According to the Global Employment Figure 2021 report provided by Statista, global employment is expected to reach 3.29 billion in 2021, up from 2.28 billion in 1991, representing a 1.01 billion-person increase.
Quoted from Harvard Business Review -
“Business leaders are scrambling to adjust to a world few imagined possible just a year ago. The myth of a borderless world has come crashing down. Traditional pillars of open markets—the United States and the UK—are wobbling, and China is positioning itself as globalization’s staunchest defender.”
However, when you expand or hire globally, it implies you're based in one country, i.e. the ‘residence country', and working with employees, agents, or contractors in another, i.e. the 'target country'. Even though it creates numerous opportunities for foreign employment, and gives employers access to a large pool of talent, it also raises many difficulties, most common of which you’ll get to read in this blog.
You can also book a demo with Skuad experts to know more about international hiring challenges and find solutions to them.
Common Challenges of Foreign Employment
Payroll and Benefits
Once you know whom to hire, the next step is to add them to your payroll. The employer, whether a foreign firm or a locally registered corporation, is required to set up payroll to make mandatory withholdings for relevant income taxes and social contributions. This usually translates to additional costs for the organization.
The good news is that benefits except leave and insurance, are not often expected in many countries other than the United States. This is because the statutory welfare system provides these protections to the employees. However, certain nations like France, Italy, Spain, and Brazil have mandated industry-wide collective bargaining agreements that may demand employees to participate in specific pension plans or give yearly mandatory wage increases.
To learn more about payroll and benefits, talk to Skuad experts.
The presence of workforce employees in a foreign nation increases the likelihood that your company may incur a corporation or turnover tax burden there as a result of establishing a 'permanent establishment' (or 'PE'). This applies, broadly speaking, if your company has a fixed place of business in the nation where it conducts business.
More specifically, the definition of a 'dependent agent PE' states that you can be taxed in that nation if you have agents with the capacity to complete or significantly facilitate transactions 'in the name of’ the business, whether they are employees or not.
The specific tax requirements in each target nation will be established by the bi-lateral tax treaties in force between the target and residence countries, as well as domestic legislation.
Salary and Perks for Employees
Salaries, benefits, and other payments (such as contractor payments) must be appropriate for the target country's employment and contractor markets. You must additionally consider the following factors while deciding overall pay packages:
- Employee payments are required for pension schemes/superannuation, health insurance, and workers' compensation.
- Benefits that are market-standard and maybe more than the legal minimum. For example, a country may have a legal minimum of four weeks of yearly leave, but five weeks may be the accepted standard.
- The impact of considerable wage disparity between personnel from the enterprise's home country (e.g., on an intra-group move) and local employees. These distinctions have the potential to have a substantial influence on local employee morale and staff retention.
Non-compete and Intellectual Property Provisions
It is critical to determine whether the workforce outputs will be the property of the employee or contractor in issue, or if they will be the property of the company. In certain countries, this can be stated in the contract for service/employment, while in others, employees may have legal rights over their work output.
The UK Intellectual Property Office has created several helpful Guides that clarify intellectual property protections in various nations.
In addition, you may want to include a "non-compete" clause in your contracts with your employees/contractors. This means that the employee or contractor will not be able to work for one of your competitors during or after your partnership. In many jurisdictions, agreements are enforceable if they defend the enterprise's "legitimate commercial interest." Otherwise, they may be considered an illegal 'trade restriction.' However, in certain nations, similar provisions may be wholly prohibited, severely limited in their use, or unenforceable in a court of law.
If you want to know more about how to become compliant with intellectual property clauses, book a demo with Skuad, today.
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What’s the solution?
The employer should obtain expert advice and help in determining the optimal legal and commercial solutions for minimizing their tax liability. It should be noted that in some situations, having a permanent presence in the target nation may be advantageous. This must be assessed on an individual basis.
To guarantee that employment and contractor packages are adequately benchmarked, you will also want professional help on salary, pay, and recruiting in your target market.
Using an Employer of Record like Skuad will provide your firm with the benefit of faster recruiting in new overseas markets, as well as the peace of mind that employment is following local rules.
Skuad streamlines payroll management for your talent in more than 160 countries. Organizations can fully reap the benefits of globalization and compete on a worldwide scale with Skuad. To learn more about growing abroad, contact Skuad.