Hiring remote workers in your own country is fairly simple. The only real differences may be between state or regional taxes and regulations. But if you want to hire remote workers in foreign countries as employees or contractors, then it becomes more complex.
This article is proudly produced and presented by the folks at Shield GEO – International Employment made simple.
The main issue for remote employers is that they have to comply with host country employment and labor laws, and that almost always means having a registered entity in the foreign location. There are a few ways to handle this, and the best choice will depend on how many workers you want to employ and for how long.
Why Hire Remote?
Remote hiring can be a tough decision. There is a common misconception that managing and hiring remote teams in foreign countries can be difficult and costly. It’s only costly if you aren’t using the right strategy and methods of employing and paying your team. In fact, working with remote teams is more cost effective and productive than ever before.
Remote work, whether it be with workers in your home country or elsewhere, is extremely flexible in recent years due to advancing technologies, methods of employment, and greater proliferation of the Internet. The ability to work from anywhere reduces the restrictions on where your workers can complete their tasks. In fact, having multiple remote teams from different time zones can ensure that work is completed around the clock.
When the COVID-19 pandemic struck in 2020, 92% of workers surveyed by Owl Labs expected that they’d have to work from home at least one day per week. 80% expected at least three days of working from home per week. However, many teams are going to have to make the plunge. That same survey showed that 59% of workers would prefer to take a job offer from a company that offered remote work.
Increase in Productivity
In an interview by Bloomberg, economist from Stanford University Professor Nicholas Bloom explained that he found that “pro-work-life-balance policies — maternity leave, job sharing, part-time work and work from home — were positively correlated with good management and positively correlated with good firm performance. It’s impossible to tell what causes what, but firms that perform well appear to have more progressive policies toward their employees.”
Indeed, Professor Bloom suggests a few critical points about why remote work is more productive for employees home and abroad. Regardless of whether workers have been hired in foreign countries or not, remote work means there’s no need for a commute. Remote employees are generally happier, about 22% happier than their in-person counterparts. As a result, greater employee satisfaction results in greater productivity and retention.
When it comes to remote work, especially in foreign countries, it comes down to employee preference. Many workers simply prefer not to pick up their entire lives and move to a new country just to work for your country. In some cases, some workers expatriate simply for a change in lifestyle. These workers not only are very talented, but they can do their work just as well for your company from these locations using remote work technologies.
If the talent you’re looking for lives elsewhere, it’s going to be more expensive to incentivize them to move their entire world to work at your office. Worse yet, doing so might make them less happy. A drop in morale not only comes with a drop in productivity, but it also reduces employee retention.
These factors are why it’s so important to consider how you might employ remote workers abroad. If you can get around the challenges of remote employment and hire the talent you need from foreign countries, you’ll be able to meet your business’s goals.
A Number of Employment Solutions for Foreign Workers
There are a number of ways to hire workers from foreign countries. However, there are also a number of different challenges to overcome, such as,
- Taxes: this is a significant cost to consider both to your own local government and to governments abroad.
- Organizational costs: what is the organizational cost of the solution you choose? In other words, what is the cost of maintaining that solution as a part of your business’s infrastructure?
- Legal: can your solution work in the long term based on national and international labor laws?
These are all difficult challenges, but if you can find a solution that works well for your business, you can stand to benefit greatly from recruiting top talent from around the world. Let’s talk about some of the different solutions that you may choose to hire employees from foreign countries.
Setting up Your Own Entity
This can be a costly option for just employing a few workers, but if you have other business interests in the country, or plan on hiring many workers for the long term it might be worth it. There are registration requirements which may include having a local representative, as well as hiring legal and accounting expertise.
One of the advantages is that you will have control over the entire employment process without outsourcing to a third party. Larger businesses may want that autonomy and have no problem with the set-up costs and time.
However, if you are just hiring a single remote employee, setting up a branch or entity for only that purpose may not be the most efficient option.
