Businesses that want to expand internationally are concerned about global regulatory shifts, particularly when they do not have a legal presence in a certain region. For organizations utilizing employer-of-record (EOR) arrangements, regulatory-compliant processes are needed for hiring, onboarding, training, paying, and protecting employees. Some of the most recent regulatory shifts, however, are restricting EORs. Singapore and the Netherlands are just two of the jurisdictions adopting limits that could impact talent mobility.
International Regulatory Changes on the Horizon
Steve Hoffman, partnerships lead for the Americas at Omnipresent, points out that the regulatory update in the Netherlands has proposed a time limit of two years for EORs, similar to Germany’s 18-month EOR restriction. Singapore’s new regulation limits the states in which EORs can be used to sponsor work visas. This is like Canadian enforcement of visa sponsorship requirements.
Some countries are choosing to prioritize local talent by placing restrictions on EOR arrangements that include expatriates. “We’ve observed a clear shift since the end of the COVID-19 pandemic, with countries such as Malaysia, Lithuania, and Switzerland tightening work-permit application requirements for expatriate sponsorship,” says Joanna Hart, products, services, and innovation director at Mauve Group.
“Government and immigration authorities worldwide are placing greater emphasis on ensuring that hiring expatriate workers with specialized expertise truly contribute value, particularly in addressing critical skills gaps.” Hart suggests that the Netherlands’ proposed restrictions on EOR models reflect a broader global trend of tightening regulations, making it essential for businesses to stay ahead of compliance requirements.
As regulatory landscapes evolve, proactive workforce planning will be essential for maintaining operations while ensuring compliance. Regulators seeking to balance local and expatriate talent are tightening policies to prioritize local workers with the necessary skills. “In response, companies with distributed global talent must assess their workforce strategies, exploring alternative mobility solutions such as entity establishment or short-term relocation projects,” Hart says.
Strategies for Compliance
Selene Sahagún, head of international employment at omnipresent, offers three strategies for dealing with a time limit like that in the Netherlands. One possibility is to end the engagement of an EOR after two years. “If it works similar to the German EOR regulation, as long as there’s a complete break of employment for at least three months, they can begin again at that time,” she says. “But we are still waiting for more clarification before we can determine if that is indeed an action we can recommend.”
The second is to establish a local entity and hire employees directly, but this can be costly, take longer to set up, and is harder to manage. “This negates the benefits of an EOR,” she says.
The third option is to establish a virtual employer organization (VEO), but this only works if there are no permanent establishment risks. “The VEO would employ individuals as a nonresident foreign employer in which employees are hired directly without setting up an entity in that country,” Sahagún says, noting this option has become particularly popular in the European Union.
In terms of Singapore’s regulatory changes, Hoffman says it makes it nearly impossible to offer visa sponsorship through an EOR. There are three workarounds for this situation:
- Have the employee work remotely from their home country and do business travel as needed.
- Establish an entity in the country.
- Hire locally as opposed to sending an expatriate on assignment.
“We believe this will become more common. The EOR industry is still relatively young, and government regulations are just catching up,” Hoffman says.
These changes aim to ensure that EORs are not avoiding corporate tax payments or potential permanent establishment risk. Additionally, countries may want to increase transparency around which foreign employers are hiring workers within their country.
Legal Considerations
As EORs navigate this landscape, one option is to form strategic partnerships at the local level. “[This helps] maintain the benefits of the EOR model while still ensuring compliance with local regulations,” says Lorna Ferrie, legal and compliance director at Mauve.
“Having on-the-ground expertise guarantees employment contracts align with jurisdiction-specific labor laws, mitigating risks related to unfair dismissals, wage discrepancies, and benefits miscalculations.”
Ferrie also notes that governments are scrutinizing the legitimacy of EOR arrangements more closely. According to Hart, Mauve also ensures that its solutions are fully compliant with legislative requirements by providing clear communication and detailed discussions about jurisdiction-specific criteria before applications are submitted. “We stay aware of evolving localized measures, such as quotas, proportionality rulings, and increasing restrictions on hiring foreign workers,” she explains. “This way, we ensure that our client’s operations remain compliant and sustainable in every market they enter.”
Sahagún agrees that a legal team needs to keep up to date on regulatory changes in each country that EORs operate in. “EOR is still a relatively new concept, and deciding how to operate depends more on a risk and interpretative analysis than on an exact application of the law,” he says. Each EOR needs to operate under the correct legal framework. “If they are not operating their EOR up to par with local regulation, they can be fined, and those fines can cause some EORs to leave a country entirely,” Sahagún says.
Additionally, these types of regulatory changes “can also lead to a reactive review of a project,” Hart says. In this case, an employer may improve the flexibility of the role, allowing an employee to engage in remote work from their home country. “[When this happens], the host country would still benefit from a specific skill set,” she says.
Similarly, Sahagún points out that digital nomad visas have been helpful in situations where work-visa sponsorship with an EOR is challenging. “These solutions allow employees to work from anywhere when combined with an EOR arrangement,” she says. “The EOR acts as the legal employer in that host country, handling all necessary paperwork and compliance to ensure the nomad can work legally within the local laws, even when their primary employer is based elsewhere.”
Shifts in the Talent Mobility Landscape
As regulations are modified, the talent mobility landscape must adjust. Hart expects there will be a reduction in expatriate compensation packages due to increasing relocation and immigration costs. This can include eliminating or reducing cost-of-living adjustments or housing allowances, which may lead to lower expatriate compensation packages and fewer applicants. Hart adds to that, noting the shift in benefits could “create barriers to career progression for those long-term expatriate workers, who value the opportunity to work abroad, potentially impacting their career progression and international mobility.
In terms of talent attraction at a global level in the EOR market, “global benefits were the mainstay and are now shifting to local benefits,” says Emma Gleaves, head of global benefits at Omnipresent. Gleaves anticipates that regulatory changes will continue as EORs gain more traction in different countries. “As the industry evolves, we learn that the traditional EOR model is not necessarily a one-size-fits-all solution, which has and continues to lead to fines for noncompliance, bad employee experiences and increased regulations in some countries,” she says. “We would like to see more focus on compliance and customer support/expertise being delivered.”
Hart emphasizes that understanding local market dynamics is one of the greatest responsibilities for an EOR provider. “Access to up-to-date information on immigration, tax, and labor laws is crucial for EORs to stay compliant and enhance talent mobility,” she says.
The global talent landscape is shifting as businesses increasingly embrace remote work, short-term assignments, and project-based contracts. EORs open doors not only for employees but also for local economies that may be struggling or in need of talented workers.
Learn more about EORs from these articles on Mobility News:
PEOs vs. EORs: Optimizing HR Functions and Global Hiring
Hiring Across State or International Borders