There are millions of nonprofit organizations around the world, with mission statements aimed at improving the lives of others. While some nonprofits only need to operate on a local scale, other organizations want to expand their message and extend help globally.
Taking a nonprofit into countries outside of your current service area requires thorough planning. Reducing costs is an important factor for many charitable organizations, but it is not the only factor to consider when developing an international growth strategy. Keep reading to learn best practices for nonprofits looking to tackle global expansion.
Important Factors Nonprofits Must Consider Before Hiring Globally
Lowering cost and mitigating risk is critical for nonprofit organizations as they expand overseas. These organizations often manage strict budgets and have reputations on the line. Additionally, because they are not traditional, for-profit companies, determining the correct legal tax structures that apply in a new destination is a confusing and challenging process.
All of these factors mean that nonprofits need to plan a detailed global expansion strategy with special attention to how to save money, mitigate risk, and manage tax compliance abroad. Depending on their target market, nonprofits face unique challenges overseas, such as a greater financial burden due to tax exemptions in their home country not applying in foreign markets.
As nonprofits start building their global expansion plans, several crucial factors they need to consider before hiring overseas include:
1. Choose the Right Hiring Method
Choosing a compliant hiring method is critical, especially for nonprofit organizations. Misclassified workers can lead to significant fines and reputational damage.
Nonprofit organizations typically work with strict budgets and might not be able to manage the fees for misclassification or hire a legal team to navigate litigation brought against a noncompliant organization.
Some of the most common global hiring methods include:
- Establishing a legal entity—entity establishment is a compliant hiring method, but it is also time consuming and expensive, which might be a barrier for nonprofits that operate on strict budgets.
- Hiring foreign independent contractors—using independent contractors is occasionally a good option for nonprofits looking to complete a short-term project overseas. However, misclassifying your full-time employees as independent contractors leads to hefty fines. Read our complete guide on foreign independent contractors to determine if you can hire them compliantly or consider other options.
- Partnering with an Employer of Record— This solution is an excellent option for nonprofits looking to hire overseas while still reducing cost and mitigating risk. An Employer of Record hires a global employee on your behalf and handles global payroll, benefits administration, and risk mitigation, while you maintain day-to-day control of the employees and the work they do for your company.
2. Stay Flexible So You Can Easily Exit a Market If Necessary
Global expansion sometimes presents unexpected obstacles, so nonprofits must stay flexible and agile when planning overseas growth. Establishing a legal entity or subsidiary overseas is typically a long-term commitment and is expensive to dissolve. Organizations can expect dissolution costs and time commitment to be up to three times more than establishing the entity; however, this varies depending on the country.
These costs are difficult for a nonprofit to manage, which is why it’s important to choose a global expansion method that is more flexible, such as an Employer of Record. Flexibility to leave a market that doesn’t prove to benefit your work or brings up unforeseen costs that are too high is essential for nonprofit organizations. With this solution, nonprofits have the ability to offboard global employees at any time, with no additional costs to leave the market.
3. Research and Adhere to All Tax Requirements for Nonprofits
Nonprofits in the U.S. do not pay traditional taxes like for-profit institutions; however, there are some exceptions to this rule. For example, if a nonprofit organization earns $1,000 or more in gross revenue from something that is not related to its tax-exempt purpose, then it must pay income tax to the Internal Revenue Service. Tax laws change drastically from country-to-country, so a nonprofit may be liable to pay some type of tax depending on the unique situation.
In Canada, for example, most nonprofit organizations are exempt from income tax but they have to complete and submit a tax return to the Canada Revenue Agency each year. Registered charities must file a Form T3010 and provide financial statements within six months from the end of each fiscal year.
Before you hire in any country, it’s important to work with a global expansion expert that has advanced knowledge of the tax laws of target markets to mitigate potential risk.
4. Comply with Changing Rules and Regulations
Global employment rules and regulations are constantly changing, and both nonprofit and for-profit firms need to ensure compliance by meeting local expectations in each market. These requirements include, but are not limited to:
- Taxes and withholdings
- Benefits (healthcare, retirement plans, paid-time off, etc.)
- Termination and severance agreements
These rules and regulations vary from country to country, and are challenging for many nonprofit organizations to handle alone, especially those on limited budgets. One of the most effective methods to manage compliance during global expansion is with an Employer of Record partner. This partner takes care of all the compliance requirements listed above, and supports onboarding your workforce, and ongoing employee support when questions arise.
The Right Global Expansion Partner Helps Nonprofits Tackle Unique Challenges Overseas
Choosing to expand overseas is sometimes risky for nonprofits, but it is also gratifying to access a new market and share your mission with the world. One key to success in the global marketplace is working with an experienced partner.
Velocity Global’s Employer of Record solution helps nonprofits changes live abroad every day. Our experts know what it takes for an organization to be successful overseas and they help you navigate the unique operational challenges nonprofits face.
To learn more about how Velocity Global helps nonprofits find success overseas, read how Velocity Global worked with Great Kids, Inc. to quickly hire and onboard a key international employee and expand the organization’s life-changing services. If you’re a nonprofit that’s ready to take advantage of benefits of global expansion, get in touch with our experts today.