A Comprehensive Guide to Employing Workers Across Borders
A Comprehensive Guide to Employing Workers Across Borders
The global business landscape is vastly different from what it was a few decades ago. The advent of the internet, the rise in the global population, and the increase in free trade have played a major part in bringing about this paradigm shift.
We normally term this phenomenon ‘globalization’. As more and more businesses dominate local markets, a point arrives when there is simply no more room to grow except expandinginto other regions.
Tech companies routinely try to penetrate markets worldwide to increase their user base, while multinational corporations do the same to increase sales and revenues.
None of this takes place in a vacuum, of coursed. Entering a new country means deploying resources there and setting up the infrastructure required to succeed in a new market. One of the fundamental resources that any corporation needs, not just those expanding into new territories, is employees.
When your business is located in one location, but you wish to hire employees in another, you will need to familiarize yourself with the area’s various legal and strategic nuances. So today we’ll be looking at the various items you need to know when employing workers across borders.
Since this is a key part of meeting your business objectives, we’ve tried to be as detailed as possible in our guide. Overall, we will be highlighting best practices when it comes to cross-border hiring, its pros and cons, along with the specific options you have available to carry out this task.
A Look at Your Options
The variety of options that are available to you will naturally vary from country to country. This is because each country has its unique business landscape. Some have a large informal sector that can make cheap labor available to you, while others can have a highly professional one that provides high-quality skilled workers.
Most countries will present you with a few options, and you’ll have to choose the one that is best suited to your goals. Let’s take a look at the few that we’ve come across a lot.
One option is to set up a legal entity to hire employees to carry out the business you require. This is pretty much the same as setting up the company in the target nation directly. Another option is to create a subsidiary or a branch. As the name suggests, this means that the legal entity that you set up is only a part of the main entity back home.
Many countries offer you the option to hire employees across borders without setting up a legal entity by applying for a non-resident payroll. In this method, you can hire employees, but they are registered to your company’s headquarters. The registration will clarify that your business is foreign.
Another common way is to hire independent contractors. This comes with more legal baggage than the other options but is a valid choice nonetheless. Lastly, you can utilize a legal framework known as the EOR or Employer of Record. In this method, you essentially take over a company that is already present in the host country.
This entity will manage the wages and benefits offered to the workers while working to achieve your aims, not the intermediary’s goals.
Making the Choice
We’ve already spoken about how the options available will vary by country. In the same way, the correct option will also not be a straightforward answer. You will have to analyze your situation carefully, consider each option’s pros and cons, and then make an informed choice.
Your business approach will also be a factor in choosing this approach. Some businesses wish to expand aggressively, which requires dedicating a large number of resources in a very short period. Others, on the other hand, wish to approach things methodically and conservatively.
It’s evident that certain choices will minimize risk and increase the time it takes to establish a foothold in the host country, while aggressive market penetration can achieve that in a much shorter time, but you run the risk of over-committing beyond the project’s benefits. At which point you’ll have to withdraw with nothing to show for your efforts.
One factor to consider is timeframe. How quickly do you wish to expand? What is the timeline for your strategic goals? For example, if you need to take advantage of a time-sensitive opportunity, then speed is of the utmost importance. That means you may not want to go through a long legal process to get started.
Your tolerance for risk also comes into play, as already discussed. If you’re willing to lose big in your attempt to win big, you may dedicate a lot of resources and set up operations of your own from the get-go.
In contrast, if you wish to establish a preliminary presence in the market before committing resources, you may want to becomean EOR for cross-border hiring. There is also the question of compliance and regulations that you’ll have to follow. Setting up your own entity requires compliance, so you may wish to see how much you would have to invest to ensure compliance with regulations.
The regulatory challenges inform you of the ease with which you can conduct business in the country. If it makes no financial sense to go through all the trouble without guaranteeing things working out, you may not want to set up a legal entity.
In summary, the choice you make will balance all these factors.Each will carry a certain amount of risk, but you have to determine the kind of risk you are comfortable with.
Adjusting Your Choice
We’ve already explained that the choice will vary based on yourgoals, risk tolerance, and local business landscape. As a business leader, you would be well aware that business is a dynamic field. Things can change over a period of time.
Right now, we’re only talking about the changes to your business needs. Naturally, once you establish a presence in the target country, you will slowly make some kind of progress. It is important to act when you reach critical mass.
That means that at a certain point, it will make no business sense to continue using an independent contractor, for example. In that case, you may wish to take things to the next level and sign up as an EOR. The opposite may also happen obviously. You may have over-committed and are simply not seeing the financial results you were hoping for.
In this situation, it’s important to change course and fall for the sunk cost fallacy. Cut losses when the opportunity is still available, or you may cause irreparable damage to your business. Hiring employees abroad is difficult if you cannot make the right calls when needed.
The Question of Independent Contractors
We’ve seen businesses ask this question time and time again – should I hire employees as independent contractors? This is why we’ve dedicated a whole section to this aspect of cross-border hiring. It’s obvious why independent contractors seem like such an appealing option. We suspect that beyond the low upfront cost, the word “independent” plays a big role in shaping opinions.
Businesses assume that the independent contractor reduces all risks that may fall to them because how can they be responsible for the actions of someone independent. Unfortunately, there are regularity and legal nuances here that business leaders fail to consider.
The most important one of these is misclassifying employees.This can result in serious legal ramifications for your business.We’ll go over this in more detail shortly, but the main takeaway is that hiring independent contractors carries significant risks that most people do not consider.
In fact, most businesses come for advice only after they’ve opened themselves to these risks by hiring their workers as independent contractors. Of course, we know how to deal with such situations, but it’s a needless risk that could have endedbadly.
Things to Avoid
As with all things, you should certainly avoid or keep in mind when hiring employees across borders. Let’s take a look at a few of them:
- Narrow Thinking: The most common mistake is that when businesses look to hire employees across borders, they have nothing more than the desire to expand, a handful of facts about why it’s a good idea, and the kind of employees they want. Of course, in reality, a lot more is required to ensure that you succeed in your main goal.
This is where you see that many businesses don’t have clear long and short-term goals for their expansion. Cross-borderhiring is secondary to the factors we’ve discussed previously, like how fast you want to expand and how much risk you are willing to take. Things like the general business, regulatory and legal environment are of utmost importance.
When all these factors are considered, you will have a detailed strategic expansion plan in hand. This plan will then be used to make decisions related to hiring employees across borders. If this plan is weak, then your hiring strategy may not deliver the results that you wanted or make avoidable mistakes that cost the business manyresources.
- Rigid Approach: This is good general business advice, but it is particularly important when it comes to cross-border hiring. This is because staying abreast with changes in your own country’s laws and the business atmosphere is easier.When operating on foreign soil, extra care and attention need to be given to the matter.
Monitor the environment closely. For instance, if the target country’s economy is going through a recession, it makes sense to not establish a legal entity. However, you may be better served during the recovery and growth phases by having a more local presence.
Being flexible and adaptable are important skills that can help your business survive in a different country andsucceed in it. Your strategy should be under constant review, and any changes to the landscape should be considered in terms of your strategy. If your approach needs to be altered, you need to make strong decisions promptly.
Things are always in motion. Business leaders already know this, but it merits repeating it from time to time. Sometimes we forget that it’s important to change with the times. You should always stay up-to-date with any changes to laws or regulations.You should also ensure that you are protected from any liabilities that may arise while operating in a foreign country.
If you would like to hire international employees, we who can help you navigate the tricky world of employing workers across borders. If you wish for more analysis on common approaches to HR or just general advice on expanding into new territories, reach out to us today and take your business to the next level.