EOR Provider Deel Expands Into HCM (and Payroll)

For many years companies with global employees have relied on “Employer of Record” (EOR) providers to help hire, manage, pay, and reward employees in remote countries. These EOR vendors, many of which started as service providers, set up business entities in different countries and enable companies to hire employees in these countries without setting up their own local entity.

The benefit of an EOR can be huge: a company can quickly hire a team in a remote location, there is no need to hire employees as contractors unless desired, and the EOR eliminates the legal risk and penalties of violating local laws. Two years ago, for example, Google was found to underpay more than 1,000 workers in Europe and Asia, resulting in fines and backpay charges in the hundreds of millions.

These vendors, which include Adecco, Randstad, Velocity Global, Globalization Partners, and Papaya Global are now being disrupted by fast-growing software providers like Deel, Oyster, Rippling, and others. The total market for this space is estimated at around $4.5 Billion today and one of the fastest growing, Deel, grew from zero to over $500 Million ARR in five years. (Deel now has a $12 billion valuation.)

What do EOR vendors do? They build local jurisdictional business entities in hundreds of countries, they learn and stay up to date on labor laws, pay practices, taxes, and hiring and firing practices in these countries, and then they build HR services teams and software platforms to manage global workers. And their tech platforms are very impressive. (Rippling, for example, is actually an entire IT system for productivity apps, not just HR.)

The next big step is for them to build HCM products (learning management, performance management, career management) and payroll. So sure enough, over the coming few years, they will compete with vendors like Workday, SAP, and Oracle and vendors like Lattice, HiBob, and Ultimate as well. Deel and Oyster already offer payroll, employee self-service, benefits administration, performance management, expense management, background checking, and time and attendance tracking.

The HR platform market is very complex, so it’s impossible to say how successful these companies will be with HCM features. But just to get this started, Deel just announced the acquisition of People Development platform Zavvy, a 20-person learning and performance platform, and is expected to do more acquisitions over time.

At the same time the EOR vendors expand into HCM, the HCM vendors expand into payroll. A few weeks ago HiBob, one of the fastest-growing mid-market HCM companies, announced the acquisition of Pento, to help the company build out its global payroll offering. One would imagine that the HCM vendors like HiBob and Lattice could eventually merge with providers like Deel or Oyster, if the market continues on this path.

And on March 5, Deel did the same. After the acquisition of APAC provider PayGroup in 2022 the company just acquired PaySpace, a company with native payroll engines in 44 countries across Africa and the Middle East. It has over 14,000 customers, including big brands like Heineken, Coca-Cola and Puma Sports.

This firmly makes payroll a standard offering for EOR providers. As I talked with CEO Alex Bouaziz about this plan, he told me “building a payroll infrastructure is part of our long term strategy to scale and offer timely pay services to all our clients.” In other words, when EOR providers don’t do their own payroll the customers have far less flexibility in pay deadlines.

Where does this leave Oracle, SAP, and Workday?  The bigger ERP HCM providers remain focused at the high end of the market, and find themselves selling to big companies that manage their own global employer processes. But who knows, these big HCM vendors may decide they need EOR services as they reach into the fast-growing middle market of dynamic global businesses.

Much more to come on this topic, as I spend more time interviewing HR Tech CEOs in my podcast.

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