Sourcing the right talent is the most important business consideration for ambitious enterprises. In a recent PwC survey, 97% of CEOs identified this as the number 1 priority for business growth.
But hiring top professionals no longer means being restricted by labor supply in the local market. The rise of remote work, and international expansion generally, has opened up new opportunities to hire across international borders.
This raises the question: How can a business hire overseas professionals in full compliance with all applicable laws? Here we at the five main ways to hire globally, in accordance with the law.
1. Hiring globally is beneficial for most businesses with a growth mindset. Sometimes this is simply about acquiring the best talent, in other cases it is part of a more substantial international expansion.
2. Hiring globally can mean more qualified professionals, cost savings, and better managing international tax liability.
3. Some of the most popular ways of hiring globally include sponsoring visas, opening a branch office, setting up a local subsidary, hiring contractors or freelancers and engaging a global PEO.
Why Hire Globally?
Though it has advantages, the compliance challenge of hiring internationally is clear: How to hire a workforce when unfamiliar with the compliance requirements overseas? Before considering the response to this challenge, it is worth looking at some of the reasons why hiring globally can be useful.
Hire Globally through Visa Sponsorship
It is usually possible (though often not easy) to advertise and hire staff from overseas into your company. For example, for companies in the US, the following options are available:
- The H-1B visa for specialty occupations. This visa is for occupations that require “highly specialized knowledge” (and at least a Bachelors degree). The intent of this scheme is to support employers who cannot obtain the necessary skills and abilities from the U.S. workforce.
- The O-1 visa for individuals with extraordinary abilities or achievements;
- L Visas (L-1A and L-1B). These are for temporary intra-company transferees who work in managerial positions or have specialized knowledge;
- B visas. These are temporary business visas;
- EB visas, including EB-1 for individuals of extraordinary ability and EB-2, for individuals with advanced degrees.
Hire Globally through Registering a Foreign Branch Office
An international enterprise can set up a branch office overseas and use that branch to engage a workforce.
It is usually a requirement that the branch register with employment authorities (such as registering an Employer Identification Number (EIN) with the IRS in the United States) before hiring anyone. This ensures that the business withholds the appropriate amounts of payroll tax, income tax and social contributions on behalf of employees.
The benefit of this option is that it is quick, and it allows ongoing control of the hiring process by the international company. However, there are disadvantages to doing so as well:
- This is not always permitted legally;
- It may inadvertently create a ‘permanent establishment‘ in the overseas country. This means that the company will become subject to corporate income tax without realising it. It may also mean that the company is subject to more tax than it would otherwise pay (such as where it set up a local subsidiary);
- It can increase potential legal liability (the international enterprise itself becomes liable contractually and under compliance rules, not just the local subsidiary).
Hire Globally through Incorporation of a Local Subsidiary
Instead of opening a branch office, an international enterprise might consider incorporating a separate legal entity, such as a subsidiary company in the country of expansion.
Once registered with local authorities, the subsidiary is then free to hire local workers just like any local company.
This has a range of advantages over a branch office (including limited liability and more clearly delineated tax obligations). However, the downsides of this approach include:
- it can be expensive and time-consuming to incorporate a new subsidiary;
- the wind-down and de-registration of a subsidiary can be similarly time-consuming and expensive;
- a subsidiary means substantial compliance obligations in the country in question. This means having access to considerable local compliance expertise.
Hire Globally with International Contractors and Freelancers
International companies can often benefit from hiring contractors and freelancers based overseas. They might be recruited through standard job search sites, such as Indeed or LinkedIn, or they might be hired through international freelancer marketplaces such as Upwork, Fiverr, Toptal or Guru.
Benefits of hiring contractors or freelancers for your international workforce include:
- No compulsory social or benefit contributions. Unlike employees, businesses do not need to withhold social contributions for freelancers and contractors;
- No tax withholding. There is. generally no requirement to withhold income or payroll taxes on behalf of contractors;
- Compliance and legal simplicity. Labor laws do not usually apply, and renewal or termination are governed by the terms of the contract.
Disadvantages of hiring international contractors or freelancers include:
- The risk of employee misclassification. Businesses need to ensure that they do not engage in ‘sham contracting’, and that the true nature of the hire is not employment;
- Liability issues. Often, the actions of an employee are covered by the liability insurance of the company. This is often not the case when it comes to the negligent behavior of contractors.
Read more about the pros and cons of hiring international contractors at What Are the Advantages and Disadvantages of Using International Contractors?
Hire Globally through an International PEO Solution
An international (or ‘global’) PEO, also known as a global Employer of Record solution, means that a third party organization formally employs the international workforce of a client company. This third party becomes responsible for payroll and all employment tax and social contributions in the overseas jurisdiction, but employees still continue to work for the client company on a day-to-day basis. Benefits of global PEO solutions include:
- Expertise. A global PEO will have recruitment networks in virtually any country in which you wish to hire. This means the ability to acquire staff efficiently and at an affordable price;
- Compliance. A global PEO ensures compliance with local tax and employment laws. They also become liable in case of breach.
- Cost savings. A global PEO solution is usually much cheaper than the business itself attempting to hire in full compliance with local laws.
Hiring through a global PEO may not be the best hiring option where:
- The client company has substantial trading interests in the country in question. Entering into enforceable B2B contracts often requires having an incorporated entity in that country;
- The client company already has a large presence with a compliant payroll in the country in question.
Read more about the pros and cons of global PEO services at What are PEO Services?
Work Out your Best Option for Global Hire
There is no one-size-fits-all approach to international hire. Enterprises need to consider the model that best suits them: This might be direct hire through visa sponsorship, a branch office or a subsidiary, or it might be hiring independent contractors or using a global PEO.
To discuss the best option for you get in touch with New Horizons Global Partners.