The way companies tap into international talent is undergoing a transformation and it’s one that should take some of the pain away.
While employer-sponsored visas are often the first route a company turns to for hiring workers from overseas, they are notoriously limited in availability in many countries. Sometimes they are not even an option for hiring in the near future. For example, the United States Citizenship and Immigration Services (USCIS) recently announced the country has already reached caps for the H-1B lottery through the end of 2023.
Employers are also often limited to hiring international workers only in certain sectors or they must jump through hoops to prove they are unable to find the skills they need in the local workforce. On the other side of the process, there is usually a long ‘to do’ list for the prospective visa candidates and the sponsored employee must then maintain extensive documentation once they are in-country.
For these reasons, employer-sponsored visas are increasingly seen as difficult and infeasible for international hiring. More than a few business leaders have said employer-sponsored visas “suck.” To circumvent these challenges and reduce the red-tape headaches, many companies are opting to use the following alternative options for tapping into international talent.
Setting up abroad
Sometimes a company, instead of sponsoring employees, will decide to set up a legal entity abroad to engage new talent pools. This may include a variety of entity types, from branch offices to corporations, sole proprietorships, partnerships, etc. The type of entity will depend largely on the regulations and business landscape of the target jurisdiction.
There are many challenges associated with setting up an entity abroad:
- Many countries, like China to name one, place restrictions on foreign ownership and investment. For example, foreigners may be restricted from fully owning a business and instead must engage local partners or appoint a local representative.
- Business incorporation can take longer than six months in some countries, according to data from the World Bank, and there is usually a lot of paperwork to manage.
- The process often entails hefty startup costs, including upfront capital requirements and administrative fees.
- The company will be exposed to new corporate tax liabilities in the country.
- The company will also be responsible for following local labor laws and regulations, meaning the internal HR team will be tasked with learning a new framework for payroll contributions, taxation and benefits.
- International business operations, particularly hiring, can be hampered by language and cultural barriers.
Engaging independent contractors
Some companies may look to engage an independent contractor (IC) rather than bringing someone on as a full-time employee. This works best when a company requires a specific service and can tap into professionals with the necessary expertise.
Typically, an IC is paid following the completion of a project or a set of deliverables. Other times, a retainer may be put in place and the company will pay the IC based on a time period, usually monthly.
In order to maintain the proper principal-contractor relationship, companies must follow certain parameters when engaging an IC. These parameters vary from country to country, but the typical rule of thumb is that an individual is an IC if the company (the client) has the right to control or direct only the result of the work – and not what will be done nor how it will be done.
There are several considerations companies should take into account when engaging an IC:
- Misclassifying a worker as an IC when they should be an employee can result in serious fines or, theoretically, jail time in some jurisdictions.
- Engaging ICs can heighten a company’s risk for intellectual property (IP) theft.
- The regulations surrounding ICs can evolve. For example, the rules for engaging ICs in the United Kingdom (U.K.) changed in 2021.
- Engaging misclassified ICs can delay or compromise a corporate transaction, such as an IPO, merger or acquisition.
- Engaging independent contractors may trigger ‘permanent establishment’ in another jurisdiction, a status that comes with additional tax and legal liabilities.
- Companies that engage ICs should regularly assess their risk for recharacterization and ensure they are maintaining the proper principal-contractor relationship.
Hiring through an Employer of Record
While both of the above options allow companies to skip the headaches of employer-sponsored visas, they each come with a series of tax and legal liabilities that can become major problems down the line.
The good news is that, for some companies, hiring through an EOR is a solution that allows them to tap into foreign talent quickly and compliantly.
As part of the arrangement, the EOR legally employs workers on behalf of the hiring company through its legal in-country entity. The EOR then assumes the responsibilities of administering payroll, fulfilling statutory benefits and filing taxes in the country. Expenses, such as taxes and payroll contributions, are passed on to the client as part of the solution service fee.
Setting up a legal entity may be the right solution for a company that intends to have operations within a country or maintain a large headcount there. In these cases, hiring through an EOR may serve as an interim solution before the company is fully operational.
A company can gain speed, agility and turnkey hiring by working with a single EOR for hiring needs around the world. Because of its many advantages, leading global companies are phasing out employer-sponsored visas and making the EOR hiring method a core pillar of their global talent strategy.
|Mitigates compliance risks||Reduces intellectual property theft||Mitigates international tax liability||Fast hiring and seamless HR management|
|Setting up an entity||❌||✔️||❌||❌|
|Engaging independent contractors||❌||❌||❌||❌|
|Hiring through an Employer of Record (EOR)||✔️||✔️||✔️||✔️|
Check out our ‘What is an EOR?’ guide or contact us to talk with an international HR expert about how an EOR solution can help your company tap into international talent pools.