Hiring across borders is tough. Global HR startups aim to help

Before co-founding global hiring firm Remote, Job van der Voort was VP of product at GitLab, a tech firm with a fully remote workforce. Like any company without a physical office, GitLab was able to hire talent across the world, tapping into a global talent pool outside of the bounds of the daily commute.

Van der Voort found the processes for hiring new staff laborious and complex, particularly when taking on employees in a new region.

“We would find someone great in a country where we’ve never hired someone before and have to figure out: how do we pay them? How do we provide benefits? How do we stay compliant, which as you become a larger organization becomes more and more important,” said van der Voort, now CEO of Remote.

One option was to set up a legal entity in each country and learn local employment regulations. This was impractical for GitLab, which employed staff in more than 60 countries, and meant figuring out everything from local labor laws and payroll to tax requirements and employee benefits, all of which could vary significantly from place to place.

Remote

“It really feels like every country took a blank sheet of paper and wrote, ‘How are we going to organize payroll benefits and labour laws?’ and they all just came up with their own entirely unique thing. Even between EU countries, it’s completely different — absurdly so, I would say,” said van der Voort.

Another route was to use an employer of record service — a company that hires workers on behalf of a client via legal entities already established in different countries. The EOR typically handles HR, financial, and legal functions such as payroll, taxes, benefits, and regulatory compliance related to employees in those locations.

However, the EORs GitLab worked with didn’t provide the level of service van der Voort hoped for. “They were very expensive. They were very hard to work with, because they didn’t really understand a fast-growing tech company. They were pure ‘services,’ so they didn’t build a product or software to streamline it or to make it a nice experience.”

The worst part, he said, was a poor experience for the employee. “We had people in certain countries that had to fax or physically mail a receipt to a particular office just to expense something, and hope that it was processed correctly,” he said.

Those experiences led van der Voort to leave GitLab and set up Remote in 2019, alongside COO and CTO Marcelo Lebre. “We were not offering any products at the time when COVID started, but quickly rushed to market. We've grown incredibly fast in the time since then,” he said, with thousands of employees hired via its platform.

The aim of the company is to simplify hiring for other businesses that similarly seek the benefits of a distributed workforce. As well as serving as an employer of record, Remote lets customers manage functions such as payroll in local currencies, taxes, benefits, and employee onboarding via its software platform, which also integrates with other HR applications. Customers can hire full-time and contract staff via legal entities in more than 60 countries, and Remote plans to add another 28 entities this year, van der Voort said, as it seeks to expand the business following a recent $300 funding round at a $3 billion valuation.

Remote work drives international recruitment

While employer of record services aren’t new, the rise in remote work in recent years, thanks to communication technology developments and the shuttering of offices during the COVID-19 pandemic, have contributed to increased interest in ways to hire abroad or in different regions.

A recent Gallup poll indicated that 39% of US employees in remote-capable jobs were fully remote in February of this year. While this is likely to fall as corporate offices reopen, it’s anticipated to remain around 24% going forward — a significant increase from 8% pre-pandemic. Just as some companies are now demanding staff return to the office or adopting a hybrid approach, others such as Airbnb and (for now, at least) Twitter will allow staff to work from wherever they like in the longer term.

Gallup

Remote working opens up new possibilities for employees and employers. According to a Gartner report from 2021, the borderless workforce is already taking shape in some organizations: in addition to the three main modes of work currently in place — in-office, hybrid, and at-home — Gartner expects that at about 5% of the workforce will fall under the category of “borderless worker.” These are employees, freelancers, contractors, or gig workers who are located in a different locality, region, or even country and work on their own schedule.

“That’s currently a relatively small percentage compared to other forms of working, but we are seeing it trend up due to both the need to address IT talent scarcity issues and the pandemic enabling working from anywhere,” said Gartner VP analyst Lily Mok.

The global employer of record market was worth $4.3 billion in 2021, according to a recent MarkerResearch.com report, and is forecast to expand to $6.6 billion by 2028. Companies offering employee of record services include well-established staffing firms such as Randstad and Adecco, as well as numerous startups: alongside Remote, there’s Deel, recently valued at $12 billion, and other well-funded firms such as Oyster, Velocity Global, Globalization Partners, and Papaya Global.

