The global market has almost lifted the barriers for businesses. Now a Berlin-based company can find the ideal developer in São Paulo, while the London-based company specializing in fintech can recruit from Southeast Asia, where there is a growing pool of talent. Thanks to the new era of remote working, companies now have access to a wider variety of skills and people than ever before.

However, this process also brings with it complex local labor laws, tax requirements and HR obligations. For many companies, working with an Employer of Record (EOR) can simplify processes and reduce compliance risks. 

In this article, we take a look at countries that have particularly difficult-to-understand labor laws and a large bureaucracy, both factors that make EOR services very important.

Understanding the Employer of Record (EOR)

An Employer of Record is a third party who hires employees on your behalf and is legally responsible for them. You still have full control over your employees' day-to-day work, but they take care of the complicated domains such as local taxes, payroll, benefits and compliance. This enables you to build a global employee base without having to open a foreign legal entity or subsidiary. An EOR can be useful virtually anywhere, but it is particularly useful in countries with very complicated, strict or risky legal frameworks.

Countries Where EOR is a Smarter Choice

1. Brazil

Brazil has a very complicated and strict labor law known as Consolidação das Leis do Trabalho (CLT), which makes an Employer of Record (EOR) very useful there. The CLT is known to be good for employees as it imposes complicated benefits, strict procedures for dismissal with heavy fines and a high probability of ending up in court if you don't meet the requirements.

An EOR takes on all the legal responsibility and navigates the bureaucratic maze to ensure all local laws are followed. This protects foreign companies from major financial and legal risks while making it easy for them to hire Brazilian workers.

2. France

Due to the highly protective French labor law, the Code du Travail, which is known for its complexity and strong employee protection provisions, an Employer of Record (EOR) is particularly effective in France. A major compliance risk for international companies is that they have to deal with mandatory social benefits, strict dismissal procedures, binding rules for employee representation and industry-specific collective agreements. The necessary local expertise is provided by an EOR, which also assumes legal responsibility for employment. This ensures that all requirements are fully complied with and companies can operate in France without having to set up a legal company.

3: China

Given the stringent regulatory and legal hurdles that international businesses face when entering the Chinese market, establishing a partnership with an EOR can prove to be an extremely beneficial strategy for a company. To set up a Wholly Foreign-Owned Enterprise (WOFE), one must first invest a considerable amount of money and then spend a lot of time on the process. In terms of social security, contracts and termination procedures, Chinese employment regulations impose strict restrictions. Furthermore, these regulations are extremely strict.

An EOR completely eliminates the need for a WOFE, providing instant access to the Chinese market that is compliant with all applicable regulations.

4: Germany

Due to the complicated nature of the labor market in Germany, an Employer of Record (EOR) is an extremely useful type of employment. Compliance is made considerably more difficult by the strict co-determination laws, powerful works council and stringent data protection requirements. An EOR is responsible for navigating through this complexity and managing all the legal and administrative hurdles that foreign companies must overcome to ensure full compliance and mitigate risk.

4. Mexico

In Mexico, an Employer of Record (EOR) works very well, as the country's labor regulations are very strict and pronounced. For example, there is a need for profit sharing (PTU), strict mandated benefits and complicated termination procedures that are very likely to lead to litigation. Dealing with the official contracts and paperwork with the Mexican Social Security Institute (IMSS) requires a lot of local knowledge. An EOR takes care of all this compliance, assumes legal responsibility and ensures that all hiring practices comply with federal labor laws. This makes market entry easy and safe.

When Your Business Should Go with an EOR Rather Than Setting Up Locally

The EOR model is ideal for businesses that want to try out new business ideas or get off to a quick start without having to deal with the long-term obligations and administrative burden of having their own foreign company.

- If your main objectives are speed, flexibility and cost efficiency in the initial phase of entering a new market, you should choose an Employer of Record (EOR) over setting up a local company.

- Working with an EOR can be the best way to test the potential of a new market, support a short-term initiative or hire a small pilot team without investing a lot of capital and time in the complicated process of setting up a local business. By working with an EOR, you can hire employees quickly and legally without taking any legal risk, as the EOR assumes all liability for local labor laws, payroll, taxes and mandatory benefits.

- EOR is also beneficial in countries with high levels of bureaucracy, as they free you from the complex and ever-changing local labor laws by taking care of the administrative aspects related to employment.

Conclusion

For businesses looking to expand into new markets, it can be quite difficult to navigate the complicated labor markets in countries with a lot of of bureaucracy

An Employer of Record is not only a useful option, but a strategic must. The EOR model takes responsibility for compliance, payroll and risk as a legitimate employer and turns regulatory obstacles into a smooth onboarding experience.

By working with a trusted EOR service like Swapp Agency, companies can quickly deploy their workforce, reduce their legal risk and move critical resources away from bureaucracy and towards strategic growth. It provides companies with the flexibility and security they need to succeed in the world's most demanding markets.