Understanding your options when it comes to global staffing solutions is like trying to define what the best way to send an email is, there are so many options and some are better for certain circumstances. We always like to approach options for international hiring and staffing considering risk in terms of liability, tax, and intellectual property at the highest importance. In this post we will start with your most risky options and then go all the way to the least risky option.
Most Risky Global Staffing Solutions:
Hiring Independent Contractors Who Operate Without an Overseeing Company
Many companies think that hiring a solo independent contractor is the least risky because the contract can easily be terminated and the commitment is minimal. We realize the appeal of this type of relationship, but we will always raise a red flag because of what can happen in worst case scenarios. As we have previously discussed in a post called “The ‘Why Not’ for Using Contractors Overseas” we shared a case study where the local labor board flagged the two-year contractor as an employee and ended up costing the company $375K+ in legal fees to resolve. As HR Horizons outlines here too, you can get the sense that hiring contractors is a mine field that looks like clear green grass. We also highlight some compliance traps in this post specifically around:
- Contractors in many countries are not legally obligated to protect your IP
- Contractors may try to enforce the local termination policies, and potentially cause a labor board investigation
- Contractors in many countries do not need to honor Non-Compete agreements
Just make sure you fully understand the labor law compliance, tax liability, and IP implications of the country your contractor is working in before you even consider this option.
Hiring Independent Contractors Through a Digital Agency (Upwork, ODesk, Elance, etc.)
The benefit of using a service like UpWork is that the contractors build reputations by getting good reviews and like to protect those reputations, so the vetting process is highly simplified. Typically you can bet that a contractor with a five star rating who has completed 100+ jobs is very professional, but to us risk does not apply while the status quo is upheld, risk is gauged by predicting the worst case scenario. In the worst case scenario your IP is still at risk and this contractor could be working for your direct competitor.
Less Risky Global Staffing Solutions:
Hiring Through Outsourcing or BPO (Business Process Outsourcing) Companies
Companies like Fusion, Kelly OCG, and Accenture definitely decrease the risk associated with adding specific skill-sets to your team. The risk with relationships like this are around cost and control. Each one of these companies are dedicated as a whole to providing the best experience for their clients and they are responsible for the individual employees they have, but these resources are definitely not your employees. The company has to cover their overhead, so that has an extra cost associated and at the end of the day you could become really attached to a particular person on the team assigned to you, but they could be pulled at any time or leveraged to demand a higher rate during contract renewal negotiations.
The other risk associated with using a company to do an entire business process in your company is that if your relationship with the company goes sour, you might lose an entire department of your company overnight. That will not happen with the next two options.
Using International PEO or Foreign Subsidiary as a Service (FSaaS) to Hire Local Talent
International PEO and FSaaS solves the liability risk; employment based risk and complying with labor law. When we manage FSaaS and International PEO we create very strong, locally compliant employment contracts and also manage all HR functions like withholdings, PTO, 13th month, etc. Our local entity becomes the employer of record for your employee but you retain control; essentially our entities serve as a passthrough for all employment matters.
This allows you to have the control of hiring a FTE without having the headache or rigidity of managing a foreign entity. There are two key factors that usually push companies towards choosing this type of relationship:
Having a light footprint
- If a company needs to test a new market without making the commitment of creating an entity
- If the commitment in country is temporary
- There is no substitute for the balance of compliance and speed to hire that FSaaS and International PEO can provide; typically if a candidate is ready to go we can have them working for you in-country within 24-48 hours
Creating Your Own Foreign Subsidiary and Hiring Local Talent
Creating a foreign subsidiary is the least risky in terms of tax risk and IP risk, but also carries the most amount of overhead. One of the more common errors we see is a smaller company or startup who is trying to expand internationally into their first country and they create a foreign subsidiary not fully comprehending the amount of time and money it takes to manage these entities. We actually wrote an article a while back called “10 Reasons You Should NOT Create a Foreign Subsidiary” highlighting some of the major complications that can happen.
If your commitment is going to be long term and the resources allocated to the project are extensive then a foreign subsidiary is probably your best bet. Also you do not have to reinvent the wheel, Radius helps companies simplify this process down to a science with their extensive knowledge. Feel free to let them know that Velocity Global sent you.