So, you want to take the leap to hiring or expanding internationally but not sure where to begin, especially when it comes to international compliance?
While hiring talented workers in other countries and expanding your company comes with a lot of benefits, this jump also requires you to navigate tricky situations.
When you want to hire internationally or open an entity in another country, you need to make sure that you have the right knowledge about labor laws, payroll, and compensation and benefits. Even large companies like Google have come under fire for not paying their temporary international workers the correct salary.
Employers all around the world are making common mistakes about how to properly compensate and stay compliant when hiring in other countries. Here's a loot at what you need to keep in mind while hiring abroad.
For a US-based company, it may come as a shock that the social security system in many other outside countries is a lot more extensive.
As the employer, you will need to have extensive knowledge about the exact deductions you need to make in your payroll for both yourself and your employees. You will need to have a strong HR team and management that understands international expansion.
To avoid any legal ramifications from disgruntled employees, you should understand exactly what social programs are covered by the taxes in that particular country. For instance, is maternity leave paid by the government or by the employer?
For this reason, hiring a team of local tax attorneys or partnering with an EOR partner like Via is a must as companies begin to expand abroad.
To hire talent abroad, most countries require employers to either 1) set up an entity or 2) partner with an EOR service like Via.
Unfortunately, setting up an entity in another country will come with its own significant risks. Not only will you be required to understand how to set up an entity properly according to each country’s unique laws and regulations. You will also need to invest a significant amount of time and money into the initial business and management. This can take 6+ months and costs hundreds of thousands of dollars.
Required employee benefits vary from country to country. You will need to ensure that you are adhering to each country’s specific laws while also making sure that you set up fair benefits packages to attract top talent.
Many countries, especially in Latin America and Europe, require and expect robust benefit packages as proper compensation for their workers. As the employer, you will need to localize your benefits and compensation packages to retain employees and stay competitive and compliant.
For example, many countries outside of the United States require or encourage a 13th-month bonus salary that is already part of the employees base salary and benefits package.
Another common mistake that many foreign companies make when hiring employees globally is classifying full-time employees as contractors. A lot of employers choose to take this route to avoid paying taxes and benefits for these workers. The taxes and legal ramifications of misclassifying employees in most countries can be severe. Mexico, for example, has made it almost illegal to hire contractors without having proper proof that the work the person is completing can only be done as a contractor.
If you plan to hire contractors abroad, you will need to extensively research what types of workers can and cannot be classified as contractors. This usually depends on the contract length and position type. You should create a management team that helps supervise independent contractors.
You must also consider all of the labor laws that govern wherever you plan to hire or expand to.
Some countries, like Mexico and Brazil, have robust requirements for severance packages, while other countries, like the US, may not protect workers who are dismissed or laid off at all.
The United States is considered an at-will country, which means employers and employees are able to terminate their employment at any time without notice or written justification. For a business where the parent company is headquartered in the United States, it may be quite the adjustment to hire team members in another country where 30-days written notice is required by law to lay off or dismiss workers.
To avoid any problems with compliance, you should always familiarize yourself with local labor laws, or use a global EOR service (like Via) that partners with international labor law experts that help companies maintain their integrity abroad.
Another obstacle that many businesses face when hiring international employees is making payments across borders. If you don’t have an in-country bank account set up in the country where you have employees, you won’t be able to compliantly properly issue paychecks and pay full-time employees unless you partner with an EOR service like Via. For contractor payments, the laws surrounding international payments are even more ambiguous.
Each approach comes with its own benefits and risks, so you should research the options and think about what works best for your business before you decide how to run payroll.
In the United States, background and even credit checks are a common part of the hiring and recruiting process (with candidate consent, of course).
However, in a lot of countries, background checks are illegal and violate laws surrounding anti-discrimination. In the United Kingdom, for example, it is almost illegal to conduct a background check (except for certain positions, such as roles that require closely working with children).
If you deny employment or terminate a worker based on the results of an illegal background check, your business can face lawsuits and fines.
Companies that don’t consider permanent establishment requirements when hiring workers abroad also face tax burdens.
Permanent establishment is defined when an organization has a fixed place of business or entity in another country. If your business meets permanent establishment requirements, you will likely have to pay corporate tax rates at double the regular rate, which can add up quite quickly.
To determine if you have a permanent establishment, ask yourself these questions:
Is there a fixed entity or business in the country?
How long has the company been operating there?
Is business being conducted regularly?
How much control does the parent company have over the employees?
Without researching and understanding exactly what is expected of you in the country where you plan to expand, you are likely going to run into a lot of problems with compliance. It would be wise to hire a team of experienced lawyers that know the ins and outs of payroll, taxes, and hiring laws.
Another way to avoid problems with international compliance would be to work with an experienced EOR like Via, who already has on-the-ground experts and entities established abroad in target markets.
Many companies want to hire employees internationally, but are unsure of how to navigate the process. Via makes hiring talent and building your global team seamless. Our easy-to-use platform and services help you manage the local HR processes for benefits, payroll, background checks, and more. We have a local team of lawyers and on-the-ground experts that understand compliance as you expand abroad.
As your employer-or-record/entity, Via assumes responsibility for employment liability, so that you can focus on what matters: recruiting and managing your team.
With Via’s transparent pricing, you can pay full-time employees or contractors with no hidden set-up fees, no foreign exchange or transaction fees, and no minimums–start with 1 employee and scale up at your own pace.