Hiring through a Business Partner
If you have any existing suppliers, vendors or business contacts, they might be willing to put the worker on their payroll and take care of all the tax withholding and social contributions. They would be doing this simply for employment administration, and the employee would remain under your control and management.
More than likely this is an interim solution but does allow you to hire the employee quickly and gives relative assurance that you will be in compliance. It does require a level of trust with the local company as they will be handling compensation, payroll and taxes on your behalf.
Use a Global Employment Organization (GEO)
Some companies will use a GEO to hire their foreign workers, run payroll and make sure all labor laws are followed. This is accomplished by an employer of record (EOR) that is already set up in the foreign country, who are familiar with all the statutes and payroll processes to follow.
An employer of record (EOR) is also known as a third party local entity. This is a term used to describe a separate organization. This group will hire and pay your remote employees on your company’s behalf.
The EOR legally administers all employment tasks, and the company just remits the monthly compensation for payroll and withholding. The benefit of the GEO system is that it offers local expertise and experience, and you won’t have too many compliance concerns. They are also able to interface between the employee and your HR department to handle any differences in benefits or employment rights that may be unfamiliar. There is a fee for the GEO service, but it is far less than setting up an entity and frees up HR time to manage the worker rather than focus on employment tasks.
Is a GEO or EOR Better Than a Local Entity?
It depends on your needs. For most businesses, this is a cheaper way to get into outsourcing and recruiting remote workers abroad. This is because the company isn’t investing resources into developing and maintaining a local entity. Understanding and complying with local regulations also isn’t an issue. The GEO handles all of this.
However, some businesses may find a local entity to be more effective if they are substantially large and plan to maintain a presence internationally for the long term. For them, setting up a local entity can keep all the costs and data in-house. This might save money in some situations. However, for most businesses, this may not be the most effective option for hiring workers from foreign countries at their market scale.
An important thing to consider is how much time you want your business to spend focusing on hiring, compliance, payroll, and the other responsibilities that come with a local entity. Partnering with a Global Employment Organization can help you focus on what matters to your business instead of the technical details. This can make your business more productive and help you accomplish your goals more effectively.
Run Remote Payroll
It may seem simplest to just put the worker on your home payroll, but the problem is that then they are not having taxes or contributions withheld in either country. This might work with an expat who just wants to work remotely abroad, but it’s not as feasible for remote foreign workers.
Some countries don’t permit remote payrolls for residents, and if they do, there may be registration requirements and payment of both employee and employer social contributions, so you might as well find a local employment solution.
Employee or Contractor?
Companies hiring remote workers may be inclined to hire the worker as a contractor rather than an employee. This does have its advantages, as the company only has to set up a contract, confirm work progress and send payment, and the worker takes care of their own taxes and contributions as they are self-employed. Some workers prefer this or are already set up this way, but many are not prepared to be independent.
The downsides to hiring contractors is that there is typically less control by the company and the worker may not feel as loyal or connected to the business. Moreover, the worker could be re-classified by authorities as an employee if they don’t meet self-employment criteria. This would mean payment by the company of back taxes, contributions and in some cases penalties for misclassification.
Which Employment Solution Should I Choose?
There are many global employment solutions for hiring remote employees, and that includes deciding how to allocate payroll, tax and entitlements between the home and host country. Accessing global talent is a modern, technological opportunity, but traditional laws and business cultures still need to be followed in the countries of employment.
Always Consider Risks
There is always a great deal of risk involved when making business decisions of this scale. Setting up a local entity may be one of the riskiest options when deciding how to employ remote workers from foreign countries. It can incur a great deal of unexpected costs if all variables aren’t accounted for. Regulations, tax laws, and other factors can change around the world as well, meaning there’s a lot to keep track of.
If your business needs to recruit employees from foreign countries at scale and you aren’t prepared to set up your own local entity, a GEO like ShieldGeo can help. Partnering with an EOR can save time, money, and help you focus on what matters most to your business. It also reduces your risk of falling victim to unexpected fines and taxes. It’s up to you to decide how you’ll go about hiring the talent you need.