Remote hiring is one of the things that is very different from a traditional company. In a traditional company, the company usually has an office and corporation set up in the area you work in or at least have set up payroll there. Hiring people is easy and a normal employment contract is usually enough to get people hired full-time in a legally compliant way.
The difficulties of hiring remote employees
The responsibilities of an employer are very regulated too: PTO days are usually fixed, payroll knows how to deal with possible deductions such as taxes, social security and benefits and special local regulations are usually accommodated. That's not always the case with remote work.
When you are hiring remotely, you need to make sure you are compliant with local laws. Employees might face high social deductions, based on their country of residence, and it's also your responsibility to keep your employees informed on how much they are going to make after-tax.
PTO is also immensely different based on location: While in Europe 25-30 PTO days and 10-15 public paid holidays are often standard, it's usually lower in the US and Asia. There are other exceptions where an employee can take a day off, for example for Jury Duty in the US or military service in multiple other countries. Finally, benefits are often very different as well – while in the US you would usually expect to receive healthcare benefits and a 401k, that's not usual in many other countries.
There is a lot to watch out for, so what are your options?
Hiring remotely through up a sub-corporation
If a company is planning to set up a hub in a specific country, it can be worth it to establish a permanent sub-corporation in that state or country. In that case, the company officially incorporates there, sets up payroll (which usually involves hiring an accountant or accounting consultant) and then has the ability to legally hire people in that country or state.
This is not trivial and probably not an option unless you're a bigger corporation looking to hire 10+ people (depending on the country) there. The time commitment and cost is simply too high and things can get complex with multiple sub-corporations in terms of administration and taxes.
The advantage of it is clear: There's no substantial additional administration cost per hire, employees are employed with a local employer (often taking a lot of effort off their shoulders) and while the initial setup is taking a lot of effort, the maintaining of the corporation isn't so much work compared to some other options.
Hiring remote employees as contractors
Often a preferred way to hire people in remote companies is to simply list them as a contractor and getting invoiced from them on a monthly basis. This puts much of the needed effort on the shoulders of the employee, which is often more preferable in small companies.
It's absolutely needed to give employees time for administration in this case. Additionally to their work, they will have the handle the additional work that comes from running your own business, such as declaring themselves as self-employed or forming an LLC, possibly pay profit/income taxes additionally to their personal ones, figuring out all insurance and deductions that are needed and handling local nuances, such as setting up proper social security, handling retirement funds and healthcare.
While this sounds like a lot of work, a lot of these are once-per-year activities. Most remote companies still tend to go with this option. It's the cheapest, possibly fastest, simplest and most flexible way to get someone hired.
Utilizing a payroll service to hire remotely
In some countries, getting hired as a contractor is just not so easy as it might seem.
When I started working remotely myself, I looked into this for my home country Switzerland, and quickly realized that this came with too many disadvantages. Namely:
- To count as independently self-employed, I'd have to send invoices for at least three different clients to the government every month. This is not possible, if you're working on a single contract
- I'd have to have opened a local LLC to work for a single client, requiring a security deposit of $25,000.
- I'd have to calculate my social security and pension funds every year, and invoicing them separately to my employer
- I wouldn't have gotten paid my full salary during military services (it's still mandatory here, the government reimburses salary)
So we went ahead with a local payroll service.
A payroll service or global employer is a company that has set up payroll in a country. They're able to hire people locally, do all the work required for a local employee, and invoice the "real" employer accordingly. This service often costs $100 - $300 per month per employee, so as things scale up, can get costly. But else it is the least amount of effort required to hire someone remotely.
I like payroll companies so much, that I've put together a list of them, one for (almost) every country out there. Whether you're looking to hire someone in Canada, Australia, Germany or Barbados, there is a payroll company there.