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International Hiring 101 — Avoiding the Traps

By April 24, 2017September 20th, 2022No Comments
International Hiring 101: Avoiding the Traps

When it comes to international hiring 101, it’s all about managing compliance. Although that may sound simple, trust us when we tell you it’s not.

International-payroll

Compliance is an all-encompassing topic that includes:

  • Benefits
  • Withholdings
  • Taxes
  • Bonuses
  • Employment Agreements
  • Termination

Your overseas operations need to pay particular attention to the style of the employee, i.e. contractors or full-time team members, to ensure that you’re managing compliance properly at all times. Tackling this battle alone is difficult. For example, if you expand into Brazil, your company will deal with different issues than a business moving into Ireland. Managing these responsibilities can become burdensome for HR managers of small to midsize firms.

However, you don’t have to go through it alone. Partnering with a third-party service like an employer of record (EOR) such as an International PEO (Professional Employer Organization) can help manage compliance when hiring international team members. These services act as the employer to take care of withholdings, taxes and the legalities in each of your new markets so you can focus on producing results for your business.

Working with an in-country expert is one of the most effective methods for maintaining compliance overseas.

International Hiring 101: Prevent Contractor Misclassification

In the States, there have been a growing number of lawsuits against companies that are classifying workers as contractors. For example, a California commission recently ruled that an Uber driver is really an employee. This isn’t just an issue domestically. It’s also a huge problem overseas.

When you work with international independent contractors, you need to ensure that they are working autonomously. Therefore, they cannot be bound by a strict schedule, work specifications or formalities that your permanent employees must follow.

If a dispute occurs with your overseas contractor and labor courts determine that the worker is really an employee, they are entitled all of their back taxes, withholdings, and benefits. In addition, your firm must come up with cash for hefty fines and penalties.

International Hiring 101: Avoid the Risks Associated with Permanent Establishment

While many employers think that the only way to hire overseas employees is through establishing a foreign subsidiary, they are actually mistaken. In fact, when you’re new to an international market, you should avoid setting up a permanent establishment in order to remain agile and fully test a market before making an expensive long-term commitment.

Foreign subsidiaries come with many risks including:

  • High costs
  • Long lead times
  • Difficult teardowns
  • Complicated compliance maintenance

A better option for companies exploring global expansion is using an agile approach to create a legal presence and hire new team members. Whether you are hiring local nationals or sending expatriates into a market, an EOR solution reduces costs by as much as 60%, reduces hire time by up to 90%, keeps hires happier, and produces timely and accurate payroll while complying with foreign laws and benefits.

International Hiring 101: Protect Your Intellectual Property (IP)

Depending on the country you choose for international expansion, IP law can vary heavily from the law in the States.

For example, the contractual idea of “Work Made for Hire” does not necessarily apply to your international contractors like it does in the United States. Therefore, chances are your contractor agreement doesn’t address these issues substantially – if at all.

As a result, you’ll need to pinpoint specific IP requirements and protections in your international agreements. This is another area in which International PEO can benefit your expansion.

International Hiring 101: Learn the Tax Code Basics

We all know how complicated the tax code is in the United States, now imagine trying to manage the ever-changing codes in multiple countries, especially countries where standard regulations may not apply.

For example, in Brazil, tax professionals spend up to 2,600 hours per year complying with the tax code.

In addition to taxes, you’ll also have to understand how to manage payroll and termination standards. These vary, again, from country-to-country. In some countries, additionally, termination terms have varied from 30 days to 90 days with severance or without.

Without a partner, like an EOR, your company is responsible for managing all of these requirements in-house.

Don’t try to handle international expansion on your own. Reach out to Velocity Global today to learn how International PEO can help you get into new markets efficiently and compliantly.