Global Expansion

How to Choose the Right Form of International Hiring

February 15, 2021
  •  
5
Brett Ungashick
Founder

Companies that want to dive into the global talent pool should know their options for hiring people abroad. This is a guide to selecting the most suitable form of international hiring for your business.

This article is a Guest Post from the wonderful team at Deel

By 2030, there could be $8.5 trillion of unrealized annual revenue on a global level due to talent shortage. With such predictions in mind and remote work becoming mainstream rather than an employee benefit, it’s no wonder companies are looking to broaden their talent pools as much as possible.

However, looking for the right talent isn’t the only reason for businesses to go global. Entering foreign markets typically means higher revenue and more growth opportunities, as well.

Still, companies must tackle a few obstacles before they build their international teams: how to be compliant with the local laws and what form of global hiring to choose?

We’re giving you the answers in this article.

Most common ways to hire legally in different countries

Depending on your needs, you may choose one of the following ways to hire international talent:

  • Open a subsidiary in the country you’re looking to hire from
  • Hire through an Employer of Record (EOR)
  • Hire independent contractors

1.) Opening a subsidiary

Subsidiaries are often called daughter companies - they’re separate legal entities established in foreign countries but still controlled by the parent company to a certain extent.

However, even if the parent company owns 100% of the subsidiary, it only affects business plans and policies implemented by the daughter company. The subsidiary will still have its own bank accounts and be independent in terms of taxes and liability.

Pros
  • More direct access to new markets, since you operate locally
  • Building a greater authority and credibility in the new market
  • If not reaching the desired outcome, you can sell the subsidiary and get your initial investment back
Cons
  • You may face bureaucracy issues while setting up the entity
  • The process takes a long time to complete, which may cost you opportunities
  • It costs a lot

2.) Hiring through an Employer of Record

A faster way to hire internationally, rather than opening a subsidiary, is via an Employer of Record. These organizations specialize in HR and payroll so that they can take over your complete hiring process.

An EOR typically takes care of the following: drafting contracts, filing taxes, tracking your employees’ working hours, calculating compensations, onboarding new employees, administering employee benefits, etc.

Pros
  • Cost-effective
  • Hiring anywhere in the world is legal
  • No need to learn about taxes in each country you hire from
  • The setup doesn’t take long, so you can start hiring almost immediately
  • Misclassification and compliance risks are reduced
Cons
  • It may feel like you have less control over your hiring process
  • Implementing your company culture may be more challenging as you operate through a middleman

3.) Hiring independent contractors

Independent contractors are workers who are not on your payroll - they may work for you part-time or have a project-based contract. You’re not responsible for their income taxes, healthcare, and other benefits, and they work with their own equipment and in their own office, home, etc.

Pros
  • Fewer costs than when hiring employees
  • No need to provide them with tools or equipment
  • You have access to the global talent pool
  • Flexible collaboration conditions
Cons
  • Less control over how and when they work
  • Facing misclassification risks
  • Their work may be their intellectual property
Example

Let’s illustrate this with a global hiring example.

Say you’re a US-based company and want to hire an employee in Germany. To avoid opening a subsidiary (because it’s only one employee), you may opt for an Employer of Record.

Your chosen EOR helps you with calculating the benefits that need to be included in the salary (worker compensation insurance, health insurance, unemployment insurance, etc.), establishes the Euro as the desired currency, a monthly payroll cycle, and lists public holidays and paid time off that German employees are entitled to.

They also help you stay compliant with the minimum wage, taxes, maximum working hours, and other important information before your new hire signs the contract.

How to know when you need an Employer of Record and when you need an independent contractor

When considering your options, you may feel unsure about what to choose: an Employer of Record or a contractor? Here’s how you’ll determine what form of global hiring is right for you.

If you:

  • Want to hire full-time employees
  • Can provide employee benefits for your workforce
  • Want to outsource the whole process (common for small businesses)
  • Want to avoid misclassification issues
  • Want a more formal business relationship with key employees that directly impact your business (for example, the sales team)

…then hiring through an Employer of Record is a better choice for you.

On the other hand, if you:

  • Need a smaller number of workers
  • Can’t afford employee benefits (yet)
  • Already have an HR department
  • Need people to start working as quickly as possible
  • Only want additional support on specific projects

…then you should hire independent contractors.

Legal and compliance requirements for hiring internationally

Whatever form of international hiring you choose, there are certain factors to consider. Remember that if you hire contractors, it’s up to you to ensure compliance with local laws and take care of everything else regarding your business relationship. But if you hire through an Employer of Record, you’re outsourcing this part of the job as well.

Things to consider when hiring through an EOR:

Local labor law: As we’ve seen in the example of hiring an employee in Germany, you need to follow the guidelines regarding minimum wages, paid time off, health insurance, and other aspects of the local laws.

Local taxes: Each country has its own tax rates for making payments to foreign workers. As the employer, you will have additional costs on top of your employee’s net pay to cover the payroll and other taxes.

Contracts: They also need to be compliant with the local law to protect your company from potential risks.

Payroll: It’s important to consider the optimal way to pay your foreign employees in their desired currency (if available), while avoiding unnecessary fees.

When you hire contractors, filing taxes and compliance with labor laws are your responsibility.

Local law regarding employee misclassification: It’s critical to avoid misclassifying your workers if you want to avoid fines and legal issues.

Contracts: Your contract should be airtight since collaborations with contractors are typically more flexible, and you have less control over workers’ schedules.

Intellectual property: In some countries, any work created by an independent contractor is considered their intellectual property. When drafting a contract, it’s important to keep this in mind and include a clause that solves it.

Start building your global business

Hiring internationally has never been easier. All you need to do is choose the option that suits your business the most and get started. And the best thing about it is that you can do it in under five minutes! Check out Deel’s platform to book a free demo and join 3000+ companies that already hire compliantly and hassle-free everywhere in the world.

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Brett Ungashick
Founder
Brett is the founder of OutSail. He spent the early part of his career selling HR software before switching sides and going to work for the people buying the software.

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