November 2020
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Global Mobility Basics
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Team Localyze

Hiring internationally during Covid-19: 3 options when new hires can’t relocate yet

There are many good reasons to hire internationally and unfortunately it has been a difficult year for companies globally to move forward with their international hiring plans. One of the main questions that companies, and HR professionals in particular, are facing nowadays is how they can still hire international talent even if they can’t relocate to the office location for the time being. Considering the current world situation, where many borders are closed, operations of embassies are restricted and flights are being canceled, it is imperative that we find solutions that allow us to bring someone on board, even if initially remote.

Don’t worry, you have more options than you think

Gladly, there are several options that can be taken into account when deciding to employ an international candidate in times where relocation is not possible. We want to introduce three options to you in this blog post. The option of your choice will clearly depend on multiple factors, such as whether the employment is of permanent or temporary nature, and whether the situation of the respective new hire is an isolated case or not. Many of the possible employment options allow you to begin developing a relationship with your new employee on a remote basis in preparation for the time when he or she can finally relocate to your office location, if still desired.

Let’s have a look at the available options, bearing in mind that there are of course pros and cons, as well as risks and expenses associated to each single one of them.

Option #1: contracting a freelancer

Some companies are opting to hire their international employees initially on a freelancing basis or as consultants. This might be a good option for situations where the company only has one employee in the respective country and is waiting for relocation to be possible, i.e. ensuring that the freelance set-up is only temporary. Due to the overall relatively low commitment between the parties and the relatively low administration efforts and costs involved, there is a current trend to start hiring new recruits as freelancers. While this solution is often tempting, it needs to be clear that from a legal perspective this can only be a short-term and project-based solution as the topic of “false self-employment” is relevant in many countries worldwide and might lead to serious consequences when detected, for both employer and employee. The set-up of the freelance relationship is therefore critical and there are many things to be aware of to ensure compliance.

From an employee perspective, this solution is often less attractive as employees lack access to the benefits that their colleagues who live in the destination country are receiving, such as healthcare, retirement, and even unemployment benefits. If you are looking to build a strong relationship with your new hire, it is imperative that you ensure that this option is not carried out in the long term. While it might seem like an easy option for businesses, as there is no local compliance obligation or company liability other than paying for the service, many new hires are actually not very keen on using this method. This happens mostly due to the fact that the employee will have to be the one ensuring that they secure their own benefits and handle all their personal taxes, as well as leaving them without a high degree of employment security.

Option #2: Setting up an international entity

While this is a valid option, it is important to consider that it won’t be the ideal one for all businesses. In fact, even major technology companies such as GitLab and Automattic still opt for different alternatives when hiring internationally. Why is that?

Setting up an international entity can have its benefits, however, it also comes with some risks and, especially, expenses. Unless you have a certain number of employees in a specific foreign country, or you are interested in strategically developing your business further in that location, this option might not be the ideal one for you.

It is crucial to consider that each country has its own unique rules and legislation, which may also vary depending on the type of business. When choosing this approach, you need to understand that this process is rather long (it might take up to twelve months to set up one international entity) and that you will most likely have to hire legal assistance in the destination country in order to better understand the compliance, tax, and legal implications of setting up a foreign entity. It is also essential to consider that you will need to add up your costs in terms of taxes, not only in terms of employment.

Option #3: Hiring through a PEO or an EOR

If your international employee in his home country is rather considered an isolated case and employment on a freelance basis is not an option, you can consider using a Professional Employer Organisation (PEO) or an Employer of Record (EOR). PEO's and EOR's are third-party companies that will hire the desired person for you.

These organisations will be responsible for the legal affairs of employing your recruits in their home country until they are able to relocate and be employed in your location. PEO's and EOR's usually offer a wide range of services. As such, it is important for you to decide what aspects should be covered by the PEO/EOR, and which will lay in your company's responsibility. Usually, these organisations will be in charge of the legal compliance and paperwork, offer local benefits to your employee, as well as process their payroll. This allows you to be fully compliant with the employment law in the home country of your new recruit, without the hassle of having to establish an entity there.

One of the main advantages of this option is that these type of organisations act globally, thus making your international hiring easier, anywhere in the world. This might be particularly interesting if you have several employees not being able to relocate in different locations. On the downside there are quite significant, recurring costs involved with this option, which should carefully be considered. 

The risks involved: What to consider before making a decision?

With any of these options, the employer needs to consider four important topics before making a decision: corporate tax, employment tax, social security, and labor law.

While all three options for international hiring are valid and provide both pros and cons, it is imperative that you analyse the length of time each process will take, the costs associated, the legislation in place (both in the country of your office and the location of the employee), as well as ensuring that all steps are taken in order to be compliant with the regulations.

It is also essential to take into consideration the needs of the employee and ensure that you both meet in common ground. What might work for one international recruit might not be the ideal option for another, so this is something that you also need to take into consideration before making a decision.

You have more questions? We are happy to guide you  You can send us a message or simply schedule a call with us.

The contents of our website, specifically the articles discussing legal topics, are researched with the utmost care. However, the provider cannot assume any liability for the correctness, completeness, and topicality of the information provided. In particular, the information is of a general nature and does not contain legal advice in individual cases. For the solution of specific legal matters, please consult a lawyer.