More and more companies are skipping the time and expense of employee relocations by directly hiring remote workers in other countries. In short, remote work has turned the entire world into a talent pool — no relocation necessary.
This approach offers cost savings, operational flexibility, and access to a broader range of skills and perspectives without the need to pay costly relocation expenses or visa sponsorships for existing employees.
However, hiring in foreign countries isn't without complications. From labor laws and tax obligations to permanent establishment risks and worker classification issues, there are essential legal implications employers need to be aware of before building a global workforce.
Key takeaways:
- Work visas may not be required, but employers must comply with local employment laws in the countries where they hire remote employees.
- Businesses must ensure international workers are classified correctly and comply with tax obligations and withholding requirements.
- Companies need to draft clear employment contracts to protect their intellectual property.
Work Visas Likely Aren't Necessary (But Local Labor Laws Apply)
Hiring remote global employees lets you avoid the hassle of immigration paperwork, visa sponsorships, and relocation expenses associated with uprooting existing workers and moving them to a new country.
However, depending on your workers' legal status, some regions may still require a visa or work permit. It's your company's responsibility to verify that remote employees have the legal right to work in the country where they're living.
This can get complicated, especially if you employ digital nomads who travel and work remotely in different countries.
In addition, your business must comply with local labor laws governing:
- Minimum wage and statutory benefits: Minimum pay and mandatory employee benefits — such as healthcare, paid time off, and pension contributions — vary widely from country to country.
- Working hours and overtime compliance: Employers must ensure remote employees aren't exceeding legal weekly hourly limits and are compensated fairly for any overtime hours.
- Severance and termination regulations: Terminating an employee requires careful adherence to local laws regarding notice periods and severance packages.
Failure to comply with regional employment laws puts your company at risk of expensive legal disputes, financial penalties, and reputational damage.
That’s why it's essential to thoroughly research local employment laws before hiring an international remote employee.
Tax Considerations When Hiring International Employees
Hiring global remote workers instead of transferring employees across borders may seem more straightforward. But, it can complicate your tax obligations, and businesses risk noncompliance issues, unexpected tax liabilities, and more.
Corporate Tax Risks
Some local authorities may view your company hiring a remote worker as proof you've set up a "permanent establishment" (PE) in that country.
International tax authorities are scrutinizing the potential for PEs more closely, following OECD Action 7, which aims to keep multinational businesses from avoiding taxes.
If tax authorities determine that your company has created a permanent and ongoing local business, you'll be responsible for paying corporate taxes or risk regulatory fines and penalties.
Be sure to familiarize yourself with the PE criteria in each country where you employ remote workers to avoid accidentally triggering a PE.
Employer Withholding Obligation
Your business must withhold payroll taxes, social security contributions, and other deductions for your remote employees as local tax laws dictate.
Independent contractors are generally responsible for their own income tax withholdings, but it's always a good idea to confirm that's the case wherever you hire contractors.
International tax professionals can help you navigate global employment complexities, ensure your company meets its tax liabilities, and avoid issues like double taxation and unexpected financial obligations.
Risk of Worker Misclassification When Hiring Internationally
One of the biggest hiring mistakes companies make is worker misclassification, which carries significant legal risks and financial penalties.
Remember, just because someone works remotely doesn't necessarily mean they're legally a contractor.
It’s essential to take a step back to evaluate whether members of your international team could be considered employees or independent contractors in the eyes of the law by asking yourself:
- Does our business control/define their work schedule, tool set, or processes?
- Are they working exclusively for our company?
- Are they receiving regular payments (similar to a salary), or is compensation project-based?
When in doubt, classifying workers as employees can be less risky to avoid potential misclassification fines and penalties, such as money owed for back taxes and benefits owed.
Data Security and Intellectual Property (IP) Risks
You must abide by the laws and regulations of any country where you have a business presence, even if you don't establish a local entity.
For example, if you develop AI software used in the European Union, you must comply with the EU AI Act, even if your company is based outside the EU.
Similarly, if your remote employees handle the data of EU residents, they (and your company) must comply with the EU's strict General Data Protection Regulation (GDPR).
It’s also essential to familiarize yourself with the legal frameworks governing IP rights in each country where your remote employees are based. That’s because, in some countries, the person who creates a piece of work automatically owns the intellectual property — even if it was made during the course of their employment — unless a contract assigns those rights to the employer.
For example, in Switzerland, the Swiss Code of Obligations (CO) states that an invention or software developed by an employee as part of their work responsibilities generally belongs to the employer. However, the inventor (e.g., employee or contractor) retains the copyright to the created work. The one exception is computer programs, where the employer retains the copyright.
Switzerland clearly shows how IP ownership becomes challenging to navigate. Without clear contractual agreements, you may lose rights to IP created by international employees.
Ensuring Compliance Is the Key to International Hiring
At this point, you get it. Hiring an employee in another country versus relocating an existing one doesn’t mean you can skip out on compliance. Your company still has legal obligations in the worker's country, even without a physical presence.
To ensure adherence to local employment laws when hiring international employees or contractors, companies have a few options:
- Set up a local entity: Opening a local entity might be worth the investment If you plan to build a team and employ multiple employees in one country. In this scenario, you'll be responsible for payroll, taxes, labor compliance, and more.
- Use contractor agreements: If hiring freelancers or contractors, you’ll have fewer compliance issues to worry about but must use clear, locally compliant contracts to avoid misclassification risk.
- Partner with an Employer of Record: Another option is partnering with an Employer of Record (EOR), like Remofirst, to manage international hiring, local payroll, tax filings, worker classification, and compliance on your company’s behalf.
Hire International Remote Employees and Contractors With RemoFirst
Want to hire global talent without legal headaches? RemoFirst makes it easy.
We help companies compliantly hire, manage, and pay employees in 185+ countries and manage and pay contractors in 150+ countries without setting up a local entity.
From onboarding and local employee benefits to taxes and terminations, we handle the heavy HR lifting, so you don't have to.
Plus, if you need to relocate a team member, we can assist with visa applications and work permits in 85+ countries.
Schedule a demo to see how RemoFirst can simplify international hiring for your team.
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