Businesses hire internationally for many reasons, including: access to a global talent pool, scalability, flexibility, testing potential new markets, and potential cost savings. But before embarking on a global expansion, it’s very important to be aware of the various employment regulations in each company you plan to hire remote employees. Every country has its own employment and tax laws, and on top of that they’re always changing and evolving.
One way companies hiring globally mitigate employment compliance risks is by partnering with an Employer of Record (EOR). EORs function as the legal employer and take on the management of onboarding, payroll, worker classification, and benefit package administration for a company’s international employees.
We’ll take a look at some of the potential problems that could come up when hiring in another country without a legal entity, and how an EOR provider can help.
Potential Risks of Global Hiring
There are many advantages to hiring international talent, such as cost-effectiveness, but global employment also presents some challenges. If your company is hiring employees in a new country for the first time, odds are you aren’t familiar with the nuances of that country’s labor laws. Should you make a mistake it can prove costly, depending on the severity of the error. Here are some of the most common risks to be aware of before employing talent in another country.
Statutory Benefits and Entitlements
Every country guarantees specific benefits to anyone who is employed in their country. These are non-negotiable and represent the minimum that each employee is entitled to. This includes benefits such as parental leave (both maternity and paternity), paid leave, pensions, and even profit sharing.
Statutory benefits include minimum standards that must be adhered to, regardless of what benefits you offer at the head office. For example, while there are no mandates around sick pay or vacation time in the U.S., the majority of other countries have laws guaranteeing minimum time off for both. An additional challenge is that not only are the entitlements different in each country, there can also be variations across different states or provinces within a country. Noncompliance with mandatory benefits can result in penalties and fines for employers.
Worker Misclassification
Properly classifying a worker as a contractor, a part-time employee, or a full-time employee is critical. That’s because there are different legal requirements around employment benefits, taxes, wages, and overtime, depending on the employee’s classification.
Countries are increasingly cracking down on companies that they think are misclassifying workers as independent contractors that the governments have determined are actually employees. If the company is on the losing side of that call, they could face financial and other penalties for worker misclassification.
Visas and Work Permits
Visas and work permits can be an important piece of the puzzle if you’re trying to hire team members to perform remote work in countries where they aren’t a legal resident, or relocating employees to a different country.
Obtaining a visa for employees can be a lengthy process, and it involves several steps that need to be followed to a T. This includes first determining an employee’s eligibility for a visa by performing a background check, then assembling all the required documents and paperwork, coordinating with immigration authorities, and ensuring compliance with all local labor laws. One mistake can result in time-consuming delays, or even the denial of a visa application. Businesses can work with an Employer of Record to issue visas and work permits for their global team members.
Managing a Global Payroll
When you’re in charge of overseeing global payroll things can get very complicated, very quickly. You’re not just managing the payroll processing and tax withholdings for employees in a single country, you’re doing so for every single country where you employ staff.
This means you need to understand and comply with different laws and regulations around complex issues such as data security, taxes, social security contributions, employee benefits, vendor management, and more in multiple countries and regions.
Errors could potentially result in global employees not receiving their full pay due to currency fluctuations, or a simple math error if calculations are being performed manually. Mistakes on payroll tax withholdings can also result in costly fines from the government.
Permanent Establishment Risk
When expanding globally, you want to be mindful of permanent establishment risk. This happens when a government determines that your company is operating on a permanent basis in their country. Governments want to ensure that international companies aren’t trying to skirt local laws and taxes, and actually paying what they owe for operating a business in that country.
There are a few ways a company can accidentally trigger a permanent establishment risk, including opening a physical office or storefront, hiring someone in a country who the government views as an agent doing business on your behalf, or providing goods or services in that country. Once the local government rules that you have created a permanent establishment, you could be on the hook for penalties, fines, back taxes, and increased government scrutiny, not to mention potential reputational damage.
One of the most effective ways to manage permanent establishment and many other risks that can go hand in hand with international hiring is by working with an Employer of Record (EOR).
What are Employer of Record Services?
EOR services help businesses expand globally by handling the management of all employment and HR tasks for international employees. The company still maintains control over the day-to-to-day management of the employee and their work, but the EOR assumes the legal responsibility of ensuring compliance with local laws and regulations, and manages onboarding, payroll, benefits administration, and more.
Here is an overview of the various EOR services that are typically offered:
Global Payroll
EORs manage all of the details of paying your international team. Rather than hiring and coordinating with an accounting or payroll firm in each country (or trying to do it all yourself), the EOR takes care of everything.
This includes compliantly paying both contractors and full-time employees on time, and in their local currency. An EOR also handles any adjustments that need to be made to payroll due to time off, holidays, bonuses, and commissions, and can streamline all of your payments for the global team in one easy-to-read invoice.
International Contractors
EORs are experienced at hiring and managing contractors around the world. This includes the very important first step of confirming that the contractor is being classified correctly. The EOR can also draw up employment contracts that contain any necessary stipulations and precautions, such as assigning the rights of any intellectual property created by the contractor to the company employing them.
Once a contractor is hired, the EOR oversees onboarding, payroll, approving and managing expenses, time off, and more.
Visas & Work Permits
Navigating the world of visas and work permit applications can seem straight-forward — until you realize that even the details have details. If every form isn’t filled out correctly, or a page is missing, or a fee payment is missed, you can very easily find yourself starting over again, and further delaying the hiring process.
EORs reduce the time and complexity needed to apply for a visa by taking control of all aspects of the application process, like determining eligibility, ensuring forms are completed properly, that application fees are paid on time, and more.
Background Checks
Background checks help you mitigate hiring risks by ensuring that the people you want to bring onboard don’t have any issues in their past that could prove problematic, like a past conviction for tax fraud for example. EORs help you seamlessly navigate the background check process, including checks of:
- National identity documents
- Professional references
- Academic credentials
- Criminal history
- Credit history
Healthcare Benefits
Some countries provide government-funded health insurance, but not all of them do. In countries where healthcare isn’t provided, or the coverage isn’t optimal, providing healthcare benefits is an excellent way to attract and retain employees. Many EORs offer healthcare plans so you can easily and efficiently provide coverage to your remote team.
RemoFirst Helps Companies Hire Globally
At RemoFirst, we’ve helped more than 1,000 customers compliantly hire new employees and contractors. We partner with customers of all sizes, ranging from bootstrap startups to Fortune 500 companies.
Our local partner model helps us provide compliance with local employment laws in more than 180 countries worldwide. By working with local partners, we are able to keep our costs between 30% to 50% percent less than most of our competitors. Our partners are vetted and often have as much as 20 years experience navigating the employment laws and regulations in their countries.
Our pricing starts at $199 per month, per employee, and $25 per person per month for contractors, and we can onboard employees in as little as one day. Book a demo today to learn more about how RemoFirst can help build your global workforce.
