The question that has been on everyone’s minds since the Brexit vote is ‘how will Britain’s exit from the European Union (EU) impact UK businesses and the wider economy?’ The final agreement on what the UK’s relationship with Europe will be is going to take some time to thrash out. It’s safe to assume though that how UK businesses conduct business in other EU countries is going to be affected.
Current forecasts for growth during 2018 seem to be around 1.5 per cent, with investment spending lower than normal as businesses have no clear view on the trade arrangements the UK will have with the EU following Brexit. So how do you prepare for the worst, hope for the best, and keep your organisation growing at the same time, especially if you are looking to build out the business overseas?
Don’t waste your time
The first, and potentially most damaging asset a business stands to lose, is time. With the UK leaving the EU, operating business interests on the continent will potentially create more red tape, but it’s already more complicated than many believe. Just registering a new entity in Europe can typically take anywhere between 15 and 60 days and, shockingly, if you’re setting this entity up from scratch, you can expect to wait a full 90 days before you can actually begin trading.
The issues that arise from getting to grips with payroll, documentation, staffing regulations or taxation, as well as navigating the business world in a foreign language, can be a daunting and drawn-out process. Of course, businesses need to break a few eggs to make an omelette, but the barriers to doing so make it prohibitive for many SMEs.
To illustrate the point, should a business win a new contract with a foreign client, it may require on the ground support to deliver the work. Sending someone from head office may not be practical, so they’ll want to hire someone locally. As if the process of hiring that person in the first place wasn’t hard enough, you then need to on board, manage and pay them from a local entity. By the time you’ve got that set up, the new client may have lost patience and taken their business elsewhere, leaving you with an employee you don’t need and expenses incurred for a process you’ll never complete.
Be aware of hidden costs of international expansion
Time is one thing, but so is the cost of setting up abroad. Very often, small businesses are only looking to hire one or two people when they set up a foreign entity in order to manage a small group of customers or test the waters to establish a market’s viability.
Employers have statutory requirements such as localised and translated employment agreements, pension enrolments, housing allowances, payroll tax requirements, private healthcare and much more, all of which is above and beyond the cost of just setting up an entity. It’s not uncommon for this extra expenditure to come as a nasty surprise.
In a number of countries such as Portugal and France, employers are expected to pay their staff a 13th or 14th month bonus which will obviously impact cash flow in the future if you’re hiring a number of employees. And in Spain, employees are entitled to 30 days’ holiday and have 14 public holidays. That in itself may seem generous, but employees in some industries may expect to receive more generous holiday entitlements due to industry-wide Collective Bargaining Agreements (CBA’s).
And remember, all of this is before we even get to Brexit. If that’s the situation today, how much harder is it going to get in the future?
Be mindful of legal implications
Whether you hire a workforce in Germany, where you are required by law to contribute towards health insurance, or your staff are in China, where an employer is obliged to pay towards housing and social care programmes, there really is no short-cut around the fine print.
Many companies have viewed these expenditures as too costly so, to limit outgoings, have employed foreign workers or contractors and paid them from their UK headquarters. Although this might seem like a simple and more cost-effective solution, it is important to be aware it is not the correct legal route and failing to register a local business entity or comply with local legislation can lead to breaches of both employment and tax law.
It is undeniable that the process of expanding a business abroad is time consuming, costly and, at times, a legal minefield. So how does a successful business owner with aspirations of cross-border trade hope to achieve this in the least stressful way?
One way to help combat these problems is to utilise an employer of record (EOR) service, a third-party organisation that deals with all tasks associated with expanding abroad.
Taking care of everything from payroll, to hiring, to ensuring all legal obligations as an employer are met to the satisfaction of the chosen locality, the EOR is the primary employer of all workers ensuring compliance at the fraction of the cost of going it alone. Alongside this, EORs can greatly reduce the time it takes to set up in a new market (taking days instead of weeks) meaning organisations can expand, on board, manage and pay employees in a timely, cost effective way.
Although we are still unsure of Britain’s position on cross-border trade post-Brexit, there is certainly no harm in taking precautions, especially if it saves your business time, money and legal hassle. What do you have to lose?
Rick Hammell is CEO of Elements Global Services