’re putting yourself out of business.”
This famous quote reflects one key proposition that every business organization must be aware of. Whether it is a big or small business, outsourcing is an essential strategy for successful business expansion. Using outsourcing, businesses can focus on their core activities and expand their business by engaging in a cost-saving operation.
We can’t deny the fact that outsourcing offers a range of solutions and services that fulfill several needs for business expansion. At the same time, we are also aware that outsourcing has certain limitations in handling remote employees.
Have you been working with outsourcing companies? Or are you looking to build a remote team for your business expansion? In either case, have you considered the employer of record (EOR) as an alternative to outsourcing? If you want to find out the best possible ways for building a remote team or managing remote work efficiently, this article is right for you.
What is employer of record and how is it different from outsourcing?
To many, the term “employer of record” is synonymous with outsourcing but they have differences in many aspects.
Employer of record specializes in administrative services such as HR-related activities that include various departments – recruitment (onboarding and offboarding), health insurance, employee payroll, taxes, legal compliance, and back-office support. EOR service providers handle these non-core services for professional employees working for an overseas company.
Although EOR and outsourcing offer similar services, they differ in many areas but the key difference is in the degree of transparency in every activity that is undertaken. It also differs in the way activities such as employer-employee relationships, communication processes, management risks, etc are handled.
To understand more, let’s first identify a couple of challenges associated with hiring a team through an outsourced partner.
Key challenges of outsourcing
Considering the pain points of businesses and outsourced employees, five major challenges can be discussed.
- Lack of control and authority: The absence of direct control over the hiring and pay package decisions of the outsourced team is a key issue for businesses dealing with outsourcing partners. In outsourcing, the team selection is handled by their outsourcing partners. Here, businesses tend to rely on the expertise of their outsourcing partners in hiring & retention of the team and distributing assigned tasks. Since businesses aren’t directly involved in these affairs, they may lose their control and authority over the team.
- Communication gap & unfair negotiation: Communication barriers and miscommunication are other major setbacks of outsourcing. Businesses have no direct access to the outsourced team as it is the responsibility of the outsourcing companies to handle the team and complete the tasks. The lack of direct communication can cause work delays and hamper productivity. The communication gap may also lead to unfair policies for employees. Some employee benefits can be denied without the knowledge of businesses as the decision is entirely in the hands of outsourcing service providers. Finding a trustworthy outsourcing vendor remains a major headache for overseas companies.
- Risks of choosing an inappropriate team: Businesses often decide to outsource some of their operations when they have less expertise or less resources in certain domains. This is mostly seen when a company needs to update its technical knowledge and integrate the latest technology in its operation. Companies may end up choosing an inappropriate service provider due to a lack of awareness about the team and their existing technical skill in handling the assigned tasks. This issue is most prevalent in leasing software-related services such as IT software outsourcing.
- Security and privacy issues: Fear of data breaches and confidentiality issues are major concerns for businesses dealing with outsourcing service providers. In outsourcing, there is a possibility that some individuals in the team may be working on similar projects simultaneously from multiple clients. The risks of Intellectual Property (IP) violation remain a main concern as many outsourced vendors sometimes use different types of subcontractors. In most cases, IP rights violations occur when a vendor hires many subcontractors to add extra resources for the assigned jobs.
- Fees charged by the outsourcing agency: Typically the outsourcing agency would charge on time and material basis. The per person or per hour charge is a bundled rate. The agencies would not share what part of the fees is the employee salary. This is one of the key reasons for the large attrition rates in the outsourced team.
Is EOR the right service to manage effective remote teams?
The answer is ‘yes’. To understand more, let’s take a look at some salient features of the employer of record services. The key difference is, the EOR agencies do not have the existing teams out of which they would offer the services like outsourcing service providers. The EOR agencies build a fresh team for you. The following points are major advantages of the EOR model that help enhance risk management and ensure effective control of remote teams.
- Direct control of the team: In EOR, businesses directly engage in team selection and have the liberty to choose the right candidates as per their requirements. The employer of record company assists businesses in finding a pool of talent suitable for the job description using its network and resources. As there is no mediator between the employer and employees in EOR, businesses have direct control over the selection of the team and deciding the pay package of the team member. That way, overseas companies can manage the remote team efficiently, set an accurate target for job completion, enhance productivity, and reward systems.
- Effective communication and fair terms for employee benefits: Contrary to outsourcing, businesses get direct access to the team and there is direct communication between both parties in the EOR model. The overseas company can easily reach out to its employees directly and get up-to-date information about their work progress. Businesses can get all information about their employees’ payroll, attendance status, benefits, etc. through EOR’s dashboard.
- Minimal chance of inappropriate team selection: Since the overseas company personally handles the recruitment process of its candidates through EOR assistance, there is minimal chance for the company to go for the wrong selection of the team. Even the least experienced companies can minimize the management risk of the team by using the right strategy from EOR service.
- Zero risk of IP infringement and data breach: In EOR, the risk of IP violation or security breach of clients is almost zero as one team will be working for one client only. Once the task is completed, the team can be dissolved or converted into a physical entity of the overseas company. Also, EOR doesn’t require hiring any subcontractors – which is a common practice in outsourcing. So, the chance of misusing clients’ sensitive information is almost nil in the EOR model.
- Building the team around a chosen leader: Many times, companies have a senior experienced resource and want him/her to lead the team by relocating to India (or your target remote location), the EOR agency can help you build a team around such a senior resource.
Does EOR have additional benefits?
There are two additional benefits unique to EOR services, let’s explore them.
- High chance of employee retention: EOR offers employee promotions other than benefits such as medical and health insurance to make them feel an integral part of the company. The EOR employees get benefits including incentives, paid vacation, and retirement plans as any full-time employee would get working in an organization. Compared with outsourcing, the chance of employee retention is high in EOR as they are likely to get more job satisfaction and security in the long run.
- A testing field for the subsidiary formation: One exceptional advantage of using an EOR partner is that an overseas company can achieve the dream of establishing its physical entity in another country. Under the EOR model, the company can use the team as a testing field for subsidiary formation. The entire team can then be transferred to the new entity. This is a major opportunity missing in outsourcing.
EOR has a lot to offer than outsourcing
Considering both employees’ and businesses’ points of view, EOR services have a lot to offer than outsourcing in dealing with remote working.
If you’re looking forward to forming a remote team or finding a better management approach for the team in India, you can reach out to us, Remunance. We’re the leading employer of record India service provider and we’ll be happy to be at your service for any inquiry related to EOR.
To remind you our motive is to “Build, Operate, and Transfer”, We will build and operate a team for you and transfer it to you whenever you are ready.