Why Lano works with local partners instead of direct entities for EOR

Employer of Record solutions can follow one of two different models, which are the consolidator model (also known as aggregator model) and the direct-entity model (also known as wholly-owned model). 

EOR providers that operate through a wholly-owned infrastructure open up their own entities through which they provide their employment outsourcing services. Solutions following the consolidator model, on the other hand, work with a network of in-country partners (ICPs).

The direct-entity approach might seem advantageous, given the fact that all local entities are part of the same organization. Upon closer inspection, however, wholly-owned infrastructures come with many weaknesses that can make them a real liability for the EOR client.

That’s why Lano’s EOR solution is based on a pure consolidation approach. We work with a global ecosystem of partners to provide a true product-first experience with full employment coverage in a single platform.

At Lano, we're firm believers that ecosystems orchestrate today's economies. We're building the ecosystem for global employment and payroll, allowing 2,000+ companies to be "default" global.

In order to achieve this, we work with in-country partners (ICPs) for our Employer of Record and payroll solutions—rather than opening our own entities in each market. Like this, we are able to build a truly global network of vetted expert partners in 170+ countries.

There are a few core reasons why we decided to take this approach of consolidating global experts.

Quality of service

Consolidator model: Before choosing an ICP for a country, we carefully vet several different solution providers in order to find the best possible partner to work with. Once the ICP becomes part of our global employment ecosystem, they have to meet the set expectations regarding their quality of service—otherwise, they are replaced by new providers. In order to account for the needs of each individual client business, we work with multiple EOR partners in each location.

Direct-entity model: When working with direct entities, on the other hand, there is no incentive for the entity to meet the highest possible standards in terms of service quality, simply because the direct entity is in no danger of being replaced. Once set up, the local infrastructure cannot be changed.

Plus, since global employment solutions that work with direct entities usually choose the same (or at least similar) set-up for all their locations, they are unable to offer best-in-class services across all countries. In some cases, their so-called “local office” through which EOR employees are hired could even be based in a different jurisdiction to save resources, which can pose severe compliance risks due to a lack of proper local knowledge.

Reliability and compliance

Consolidator model: The in-country partners we choose for our Employer of Record solution are real local experts who have been working in their field for several years (if not decades). Their deep understanding of complex compliance, tax and HR matters makes them reliable partners who are there to support our clients every step along the way and protect both our clients and their employees from costly compliance risks.

Direct-entity model: Creating legal entities in different locations across the globe may require a lot of time, money and resources. But just because an EOR provider chooses to invest so many resources into the chosen set-up, this doesn’t automatically make them local experts in terms of compliance, HR and payroll. Their lack of experience, expertise, and knowledge can quickly turn into a real liability for the client business.

Specific local knowledge and additional services

Consolidator model: Given their proven track record, our ICPs can provide specific knowledge regarding a variety of different subjects—especially since the consolidator model allows for working with several different partners in the same location. Since they all have slightly different fields of expertise, they are able to offer clients detailed advice that is really tailored to their individual needs and may even be able to offer additional services.

Direct-entity model: As said before, EOR solutions that operate through direct entities have very limited local knowledge due to the fact that they would usually only have been set up shortly before. They are therefore unable to provide any specific compliance-related advice or additional services. In cases where clients need help beyond the scale of a standard EOR solution, the only option is to contract an external consultant, which means that the client business incurs additional costs.

Flexible contracts and benefits

Consolidator model: Businesses that want to attract the best talent in every location need to be able to offer prospects the best benefits package possible. They also need to be able to provide employment contracts that are tailored to local standards and meet both their and their new hire’s expectations. Thanks to our global partner network, we are able to offer our clients the flexibility they need to create the contracts and compensation packages they need to attract and win local talent.

Direct-entity model: Wholly-owned EOR solutions, on the other hand, usually work with generic contract templates that leave little to no room for customization, and the same holds true for the compensation and benefits packages they can offer EOR hires. This puts the client business in a position where it’s only possible to attract mediocre talent, hence limiting their chances of succeeding in the new market.

Global coverage

Consolidator model: It’s no secret that operating through a network of in-country partners allows for a much broader country coverage. Vetting and selecting ICPs for a new location is a complex process, but it’s still quicker and, above all, requires fewer resources than creating a new legal entity every time. That’s why Lano is able to offer employment and payroll services in no less than 170 countries worldwide.

Direct-entity model: Needless to say that a solution provider that needs to go through the difficult and costly incorporation process every time they want to add a new location to broaden their country coverage will quickly reach its limits in terms of resources and funds.

Enhanced data accuracy

Consolidator model: The consolidator model clearly has the upper hand when it comes to data accuracy. That’s because the data is checked and reviewed by a third party (typically the EOR solution provider) after having been processed by the local partner. For the client business, this two-step data processing model means that errors can be spotted early on in the process.

Direct-entity model: When working with direct entities, however, it’s a different ball game. Under the wholly-owned EOR model, there is no third party to audit payroll data. After all, it’s the provider’s own entity (or payroll department) that processes the data in the first place. The audit is then performed by a different entity that also belongs to the same company, and it’s very unlikely for the latter to call out any mistakes a different branch or unit belonging to the same organization might have made.

Employee experience

Consolidator model: Under the consolidator model, employees are in touch with local HR referents that are available to them on an ongoing basis. Since they have been in the business for several years, they know the importance of creating a positive employee experience. At the same time, Lano leverages the ICPs’ expertise to respond accurately and quickly to employee questions and other issues that might arise.

Direct-entity model: Especially in cases where the provider operates through so-called regional hubs, employees are typically randomly assigned to a contact that is based somewhere in the same geographic region as they are. The HR teams in those regional hubs don’t have the necessary local knowledge at their hands and have to reach out to third-party local contacts, which leads to longer response times and an overall less positive employee experience.

At Lano, we often see clients being misled into believing that the wholly-owned approach chosen by several EOR solution providers is the better option. But in practice, we've experienced the exact opposite.

Common concerns surrounding the partner-based approach are centered around issues such as poor communication, lack of standardized SLAs, long response times, non-digitized practices, and an overall lack of centralization.

Lano’s consolidator model invalidates these concerns:

• Truly global coverage with vetted in-country experts in 170+ countries

• Unified platform to standardize, centralize, and automate payroll data for all employee types, which further is seamlessly connected to all EOR providers, payroll partners, and a rich integrations ecosystem that communicates with your HRIS, payroll, accounting, ERP, CRM, and other HR software

• Centralized communication and customer service that is specific to Lano and assigns a dedicated Customer Success Manager to our clients

• Leading SLAs: Our median first-response time over the past 3 months was 3 hours & our median resolution time was 6 hours.

• Premium service option available (additional benefits, pension plans, bonuses, stock options, immigration support, and signing authority) via our ICPs and other partners from the Lano ecosystem

• Onboarding of employees by local partners who have been in the business for years and have a well-defined process to create a smooth onboarding experience right from the beginning—all things compliance taken care of

• Employee experience: EOR hires are connected to a local HR referent in order to answer all their questions accurately