Nonprofit organizations, or non-business entities, operate to help others and create positive change in the world. While each nonprofit’s mission varies, expansion is often a shared goal. Nonprofits typically expand globally to share their message and extend their impact to as many people as possible.
As nonprofits grow on a global level and look to hire employees in other countries, they must consider important factors to expand compliantly. Learn the compliance risks and global employment options for hiring employees for a nonprofit organization.
Following the legal employment rules of a foreign country can be a confusing and challenging process, especially for organizations that already follow strict guidelines to maintain their nonprofit status. Nonprofits often operate on strict budgets and cannot afford the risks, fines, and penalties that result from non-compliance.
As nonprofits plan to hire employees internationally, it’s important to pay attention to mitigating risk and managing tax compliance abroad. Some compliance risks include:
Global Tax Requirements
Nonprofits typically do not have to pay the traditional taxes that for-profit businesses pay. However, tax laws vary from country to country and a nonprofit may be liable to pay a circumstantial tax. It’s crucial to understand the differences when entering a foreign market.
For example, in the United States, a nonprofit must pay income tax to the Internal Revenue Service (IRS) if it earns $1,000 or more in gross revenue from unrelated business activity.
As with any workforce, employees of a nonprofit must register, file, and pay local country taxes, and the employer is responsible for withholding the correct amounts in payroll. Many nonprofits choose to mitigate potential risks by working with a global expansion expert who knows the tax laws of the targeted foreign markets.
Variance in Employment Laws and Regulations
Employment laws and regulations typically include the following:
- Taxes and withholdings
- Benefits such as healthcare, retirement, and paid time off
- Termination and severance
These requirements are different in each global market. A nonprofit organization must meet the local rules of each country to ensure its employees receive accurate and legal employment rights.
Following these varying employment laws and regulations is challenging for a nonprofit to handle on its own. An employer of record partner (more on that later) helps nonprofits navigate the differences in each country by handling the necessary compliance requirements, onboarding, and employee support.
Permanent establishment occurs when a business or nonprofit generates sufficient revenue for taxation in another country. Global nonprofit organizations staffing a fixed office in a foreign country could trigger permanent establishment and find themselves liable for local corporate taxes. Failure to pay corporate taxes results in legal issues, including interest in unpaid taxes, penalties, and employer liabilities.
Choosing a compliant hiring method is critical to nonprofit organizations, as misclassified workers can lead to significant fines and a compromised reputation. When expanding abroad and hiring employees for a nonprofit organization, there are two ways to employ staff:
Set Up a Legal Entity in the Foreign Country
Setting up an entity in another country allows nonprofits to create a local branch, directly hire talent, and pay employees. Entity establishment is a good option if your organization wants to establish a long-term, multi-staffed operation in that country.
However, entity establishment is also time-consuming and expensive, which is a barrier for nonprofits operating on limited budgets. There is also less flexibility should you need to exit the market quickly. Make sure you work with local experts and resources that help guide you through the process.
Partner With an Employer of Record
An employer of record (EoR) is legally set up to hire global employees on your behalf and handle payroll, benefits, and risk mitigation. An EoR partnership is an excellent option for nonprofits looking to reduce costs and ensure compliance by having all foreign administrative tasks handled for you. Working with an EoR requires less money, time, and commitment than entity establishment. It also allows nonprofits the flexibility to hire a small or large number of employees.
Some global nonprofits choose to work with self-employed contractors instead of hiring full-time employees. Engaging contractors in another country is an effective route for organizations looking for help on specialized projects or on a short-term basis.
If you opt to engage a contractor in a foreign market, make sure they are classified correctly and compliantly under local regulations. Otherwise, your nonprofit could face fines and penalties if the local authorities deem your contractor as a misclassified employee.
While expanding globally and hiring employees for a nonprofit organization is a risky move, changing lives abroad is a reward that far outweighs the risks. Working with an experienced global partner ensures success in the international marketplace.
Velocity Global’s Employer of Record and team of experts help nonprofits navigate the unique challenges of global expansion and the changing regulatory requirements in foreign countries. We manage onboarding, payroll, benefits, visas, and immigration on your behalf so you can focus on making a positive, international impact with confidence and peace of mind.
We are here to help you share your unique mission with the world. Contact Velocity Global today.