The shift to remote work during the pandemic has given businesses confidence that teams can be effective outside of the office, said Ben Wright, founder and CEO of Velocity Global. Founded in 2014, Velocity Global announced a $400 million Series B funding round last month. Wright said the business has benefited from the shift to remote work, with 2,000 customers and an annual net revenue run rate of $200 million. It enables employment in more than 180 countries worldwide.

Velocity Global

“Companies are saying, ‘This whole remote thing actually really worked for us. We can now employ people anywhere if they’ve got the talent and the skills to do the work,” said Wright. “And yes, we’ve always known that. But post-pandemic, it’s given them the ability to make that leap of ‘I can employ people truly anywhere.’”

Hiring internationally isn’t just about attracting new staff. It also enables existing workers to move to different countries too, and there’s been a marked increase here, said Wright. “It used to be a small fraction of the number of employees that we would support,” he said. “That has changed pretty significantly.

“You have employees saying, ‘I really enjoy working for my company here in Canada, but actually, I’d like to go live and work in Costa Rica,’ and business leaders are saying, ‘Well, these are really important employees for us, and they’re already working from home anyway. As long as they have internet access, does it really matter where they happen to work?’ That has been a further wind in our sails as a business in the last couple of years.”

Businesses look further afield for talent

Another reason for businesses hiring further afield is the ability to find talent amid local labor shortages in many sectors. “There’s been a large uptick in people looking to resources available across the globe to find their top talent, which isn’t always in the town or even the country they operate in,” said Quincy Valencia, VP and research director at Ventana Research. “Organizations recognize that there are great benefits to hiring people outside of their locale, from productivity — now you become sort of a 24/7 shop — to diversity of thought and skills.”

Berlin-based marketing software company Talon.One began using Remote’s service last year to hire sales and marketing staff as its business expanded. “We have very ambitious growth plans; without being able to hire people in other countries, I think this would be quite challenging, if not impossible,” said Tatiana Jimenez, head of people and culture at Talon.One. “We noticed that performance is still great [with remote workers]. People don’t need to come to the office, so should we keep limiting to just having people in Berlin, in Germany, or in Europe?”

Talon.One has previously established international entities to employ staff, but it’s a time-consuming and complicated process, said Jimenez. “We have entities in the US, Singapore and in the UK... We decided that building entities in all countries can be tough work, so we needed another solution,” she said. “When it comes to hiring and respecting all of the legislation, labor law policies, compliance, and so on, this needs to be done correctly; otherwise it could have pretty bad consequences for the company, financially speaking.”

Pros and cons of hiring via third party

One of the advantages EOR startups offer is the use of cloud-based software that enables businesses to manage onboarding and payroll from a single platform, automating some processes and connecting with existing HR systems. Costs might also be lower compared to other methods of hiring abroad.

Ventana Research

But businesses should consider a variety of factors when hiring abroad, said Valencia, such as ensuring that the company they partner with has relevant expertise in a given country. “It’s more than just tech. It’s functional, subject-specific expertise that’s really important when considering this sort of relationship,” she said.

“What are their practices for updating their software to make sure they’re capturing any local regulations and laws? How often do they do that? You need to make sure you know,” she said.

Some businesses may also prefer to retain direct control over recruitment and the employee relationship. “Just because [an EOR] can employ someone doesn’t mean that they can help you engage them,” Valencia said. “It’s not just about paying someone; it’s about providing the right experience so that they still want to work with you.”

But where it makes sense to do so, working with a third party can save businesses a lot of time, Valencia said: “It’s not just the expense of establishing an entity; it’s the ongoing management of all these things: How are you going to pay people? What benefits are you going to offer them? How do you track their time? And then what about insurance? What about employment contracts? Those things that you need to know. The Deels and Remotes of the world will do that for you, while you maintain ownership of the relationship and initiate transactions.”