Hiring a global team is intimidating as there are many options, risks, and benefits to consider. To reduce the complexity of international employment options, we explain the various types of overseas outsourcing, their associated risks, and how to remain compliant throughout your global operations.
Options for Global Employment Outsourcing
There are a few options for compliant global hiring, giving employers a broad spectrum of possibilities when they’re ready to hire overseas. These options include using foreign independent contractors, business process outsourcing (BPO), and an International Professional Employer Organization (PEO).
Foreign independent contractor regulations are much more complicated overseas, particularly concerning the working agreement. A foreign independent contractor needs to be completely autonomous in their responsibilities at your firm. If your independent contractor decides to dispute the agreement and claim to labor courts that they are an employee, you could face significant fines and penalties if the courts side with the independent contractor.
BPO is a form of outsourcing that helps a business manage its responsibilities and minimize costs. By bringing in extra help without hiring full-time employees, it increases productivity and performs complex tasks for firms that are on a tight budget during the startup phase.
International PEO provides businesses with the resources they need to easily manage foreign employees, including employee benefits, payroll, worker’s compensation, recruitment, training, and risk management. There are many different types of PEOs, but the option for international businesses is a great way to get operational in-country quickly without establishing a foreign subsidiary.
Risk Versus Control for Global Hiring Options
While each of these foreign hiring options has benefits, there are also risks that you should keep in mind when choosing the best path for your company.
Foreign Independent Contractor
Hiring foreign independent contractors to perform work overseas presents many risks surrounding the employment agreement and your legal presence in the new country. As mentioned, if your contractor decides to dispute the agreement and claims they are an employee, labor courts typically side with the contractor. If this occurs, your agreement will likely be thrown out, and you will need to be present in court with a local entity.
If you do not have a local entity, then your business may face:
- Fines and penalties
- Employment audit
- Tax audit
- Requirement to establish an entity
- Fines for non-compliance and back taxes
Independent contractors can be a quick global hiring option for many companies. But, the misclassification risks can have serious financial consequences for your business.
The biggest risks associated with BPO are the hidden costs, loss of visibility and control of processes, and transferring customer relations over to a third-party resource. Businesses can gain more control over their BPO processes by developing stringent requirements with the organizations they chose to work with.
If your company works with an organization that handles customer service, reinforce your needs and closely monitor their work during the first month to ensure that there are no customer complaints.
Businesses lower their risks and gain more control when they opt for an International PEO partner to compliantly hire overseas. This option removes the dangers of compliance issues that come with operating in a new country. This is because the startup requirements for hiring overseas are outsourced to an experienced firm. Essentially, an International PEO manages the working relationships, including independent contractors, to save your company from those expensive risks.
The one aspect of business that International PEO does not cover is it cannot hold physical assets. If your firm operates in real estate or manufacturing, you will have to establish a foreign subsidiary.
Keep Your Business Compliant During International Expansion
Staying compliant when you enter new markets is always a challenge. Laws and requirements change on a regular basis. So, companies need to have a dedicated individual to act as a compliance officer.
One of the best options for reducing a business’ compliance worries is using an International PEO. A majority of the risks associated with hiring overseas are placed on your partnering firm, which ultimately reduces headaches for your team.
As previously mentioned, this service also saves you time, money and effort. It removes the need to establish a foreign subsidiary in your new country, and this is helpful because it takes months and thousands of dollars to set up a legal entity.
To learn about all these matters in more detail, please download our free eBook “The Ultimate Guide to Global Expansion“.
Updated on 11/11/2019