Hiring overseas? Globalization Partners on staying on the right side of the law
Recruiting in a new market is an exciting step in any organisation’s growth strategy, bringing a greater diversity of talent, fresh perspectives, and local knowledge to your business.
However, it is important to prepare thoroughly to avoid common pitfalls when hiring overseas, says Adrienne Drew, associate general counsel at Globalization Partners.
The first misstep companies often make is taking a ‘business as usual’ approach.
“Many companies try to simply graft existing processes and policies onto a new location without understanding the local laws, practices, expectations, and cultural differences,” says Drew.
A second error happens when attempting to provide benefits for employees across vastly different cultures.
“Benefit requirements vary from country to country,” says Drew. “It is not best practice to roll out one homogenous benefits plan for international employees across multiple countries. It would be nearly impossible to create a ‘common denominator’ plan that meets all countries’ laws and norms, and the costs of doing so would be prohibitively high.”
Third, and this is a big pitfall, is misclassifying your workers. You must decide whether the hire is an employee or a contractor – and be absolutely sure they meet the legal criteria in each case.
“If a contractor is misclassified, and is operating as a full-time employee, the company can be required to pay back wages and benefits, and be subject to hefty fines. These vary by country but, for example, in Poland, the fine is over AU$8,000. In France, you might be fined up to AU$350,000,” says Drew.
“Moreover, if a contractor needs to be reclassified as an employee, your company could also be responsible for paying payroll taxes for the period of the engagement, overtime pay, and interest on employee’s wages.”
Misclassification could also cost you more than money. “Often, small or hyper-growth companies hire contractors to fill a need quickly. But without proper protections and documentation, companies risk losing their intellectual property rights,” warns Drew.
These various considerations each pose a risk to an organisation, and because employment laws vary greatly depending on where the employee or contractor works, global hiring can be time-consuming for internal HR and legal teams.
“You may need to hire full-time people to simply track changes to employment and labor laws, handle taxes, and administer benefits in each country,” says Drew. But proper handling of international hires is not a corner to cut.
Although contractors can cost less overall than employees, says Drew, contractors usually build the cost of taxes and employment perks into their fees, so it is not necessarily cheaper to hire in this way.
There may come a time when you decide to bring your contractor risk under control and reclassify contractors as employees. The transition can be a delicate process, and getting legal advice is wise, says Drew. The transition will involve a detailed negotiation and can include lump sum payments to cover estimated self-employed taxes, additional benefits received as an employee, and a general net to gross estimate to arrive at a new salary.
If you decide to hire reclassified employees, an Employer of Record can be a helpful part of the process, says Drew.
An EOR also makes sense when you are hiring across multiple jurisdictions; they take on all the legal responsibilities of an employer in the country of hire, allowing you to hand over payroll, taxes, benefits, and compliance concerns and onboard talent in a matter of days.
A reputable EOR also takes on 100% of the risk associated with hiring internationally, so you shouldn’t have any unforeseen fees or fines while building a global team, says Drew. Don’t risk your intellectual property, your company income, or reputation: Hire sensibly and bring on local experts like a global EOR whenever possible.
To register for Globalization Partners’ webinar on Talent Mobility Compliance, click here Managing talent mobility compliance in Asia Pacific (globalization-partners.com)
