The Key to Frictionless Borderless Employment
How Next Generation PEOs Are Supercharging Access to Global Talent
Welcome back to The Innovation Armory! Today’s piece is about the increasing need for enterprises to frictionlessly access and onboard global talent pools in order to accelerate growth and remain competitive. The piece is centered around the modern PEO as the DNA of global talent access in a distributed web3 world and some of the ancillary DAO, recruiting, developer communities and tax compliance infrastructure rails related to that ecosystem. Thank you very much to Sagar Khatri (CEO & Co-Founder of Multiplier), Ian Lee (CEO & Co-Founder of Syndicate), Pat Larsen (CEO & Founder of ZenLedger), Jacob Claerhout (CEO & Co-Founder of Meritverse) and Celina Lee (CEO & Co-Founder of Zindi) for sharing your perspectives for this piece! Read on more for about:
Why accessing global talent is more critical today than ever in history
The role of DAOs in global talent infrastructure
The state of the incumbent PEO industry
How modern PEO infrastructure treats global talent onboarding as a superpower rather than a cost reduction opportunity
The role of developer communities in accessing talent in frontier markets
The opportunity to build a decentralized / web3 native Linkedin
Tax implications of DAOs managing global talent and contributors
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The demand for global talent (and by talent to work globally) has never been stronger than it is today. Pre-internet, large multinational consumer and industrial corporations (think Coca-Cola, P&G, etc.) were the primary types of businesses that made an intentional strategy of recruiting cross-border multi-national talent. These companies made a strategic / business decision to expand into a particular territory and their human capital choices followed suit by virtue of subsequent distribution and input requirements to run their businesses effectively. These companies have had the financial and brand capital to successfully recruit talent to sustain largely physical operations.
Rising access to the internet across emerging / frontier markets and the proliferation of software business models have changed the dynamics of who needs access to global talent and why. Every company is becoming a technology company in order to be able to compete and being able to attract best-in-class software and development talent is becoming more critical for organizations across sectors. The pandemic has only further accelerated these dramatic shifts:
Software engineering is seeing a massive rise in demand, expected to grow at 22% per annum in the US from 2020-2030, meaningfully higher than the average demand growth across other sectors
At the same time, according to Stack Overflow’s 2021 Annual Developer Survey, over 70% of the developer base is under the age of 35. This is further compounded by the fact that the coding languages that are most in demand skew even more towards younger generations:
Some surveys indicate 60-70% of these gen z / millennial workers hope for at least partially remote options once the pandemic officially ends. Okay *if* it really ends…
At the same time, some of the greatest growth in developer projects is occurring in emerging / frontier market countries in MENA and Southeast Asia as digital education initiatives, greater broadband access and an increasingly global professional opportunity empowers more youth to learn coding. The below chart represents % growth in open source projects across top geographies. Middle Eastern, African and Southeast Asian countries dominate the list:
We are also seeing the rise of more digitally-native companies incorporated as DAOs that exist in the virtual ether, not in any one geography. The rise of truly digital-first corporations creates a dynamic where there is no incentive or competitive advantage to sourcing members from any one particular geography. Market estimates indicate there are currently 4,227 DAOs in existence. Syndicate Protocol now accounts for ~650 of those DAOs in existence. I caught up with Ian Lee, CEO & Co-Founder of Syndicate Protocol to learn more about how he expects DAOs to widen access to global talent for internet-native businesses:
“DAOs are a new crypto-powered technology that can coordinate financial and human capital natively on the internet—1000x cheaper, faster, and better than most traditional structures. DAOs will lead to a profound change in the years ahead to the future of investing, work, the firm, and many other industry verticals. More importantly, DAO powered models will be radically more democratized, free, and equitable than today's systems.”
The convergence of these factors: i) increasingly skilled global talent pool, ii) rise of internet-native DAOs, iii) generational desire to work remotely and iv) Western development demand surge / corresponding supply-side labor shortage are unleashing a hurricane on labor markets. Before, it was a privilege held for incumbent MNCs to be able to recruit international talent; now, it is a must-have for institutions of all sizes in order to be able to win / compete in their respective markets. Efficient and reliable access to global talent is now “table stakes” for technology companies that are hungry to win.
I expect these trends to persist. As the demand for developers accelerates, the pay gap between Western and frontier / emerging market developer roles will only grow in the short term, incentivizing more and more employers to seek to draw talent from global talent pools where human capital talent is just as strong but where wages are lower today due to lower cost of living. Proliferation of more digital education tools and more global, non-traditional geography venture tech success stories, will continue to drive up supply of talented and hungry engineers and coders in frontier and emerging markets as well. As more millennials and Gen Z workers demand remote work environments, more employers will realize that if offices congregate less frequently in person, there becomes less of a need to artificially constrain your labor pool to the US / Western markets. Companies like Syndicate will continue to ease the complexity and lower the costs / barriers to starting DAOs and more organizations in Web3 will seek to incorporate as DAOs to gain advantages in agility and greater incentive alignment between workers who share in the organization’s upside but who also affiliate the DAO with their shared sense of identity and community.
