For many successful UK businesses, once they have cracked their local market, the next logical step is to expand into another territory. However, making the transition into a new region isn’t a simple one, with organisations facing a number of challenges, many of which relate to local regulatory compliance, something HR teams are at the coalface of. These challenges include:
Underestimating the time it takes to establish a business abroad
For companies both inside and outside of the European Union (EU) this is the main pitfall. In fact, employers have a tendency to underestimate the timescales for numerous HR-related tasks including sorting out documentation, hiring new staff and getting to grips with payroll and tax regulations, all of which have varying nuances, depending on the country.
Miscalculating the costs
While time is a large factor, the biggest surprise for many companies when setting up abroad, particularly if it’s for the first time, is realising just how much it costs. The hiring process itself can take considerable resourcing with funds seemingly disappearing into a veritable black hole, especially as it’s often necessary to pay elevated compensation rates for employees working over public holidays or weekends outside of the UK.
Beyond this, employers also have additional statutory requirements including localised and translated employment agreements, pension enrolments, housing allowances and also holiday allowances, all of which vary from region to region. For example, in Germany, the minimum statutory annual holiday entitlement amounts to twenty days based on a five day working week, whereas in Spain, employees are entitling to thirty days.
Believing employment contracts are uniform across different regions
Countries across Europe, whether they are part of the EU or not, operate their own local employment laws and regulations, all of which can vary greatly. Employment contracts are the foundation of an organisation’s HR practice and they need to clarify what a given employee’s role consists of as well as what is expected of them and what benefits will be made available.
With benefits, expectations across regions can also vary significantly from one EU country to another i.e.: public holiday dates and pay rates will usually be different to those in the UK. The same applies to statutory fully paid maternity and paternity pay, and other allowances too.
Failing to set up a local entity
It’s common for expanding organisations to hire foreign workers or contractors and pay them from their UK headquarters. Although on the surface this appears to be cheaper and easier, by failing to set up a legal entity and/or comply with legislation, it can lead to breaches of both employment and tax laws.
To better navigate the four challenges outlined above, organisations should utilise the services of an Employer of Record (EOR) service provider. In short, these service providers vastly speed up the process of global expansion by taking on all of the legal responsibilities involved in employing staff on behalf of an organisations, in its target country.
Partnering with a direct EOR provider will make things simple for organisations, without restricting their global ambitions.