4 Hidden Costs of Running an International Business for Cost-Savvy CFOs

Expanding operations globally often exposes organizational owners to hidden costs related to HR and compliance when establishing a foreign subsidiary. Companies frequently encounter unexpected expenses in payroll processing, HR management, and compliance that increase both setup and operational costs.

Deel, with its extensive international expertise, simplifies the complexities of local laws, tax regulations, and administrative challenges that can impede growth.

This article examines how Deel provides a flexible and cost-effective alternative to cumbersome in-house solutions and fragmented local providers. By leveraging Deel’s model, businesses can mitigate risks while achieving significant savings and operational efficiencies that facilitate global success.

1. Ongoing global payroll costs

Businesses often overlook the substantial ongoing costs of managing international employees’ payroll. These costs include staying abreast of intricate payroll regulations concerning minimum wages, overtime pay, social security contributions, and local tax withholdings, which can vary significantly from your home jurisdiction.

In addition to regulatory and governance compliance, businesses must also factor in the cost of the administrative complexities of payroll processing, which includes calculating salaries, withholding taxes, issuing payslips, managing deductions, and ensuring timely payments. These tasks can be overwhelming, especially for businesses operating across multiple countries with varying currencies and exchange rates.

Unless you’re planning to build or train an internal team on local payroll laws, available payment methods, currencies, exchange rates, tax regulations, rates, and deadlines, international businesses typically outsource their payroll function to a local payroll provider.

Running payroll through several local providers can get complicated if you operate in multiple countries. Another option is to hire a payroll aggregator that uses external third-party partners to process payroll locally. However, this often leads to low-quality support and multiple touchpoints.

A far more cost-effective solution is to use a single global payroll provider like Deel. For a yearly fee, Deel can help you hire and run payroll in 100+ countries instead of paying between $56,000 and $65,000 per year to do it yourself.

Take Clara, for example:

See also: 9 Benefits of Consolidated Payroll for Global Teams

2. Ongoing HR costs

Many companies underestimate the expenses involved in building and training an internal HR team to onboard and support local employees hired through their own subsidiary company abroad.

While your existing HR team may be proficient in handling HR for employees hired in your home country or jurisdiction, expecting them to manage HR for employees hired through your new foreign entities is unrealistic since the laws and regulations pertaining to hiring and onboarding can vary significantly from country to country.

HR teams must be prepared to handle international employment contracts, worker classification, compliant onboarding and offboarding, compliance documentation, conduct work authorizations, benefits administration, and background checks in line with local laws and regulations.

The alternative approach is to outsource HR tasks to local providers. However, this approach still requires additional resources and investment since you may need to find a new provider for each separate entity you open.

By partnering with Deel, you can keep a low headcount, reduce the administrative burden on your existing team, and grow your company through global hiring without managing multiple HR and payroll systems.

Deel has 200+ local HR and legal experts on standby, ready to onboard and support your global hires.

Take EasyBroker, for example:

See also: 9 HR Processes to Automate Today [How to Do It With Deel]

3. Ongoing compliance costs

Managing entity compliance for an organization is a crucial task that demands continuous investment to navigate changing regulations.

The responsibility to ensure compliance falls entirely on the local business, requiring oversight from in-house experts or outsourced counsel, which can be pretty expensive, costing hundreds of dollars per hour or thousands per month on retainer.

However, one of the most significant hidden costs arises when an entity fails to classify workers correctly, overlooks a change in local labor laws, or misses an expiring visa or work authorization, leading to costly lawsuits, penalties, and reputation damage, typically costing 2.71 times more than maintaining compliance.

With Deel, your organization benefits from built-in compliance management and in-house expertise. Our team of over 200 legal specialists actively monitors regulatory changes to minimize compliance risks.

Deel is also the only provider on the market that uses continuous monitoring through its Compliance Hub to provide real-time compliance alerts for 150 countries. This enables you to stay aware of your compliance status while you confidently hire and manage workers worldwide.

Take SiteMinder, for example:

See also: Stay Ahead of Changing Regulations With These 3 Compliance Strategies.

4. Exit costs

After many months of navigating the setup process and spending between $60,000 and $120,000 on entity setup, the prospect of tearing down your foreign legal entity is likely a bitter pill to swallow. However, this cost is worth considering, given that global organization failure rates range from 20% to 40%.

Dissolving an entity can involve long legal processes and financial implications. For example, it takes at least three months to dissolve an organization in the UK, not including any preparatory work. The cost of closing a limited organization in the UK can vary considerably depending on your circumstances. Striking a solvent organization off the company house register will cost you a £10 admin fee, but liquidating an insolvent company can cost £4,000 or more.

International expansion and hiring through Deel is a much more flexible option for companies looking to test a particular market before committing to more permanent (and costly) routes.

When you hire an employee through Deel EOR, you avoid the upfront costs of establishing a local entity and instead pay a monthly fee. This fee is much more predictable than entity management fees, which can vary based on the organization’s structure and legal requirements.

Should you decide that a particular market isn’t working out, you can quickly and painlessly exit the arrangement without incurring any fees or use Deel to transition seamlessly into another market with more promising prospects.

Deel will help you compliantly and sensitively offboard your international employees to protect your organization and leave the employee with a good, lasting impression.

Once Deel receives your exit or termination request, we notify the employee and automatically calculate and prepare final payments based on the termination date, local and national labor laws, time off used, and additional contractual items like severance pay.

Take DevBase, for example:

See also: How To Begin The Termination Process And Offboard An EOR Employee

Mitigate hidden costs and manage all entities in one place with Deel

With Deel, the hidden costs of running an international organization are nonexistent. You simply choose which new market you’d like to build a local presence, source talented candidates, and sit back while our dedicated employee experience teams get to work onboarding new hires, running payroll, administering benefits, drafting IPRs, and everything in between.

When the time comes to transition to your own entity, Deel offers continued support through Entity Setup services and Global Payroll. Clients can customize their use of Deel by using the global EOR services for hiring in some locations, Global Payroll for others, and engaging independent contractors as needed.

To discuss your options with an expert, book a 30-minute demo with our team today.