With the corona virus accelerating the shift to remote work, the prospect of hiring overseas is more attractive than ever. Companies no longer have to limit their hiring options to people within commuting distance of their office. Today, they can hire the best talent anywhere in the word, with or without an entity in those countries.
Even before the global pandemic, the trend towards a distributed workforce was already gaining momentum. Business leaders were questioning the need for a central office with its high rents, employee travel insurance and costs, and general upkeep and maintenance.
With communications technology improving rapidly and more people opting out of regular employment in favour of the gig economy, it’s never been easier to hire and onboard people wherever they are. In fact, about 40% of today’s workforce is already working remotely, whether that would be at home or globally as the person pursues a “global nomad” lifestyle, fully funded by regular employment.
The challenge, however, is paying them accurately, on time, and in full compliance. That challenge has been solved by companies offering a broad range of payroll, payment, and workforce management solutions. These visionary companies are moving the field of payroll into the modern era with platforms that automate the process and remove the complexity of juggling multiple payroll cycles with vastly different tax codes, labour laws, and salary expectations.
Top reasons for hiring abroad
Hiring people abroad offers numerous advantages for companies looking to reach new customers, save on labour costs, or even just test products or services. Here are three good reasons for hiring people abroad:
Enter new markets
Hiring local talent in a desirable new market is a great way to give the product or service a local feel. People who are part of a particular culture are the best ones to represent the product to that culture. They know what people want and have an intuitive feel for the local trends and demands.
Bigger pool of candidates
Companies that only hire people who can physically reach the main office are stuck with a limited talent pool. Expanding that pool means allowing for remote solutions. Once there is no limit on where the best candidate might be, there is no reason to avoid looking abroad – now that the complexity of global payroll has been removed.
With world markets as they are, it’s possible to hire people at competitive salaries relative to their local country and still save on costs that equally talented employees might demand in the company’s main country. Benefits expectations are also different from country to country, so with a little bit of research, it’s possible to provide a high quality of life for an employee abroad and still save on costs.
3 Ways to hire abroad
In an earlier era of business, only the largest multi-national corporations could afford the time and cost of global expansion. The only option for compliance was to open and entity and set up a local business. That involved taking on the risk of failure before having any clear indication that the business would take root in the new market. That may work for a giant like Coca Cola, but an emerging startup with a great product but a small budget would usually be too intimidated to try.
Today, there are new options that democratise the process of global expansion. Small, agile companies have just as much opportunity to hire abroad. Here are the three employment options for companies to hire in full compliance of the local laws.
Contractors are officially self-employed. Companies that hire contractors pay them in a lump sum, without deducting any taxes or paying social security or employer taxes. In practice, that means a company can hire a contractor at a higher hourly rate than a regular employee and still save money on the total employment costs.
It’s not a coincidence that the number of independent contractors has grown dramatically as the world becomes increasingly global. In many ways, contractors are the perfect solution for companies looking for a limited engagement from experts hired to carry out specific projects.
The drawback to hiring contractors is the risk of misclassification, and that can lead to fines by local authorities. Contractors and not employees, and therefore cannot be treated as employees. If the company controls how the contractor does the job (not just the end result), maintains financial control over the contractor, or if the task is regular and recurring, the person doing the job might be more appropriately classified as an employee, with all of the taxes and benefits involved.
Hiring contractors for limited projects is a good idea, but attention to classification is necessary. Fortunately, there are companies that offer such services to remove the risk of misclassification and manage the burden of invoicing and payments.
Employer of record
A company that wants to open an office in a foreign country but does not want to open an entity, either because of the costs and risks involved, or because it wants to take advantage of a market opportunity that can’t wait for an entity to open (which can take several months), can work with an Employer of Record service and stay in full compliance.
Under an EoR arrangement, a local company becomes the official employer of the employees, assuming full liability for them and handling the administrative side of employment, such as payroll, benefits, and workforce management. Meanwhile, the client directs the employees in their day-to-day tasks. This allows the client company to bypass the need to open an entity but still maintain an active workforce.
An EoR arrangement is a good way to test a market before committing to it. A company can send a small team, for example, to see if the product has a viable market. If so, the company can open and entity and take full responsibility for the employees. If not, it can close down the EoR with no penalty.
An EoR is also a good option for short-term engagement in a particular country. A company can blitz a city with a sales team and then leave when the job is done. In that case, the company doesn’t want to open an entity simply because it does not plan to stay in the country long term.
Opening an entity
For companies committed to having a long-term presence in a country with a substantial number of employees, the best option is to open an entity and assume full legal liability. It is the most stable way to have a presence, and opens the door to signing contracts and making deals – something that a company can’t do with the EoR option.
Opening an entity is often an expensive and time-consuming task. It demands an understanding of the local tax structure and labor laws, and requires registering the business with all of the relevant tax authorities and social security offices. But it is the best way to grow a stable business.
Although having an entity puts all the responsibility on the company, many of the more complicated functions, such as payroll and workforce management, can be outsourced to global payroll companies. That way all of the pay slips are calculated properly, and all of the taxes are properly handled. In most cases, a payroll company will work with a local accounting firm or legal office specialising in labour law, so there are local experts involved in the process.