As more companies need to become digital first MNCs to become competitive, it begs the question of what critical infrastructure is needed to make the hiring, onboarding, benefits and compliance of global talent seamless and accessible to organizations of all sizes and types. Enter the PEO.
Incumbent PEO(h)-No
The Professional Employer Organization (PEO) is like an outsourced employer for small businesses. PEOs enter into co-employment agreements with core operational employers whereby they become the legal employer of record. The PEO is far from a new concept. Most of the largest public players in the space are cavemen, founded 30-50+ years ago: ADP (1949), Paychex (1971), TriNet (1988) and Insperity (1986). Incumbent PEO organizations historically have focused on the SMB segment as larger organizations generally are more likely to already have the resources to manage their human capital needs internally. They’ve historically offered the following primary benefits to SMBs by virtue of becoming a co-employer:
The issue is because these PEOs were built in a pre-globalized internet and pre-web3 era, they aren’t equipped to handle the complexities of onboarding and managing talent at digital light speed. They are still in the dinosaur ages….
The local legal compliance benefit is particularly important in creating access to global talent markets and is one of the core value-adds of a PEO in the internet / web3 era. Since PEOs are the employer of record, a startup in the US can hire developers in Kenya, The Philippines, Tanzania and Colombia without actually registering corporate / employment entities in each of these geographies. If you’re hiring 50 employees in each of these geographies it may economically make sense to incorporate in all of them, but if your team is lean and distributed, the cost of compliantly onboarding and establishing entities for just one or a handful of employees is just too high no matter how exceptionally talented that individual may be.
By virtue of growing up in a pre-distributed web era, incumbent PEO players face the following difficulties:
Many do not have as strong a presence in fast-growing frontier market economies where there is surging local talent and an increasing appetite in the West to hire through
The largest PEOs have historically been services-focused organizations, rather than software first. This makes sense because many of them grew up in a pre cloud computing and pre-internet era. As a result, they often are lower margin, more asset heavy and have more limited use of captive, proprietary software. Lots of PEOs actually outsource their own software infrastructure to companies like PrismHR, rather than investing in their own software innovation to drive a competitive advantage
Because these legacy PEOs have been services-focused, it also makes them move slower in enabling employee onboarding and costlier from a margin perspective. The former point is particularly troublesome when startup markets move at lightning speed
For those that have developed their own software, there has been less investment specifically on the fintech side to enable more advanced payment reconciliation, including multi-currency payout (which is important for global organizations!). Further, these payroll management systems have fewer integrations with non-traditional banking partners especially in frontier markets like mobile wallet / mobile money providers
More employees want to take charge of / play a larger role in their benefits administration and care greatly about the intuitiveness of the user interfaces to manage these portals. Incumbent players have invested meaningfully less on the consumer portal side as well
New platforms like Multiplier are custom-built for onboarding and scaling talent in the modern era and help take the benefits of the incumbent PEO model, but bring it out of the stone age…
Multiplying Your Human Capital
Multiplier is a Singapore-based provider of PEO and automated HR workflow software that enables businesses of all types to onboard and grow cross-border employment efficiently. With Multiplier, employers can manage all of their cross-border employment and PEO needs (local compliance, payments, administrative workflows and payroll) across 150+ countries and counting! Relative to the services-focused models of traditional PEOs, Multiplier is able to be more accurate on compliance and payroll matters by driving differentiation with software automation. By taking a software-first approach that is usage based and can scale up / down with organizational size, Multiplier is able to work with a wider variety of organizations at an affordable price point while cutting out the opaque service fees endemic in the traditional PEO model. Moreover, rather than stitching multiple products together, they combine the PEO with best-in-class software workflow tools and global reporting dashboards to provide a superior end-to-end experience that helps drive competitive differentiation:
With the surge in creators and small businesses (writers, D2C e-commerce businesses, internet-native funds, etc.), there is increasingly a growing digitally-native SMB segment that is often a) small enough to be priced out of traditional PEO vendors and b) cares particularly strongly about frictionless and intuitive user experiences to manage back-end workflows. These digital SMBs outsource much of their back office to software, so it is important that each piece works frictionlessly to avoid burdening their time in a way that is disruptive to their core business. Multiplier caters incredibly well to this segment as well as to larger global employers by effectively offering comprehensive employment-as-a-service, managing all of their back-office employment needs.
Whereas traditional incumbent PEOs tried to help small businesses save costs on their employment needs, Multiplier turns lightning-fast global employee onboarding into a value-adding superpower for their clients. The purpose behind the outsourcing is to accelerate growth in remote-first companies, not to purely cut expenses. As the speed of venture funding, and competitive disruption efforts accelerate, it is critical to view human capital hyper-scaling as a superpower. This is a fundamental difference in cultural mentality and Raison d'être than incumbent PEOs and will win out in a distributed web3 world that views access to global talent as a competitive edge rather than a cost center.
