As remote work becomes more prevalent throughout the world, expanding businesses are recognizing the advantages of hiring foreign employees: Businesses are no longer faced with the restrictions of hiring employees within close proximity to an office.
The trend towards a remote workforce has been gaining momentum for a number of years. In 2018, one study suggested that the numbers of remote employees had risen by 80 percent in the previous decade. Business owners across multiple industry verticals have long questioned the need for a central office with high rental costs, employee travel restrictions, and the expenses associated with ongoing office maintenance. This trend has, of course, accelerated in the midst of the COVID-19 pandemic.
With significant advances in communications technology and more professionals favoring the gig economy, it’s never been easier to hire foreign employees wherever they are.
When it comes to hiring foreign employees, a major challenge for businesses is paying workers accurately, on-time, and in compliance with local labor regulations. This challenge has been mitigated by third-party providers that offer a wide range of payroll, payment, and workforce management solutions. These forward-thinking providers are advancing the field of global payroll with systems that automate the payroll process. This alleviates the need for businesses to manage multiple payroll cycles with differing tax brackets, labor regulations, and salary expectations.
Here we look at key strategies for hiring foreign employees.
Why you should consider hiring foreign employees
Hiring foreign employees provides a host of benefits for expanding businesses seeking to attract new customers, reduce labor costs, and test new products and services. Here are three of the most compelling reasons to hire a foreign employee:
Enter new international markets
Hiring local talent in a new market is proven to give your products and services a localized feel. Local people are much better positioned – both culturally and professionally – to represent your brand within a new market. These people recognize what consumers want and possess an intuitive feel for the nuances of the local market.
Access a larger pool of candidates
Businesses that only hire employees in close proximity to their head office restrict their ability to connect with the best talent. Broadening the pool of potential candidates allows a business to benefit through remote solutions. When there are no longer any limitations on the locations in which candidates can be sourced, there is no reason to not hire a foreign employee. And with the assistance of a reputable third-party provider, the complexities associated with distributing global payroll can easily be mitigated.
With global markets as they are, it’s possible to hire workers at competitive salaries that are relative to the standards set by their local regulators. Businesses can also save on costs that equally talented staff members may demand in the company’s main country of operation. Additionally, employee benefits will vary from country to country. With the right research and support, it’s possible to offer a lucrative package when hiring foreign employees, whilst still saving money on wages and benefits.
Options for hiring foreign employees
In years gone by, only larger, multinational companies could dedicate the necessary resources and costs to global expansion. To maintain compliance with labor regulations, the only option for a business was to establish an entity and set up a local business. This involved absorbing the risk of failing, without having any clear indication that a business would be successful in a new market. Whilst this might have been feasible for household names like Apple or Pepsi, most emerging start-ups with limited budgets would be discouraged from such a move.
Today, there are new options that have leveled the global business playing field. Smaller, agile businesses have just as much opportunity to expand internationally and hire foreign employees.
Here are three employment options for businesses to hire foreign employees compliantly:
Independent contractors are technically ‘self-employed’. Businesses that work with contractors pay them in a lump sum and do not withhold any taxes. Additionally, they do not pay any social security or employer taxes. In practice, this allows a business to employ a contractor at a higher hourly rate than a regular staff member, whilst saving on overall work expenses.
It’s no coincidence that the number of independent contractors has grown exponentially as the global market has evolved. In many ways, contractors are the ideal solution for businesses looking for minimal engagement from professionals employed to carry out certain tasks.
The downside to employing independent contractors is the danger of misclassification, which can lead to penalties from local regulators. Independent contractors are not employees, meaning they cannot be treated the same as regular staff members. If a business manages how the contractor does the job (not simply the end outcome), holds financial control over the contractor, or if the work is ongoing, the contractor could be more accurately classified as an employee, and be entitled to normal tax withholding and benefits.
Whilst hiring contractors for a limited project is advantageous, attention to classification is required. Luckily, there are third-party providers that offer solutions to mitigate the risk of misclassification and manage the distribution of compliant invoicing and global payroll.
Employer of Record
Many businesses seeking to commence operations in an overseas market will choose not to establish a new entity. This can be due to costs, time restrictions, and the legal and financial risks involved. A solution for these businesses is to work with an Employer of Record service and remain in full compliance with local labor regulations.
Under an Employer of Record arrangement, a local provider becomes the legal employer of a company’s employees – including their foreign employees. In doing so, they absorb liability for employees and oversee the administrative side of employment, including payroll, benefits, and workforce management. At the same time, the client company retains control over its local and foreign employees and directs their day-to-day tasks. This enables a business to bypass the need to establish an entity, whilst still maintaining an active workforce in their new market.
Partnering with an Employer of Record service is an excellent way to test a new market, before committing to a permanent move. A business can send a small team, for instance, to see if their products and services have a ready-made market. If so, a business may then choose to establish an entity and maintain full liability for its workers.
Establishing an entity
For businesses committed to having a long-term or permanent presence in a new country – with a number of foreign employees – the preferred option is to establish an entity and absorb legal liability for their workers. This is a stable means of having a presence in a new market and positions a business to sign contracts and make deals – that cannot be achieved through an Employer of Record service.
It should be acknowledged that establishing an entity can often be costly and time-consuming. It requires an understanding of the tax framework and labor legislation pertinent to the country of expansion. It also requires the registering of a business with the necessary tax authorities and social security offices. Despite this, establishing an entity remains the best way to achieve long-term stability in an overseas market.
Although having an entity places all legal responsibilities on a business, many of the existing functions, such as payroll and HR management, can be contracted to a specialist third-party. This ensures that payroll is administered accurately, and all taxes and benefits are handled compliantly. In many cases, a third-party provider has accounting and legal professionals that possess expertise in all matters relative to local labor laws.
How a Global PEO can help you hire foreign employees
A Global Professional Employer Organization (PEO) supports your business in hiring foreign employees in a country of expansion. This ensures that all employees – including foreign workers – are paid accurately, on-time, and in accordance with local labor guidelines.
If your business is looking to test a new international market, a Global PEO like New Horizons acts as your employees’ Employer of Record, absorbing all local employer responsibilities like benefits administration and tax compliance. When you’re ready to make the move permanent, New Horizons’ team of in-country specialists facilitate the compliant setup of your local entity. We handle the bulk of the incorporation process by working closely alongside local government departments. As a result, your business saves significant time and money, whilst maintaining compliance at all times.
If you are contemplating taking your business offshore and hiring foreign employees, New Horizons can recruit your new employees through our dedicated, in-house recruitment team. We utilize our industry-leading network of global partners and advanced search metrics to connect your business to high-quality candidates across all industry verticals. We ensure that all candidates speak the local language and understand the cultural and economic landscape of your target market.
To discover more about New Horizons’ Global PEO, or any of our customized expansion solutions, reach out to our team today.