As businesses rapidly expand across the globe, many organizations are turning to direct sourcing – going straight to the talent pools in specific regions, rather than transitioning through a third-party intermediary company. Direct sourcing can seem like a more attractive option due to existing talent pools and reduced overhead costs, but it also presents legal entanglements that must be taken into account. Without executing a comprehensive compliance strategy, companies utilizing direct sourcing risk facing substantial fines from government regulators or even long stretches of back-pay owed for missed wages. To protect themselves from these potential missteps down the road, and to continue building their business successfully with minimum hassle or surprise expenditures, here’s why companies using direct sourcing should include an Employer of Record (EoR) as an integral part of their overall compliance strategy.
Introducing Direct Sourcing and its Benefits
Direct sourcing, also sometimes referred to as “self-sourcing”, is a talent acquisition strategy/model that has become increasingly popular for companies looking to hire talent quickly and effectively. By utilizing direct sourcing, companies enjoy the benefit of having access to a large pool of talent from all over the world. Harver describes the benefits of direct sourcing as: “Direct sourcing removes your reliance on third party staffing and recruitment agencies by going directly to the labor market yourself, to hire contingent workers for temporary project work or as full-time employees.” Direct sourcing is an effective solution for talent acquisition, as long as companies are prepared with the right compliance strategy.
Challenges of Global Direct Sourcing
While direct sourcing is becoming a popular method for companies to augment their workforce, it comes with far-reaching challenges—especially when considering compliance requirements across jurisdictions. Compliance with labor laws in each jurisdiction can be complicated and is essential to avoid the possibility of misclassification that could result in serious violations. It is important for organizations to have an effective compliance strategy from the onset that covers requirements such as classification of independent contractors (click here to learn the key differences between employees and independent contractors), paperwork necessary for compliance with local labor laws, and any other requirement to properly classify their workforce in each jurisdiction. Managing a global workforce also adds to the compliance complexities and challenges, so here’s How to Streamline Your Global Workforce Management.
What is an Employer of Record and its Role in Compliance
With the wide reach of direct sourcing, however, comes the necessity of instituting a compliance strategy which involves outsourcing employment to a modern and dependable Employer of Record (EoR). Such an approach ensures that all legal obligations regarding wages, taxes, and benefits are properly met in order to ensure a safe and compliant talent acquisition process. Unlike other outsourcing options like a PEO, an EoR assumes liabilities, serves as the legal employer, allows globalization, and more.
How an EoR Can Help with Compliance Challenges
To ensure compliance with regional and global laws, companies that source talent directly need an Employer of Record to offer protection and a risk management strategy. An EoR can provide an efficient process for establishing employership in countries where the company has no physical presence. As the regulating authority of employment agreements, the EoR is responsible for payroll services, taxation, legal compliance, and other related reporting required for international workforce management. By taking care of such matters on behalf of the client, an EoR can significantly cut costs associated with hiring in foreign markets while providing complete peace of mind when it comes to trustworthiness and legal compliance.
Key Considerations When Choosing the Right EoR Solution
Finding the right Employer of Record (EoR) solution for direct talent sourcing can be a daunting task. Companies should prioritize mobile-friendly platforms that are built on efficient processes to save time and money. Automation of unnecessary paperwork and compliance procedures is essential for an optimal workflow, allowing companies to seize opportunities in global markets quickly and easily. This can be done through their UI or via API. Additionally, having great reporting features will give employers an easy way to track processes and demonstrate ROI of their EoR solution. Last but not least, the EoR solution should offer HR support that can address payroll issues and other questions with efficiency and accuracy. With these crucial factors in mind, companies must assess their options thoroughly before deciding on the right EoR solution for their direct sourcing needs.
Direct sourcing is an incredibly powerful tool, especially when the right processes are in place to ensure global compliance. The Employer of Record is an essential component in direct sourcing; utilizing an EoR solution demonstrates a tremendous amount of diligence in terms of informing talent acquisition strategies, designing compliant solutions, mitigating risk and legally protecting both employers and workers while also improving operational efficiency. At GreenLight we understand the need for direct sourcing and the potential compliance challenges this approach presents; making us uniquely positioned to provide tailored EoR solutions to our clients’ needs – for more information or if you have any questions, please book a demo with us today!