I caught up with Sagar Khatri, CEO & Co-Founder of Multiplier, to learn more about some of the trends accelerating adoption of Multiplier:
“While COVID-19 has been an accelerator to our business, the even larger driver is the global talent deficit that exists today across borders. The nationalistic political approach that many governments have taken to talent has created an environment where many governments are not letting critical talent in to address these deficits, which has necessitated employers to take matters into their own hands by building distributed, global workforces. We are also very excited about the future of DAOs and the opportunity to serve their distributed organizations. We already have a couple of DAO customers and are growing our presence there.”
Talent Communities and Other Infrastructural Considerations
If modern PEOs are the rails to accelerate the onboarding, retention and administration of global talent, we will also need new avenues of sourcing and accessing global talent both in frontier / emerging markets and within Web3.
In frontier markets, LinkedIn and traditional web2 professional and networking platforms have a lower average penetration rate making growing talent tougher to reach. Further, especially for larger corporates, there is sometimes bias in recruiting processes towards hiring candidates with namesake educational and corporate brands. Therefore, I believe it is particularly important to proliferate more communities that enable talented developers in these markets to be able to show off their project-based work and be connected with more global employers through trusted and localized structures. Developer communities that host hackathons where developers can prove their coding chops by hacking a specific problem are a really exciting way to verify credentials of a candidates, while also undercutting biases endemic in traditional recruiting processes. Zindi is the largest community of AI data scientists in Africa that hosts hackathons addressed at particular AI challenges and also connects African AI talent with global corporations. I caught up with Celina Lee, CEO & Co-Founder of Zindi to learn more about the opportunity for developer communities to increase connectivity between global talent and global employers:
“Our mission at Zindi is to make data science and AI accessible to everyone. We are doing this by growing the largest network of data scientists across Africa and reducing the inefficiencies in the data job market in two important ways.
First, we are increasing transparency. With Zindi, employers do not have to rely solely on a candidate's resume. We post new real-world business problems on Zind every month. Our community of data scientists compete to solve these problems. As a result, our users build up a proven track record in different technical areas that employers can trust.
Second, we know that talent is distributed equally, but opportunity is not. We are also closing the opportunity gap by giving all data scientists, regardless of race, gender, or geography, the opportunity to build up their data skills. A data scientist that spends time on Zindi can solve a diverse set of real-world problems for various clients, for companies like Uber, Google, or the South African National Space Agency! We are in essence making the data science talent pool larger, which is a win for data scientists, companies, and the world.”
In the context of Web3, DAOs pose their own unique recruiting challenges. DAO members are often pseudonymous, but traditional Web2 recruiting and job-board sites require the use of your real world identity. Further, your on-chain data, community tokens and voting history have no ability to be factored into recruitment decisions. Often these web2 recruiting platforms are focused on careers, as opposed to project-based / focused on multiple part-time roles and their whole user experience is built around that fact. There is a large opportunity to build a professional community that is tailor-made to provide DAOs with Web3 recruiting superpowers in a way that can’t be accomplished on LinkedIn today. I caught up with Jacob Claerhout, CEO & Co-Founder of Meritverse, to learn more about the ways a decentralized professional network can uniquely create value for DAO recruiting:
"Hiring people for web3-native organizations is hard. The spectrum of contributors ranges from enthusiastic fans who just invest and cheer, over to people who do some occasional bounty work because they like the mission, to full-time core team members who shoulder and structure the efforts. This organizational change means that recruiting in web3 looks very different than web2. Our aim at Meritverse is to build the web3-native infrastructure to help match people and opportunities.”
A lot of the tax questions around cryptocurrency today have revolved around the trading of cryptocurrency and capital gains on sold tokens and NFTs. As remote work continues to surge, creating demand for technical talent in emerging markets, and as DAOs proliferate further, I expect more of a focus on tracking taxable income for work distributed via cryptocurrencies, tokens and NFTs. DAO workers are incentivized through tokens and ownership in the DAO and some of the economic value related to work they perform, may become classified as income from a tax perspective, subject to traditional / ordinary income tax rates as opposed to capital gains. This will require more robust income tracking across chains for DAO and web3 related work performed and potentially even for DAOs to withhold taxes from fractions of digital assets. The platforms building crypto tax management for investment-related (vs. ordinary) income will have the multi-chain integrations and regulatory relationships to manage the increasing tax complexity for DAO members. I caught up with Pat Larsen, CEO & Founder of ZenLedger, a leading crypto tax software provider, to learn more about how ZenLedger is positioned to solve this critical infrastructural gap for DAOs:
“Inherent in crypto and DAOs is a global perspective on community and investments. However, we all live in countries with their own laws and regulations. In the next year, ZenLedger will be expanding aggressively in our offering globally to provide portfolio management, accounting, and tax help to DAO members around the world across the geographies in which DAO members reside today. Countries are going to have to consider how to regulate DAOs for residents in their own borders. The US Executive Order being discussed in March 2022 or some other international rubric may give more clarity going forward. DAOs do allow for pretty easy mark-to-market for liquid assets (like crypto) and for recent purchases. If a country has a wealth tax, then a DAO member may have to mark The United States Constitution or a professional sports team to market and pay taxes on that.”
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