When expanding overseas, deciding whether or not to base employees in the country of expansion is an important consideration. After financial compensation (i.e., salaries or wages), the next biggest employee cost is employee benefits. In this article, we explain what benefits administration is, how it relates to international expansion, and set out eight tips for optimizing benefits administration in your move into the global marketplace.
What is Benefits Administration?
What defines an employee? In addition to financial compensation, which is something that independent contractors can also receive, it is often considered distinctive of employees they receive employee benefits. Employee benefits include things like:
- Health and dental insurance;
- Workers’ compensation;
- Paid sick leave;
- Paid annual leave;
- Paternity and maternity leave;
- Retirement/Pension/Superannuation contributions (these have different names in different countries); and,
- So-called ‘fringe’ benefits such as a take-home vehicle, food and transport allowances, and free gym access.
Sometimes employee benefits are thought to go beyond these benefits that are of a direct quantifiable cost to the employer to include other practices that employees find beneficial, such as flexibility in work hours or four-day weeks.
As with financial compensation, every organization needs to have a mechanism in place for managing these benefits: This activity, benefits administration, sits alongside payroll and human resource management in the organization’s practices.
How does Benefits Administration Impact on Global Expansion?
If you are considering (or already planning) expanding your enterprise into other countries, you will need to consider whether you intend on having employees based in that country. While there may be a temptation to engage independent contractors in order to avoid paying employee benefits, this is risky. In many jurisdictions, independent contractors may be re-classified by the tax authorities as de facto employees and leave you liable for a range of taxes and other liabilities. To find out more about engaging independent contractors, see What Are the Advantages and Disadvantages of Using International Contractors?
If you do decide to engage employees, you will need to have benefits administration set up for that particular country to ensure full compliance with mandatory employee benefits. The cost of employee benefits, and administering those benefits, can be a significant cost of expansion. In addition to any legal requirements, you will need to consider:
- Benefits that are not legally required, but are standard practice in that country;
- Benefits that may not be standard practice but enable you to recruit the best staff. In one study, 60 percent of employees reported that they would were likely to take a job with lower pay, but better benefits.
8 Tips for Benefits Administration
So, how can you best optimize your employee benefits and benefits administration in your expansion into a new country?
- Carry out overseas market research. In the earliest stages of a possible international expansion, it can be worth commissioning market research in various prospective countries to determine how benefits differ between different jurisdictions. For example, if health insurance is a standard part of the employment package in a given country, this could blow out the costs of expansion significantly;
- Conduct competitor analysis. In addition to research on compliance requirements and any standard benefits, it is useful to determine which benefits are being offered by your competitors in the country you intend to expand into;
- Explore possible business models for benefits administration. Once you have worked out what the appropriate benefits package is, you need to consider the best business model for managing the benefits themselves. You could, through a legal entity (such as subsidiary company) in the new country, manage the benefits entirely yourself. Alternatively, you could consider outsourcing your benefits administration, or engaging a global Professional Employer Organization (global PEO) to take over all employment responsibilities for your workforce. Often these latter two options turn out to be cheaper, faster to implement and facilitate a higher level of legal compliance than establishing an entity;
- Carefully consider the costs of a proposed package. This may not be as straightforward as it seems. For example, various contributions and fringe benefits may be tax-deductible. The cost of employee benefits is likely to be the key financial component that makes engaging an employee rather than a contractor more costly;
- Support employee choice. Once implemented, ensure support is provided for employees in choosing how their benefits will come into effect. For example, if employees have the ability to choose their own health insurance, they should receive advice as to how they can begin this process;
- Consider non-traditional benefits. Benefits such as flex-time or, permitting four-day weeks may be of no substantial extra cost to the employer, but highly valued by employees;
- Investigate technological tools. If carrying out benefits administration yourself, consider software products to best automate the process and integrate that process with your wider payroll and human resources capabilities. This could be bespoke software, or software that is integrated with payroll, or enterprise resource planning (ERP) tools. To consider the best tech tools for your expansion more generally see What Are the Best Technological Tools for Your Remote Team in 2020?;
- Organize regular review. Ensure that benefits packages are regularly reviewed in response to any changes in the market, or changes with competitors.
As part of your international expansion, engaging employees in the country you are expanding into it is often either necessary, or highly recommended. This means you need to:
- Work out a package of employee benefits based on legal requirements, what is standard in that market, and what your competitors are offering;
- Work out how benefits will be appropriately managed of administered.
We recommend, in considering how to implement benefits administration in your global expansion, you give serious thought a range of matters, including thorough market research, the possibility of engaging a global PEO and the overall cost of benefit packages (including any tax impacts).
New Horizons Global Partners provide a range of solutions for international benefits administration, depending on the needs of your enterprise. This includes specialist recruitment support and ongoing outsourcing and global PEO solutions.