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No puede simplemente emplear a alguien en un mercado extranjero para su empresa

By junio 1, 2019septiembre 29th, 2022No Comments

One in five companies we spoke to have an employee in a foreign market, working on the basis of a local employment contract for an entity based outside the worker’s country. In some cases, this is simply because the executive team does not have time to put in place an appropriate structure before the employment relationship begins (and intends to rectify the situation in the future). But in most cases, the main cause is that the executive team is not aware that this structure is not legal or valid. Below you will find the reasons why this is a problem and why it is important.

Why you can’t employ someone for your business in a foreign market:

  1. An employee who works in a country is subject to the labor laws of that country. The conditions of the employment contract must be specific to that country.  For example, a US employment contract may not be sufficient for another country, starting with the fact that the «at will» employment clause should be removed.
  2. The labor law regulates cases of employees against employers and a local entity is required for their presentation in court.  If there isn’t a local entity hiring that employee, you risk triggering all sorts of larger problems (see “Why It Matters” below).
  3. Employees and employers must pay into social security (health, retirement, workers’ compensation, etc.) when they work in a country.  Only a local company can register and remit these payments to the authorities.  Also, the best local professionals are going to want their local retirement and this is not possible without a local recruitment company.
  4. Many countries require the company to withhold and remit income taxes on behalf of the employee.  Only a local company can register and remit these payments to the authorities.
  5. If you hire a foreigner for a certain market, a local company must be the «sponsor» of that work permit. Foreign companies cannot sponsor work permits.  Without the work permit, the foreigner does not have the right to work in the country.

Because it is important:

  1. Local labor laws prevail over what is stipulated in the contract in case of contradiction. The employee can sue for almost anything he wishes, since his contract abroad is basically null and void in all local labor matters.
  2. The employee will not have access to the local health program or the national retirement plan.
  3. You also will not have access to benefits or sick leave.
  4. Your employee is likely to be paid in a currency other than their home country, which incurs a foreign exchange fee and leads to unpredictable fluctuations from month to month.
  5. Read this to better understand hiring abroad.
  • The authorities are not satisfied if someone does not pay the social security systems. If they find out that you have someone hired and they are not paying into the system, the following usually happens:

  1. Fines and penalties
  2. Immediate payment of what is owed from the first day of work
  3. Initiation of a broader labor audit
  4. Recognition that it does not have a local legal contracting instrument, which leads to ongoing conversation around why it does not have a legal entity that generates taxes locally,
  5. which leads to a tax audit,
  6. which, in turn, requires the creation of an entity.
  7. In addition to the payment of fines and penalties for previous breaches.
  8. Let’s not forget the previously unpaid tax liabilities for income that the authorities unilaterally decide you owe.
  • If you have a foreigner working in the country without a valid work permit, they will be deported IMMEDIATELY. If this happens in the Middle East, the employee will end up in jail.

  1. Hopefully, your customers and prospects had no intention of meeting with that employee that day, week, or month.
  2. Hopefully, the clerk didn’t have a lot of valuables or sentimental items in his house, because he might not come back to pick them up.
  3. By then, the authorities have already given him a red card. Even if you want to settle in the country and employ according to the rules, you may be hindered or prevented from doing business in the country.

Thinking of opening up to the international market? Take the big step with an expert expansion partner.

Simply put, it’s not worth the risk. If the person is indeed a contractor, then sign a contract for the provision of services that complies with local regulations and make sure that they fall under the category of “contractor”. If it is not a contractor or if the company operates in a country like Brazil, which does not directly recognize «contractors», use an Employer of Record (Legal Employer)to employ the employee on their behalf. The international PEO solution provided by Velocity Global can ensure that the person hired as part of your global expansion is correctly classified, allowing us to be your employer of record and employ on your behalf. Ready to source and secure the right talent to lead your global expansion plans? We can make it happen