By Kaoru Fujita, Omnipresent
Remote working has created new opportunities for employees, whether it’s a better work-life balance or getting recruited for roles in new areas.
It’s also opening-up opportunities for employees who’d moved to new geographical locations for work prior to COVID – London or Silicon Valley, for example – and now want to go back to their home country or somewhere else in the world. These people want to stay with their employer, they just want the choice to work in a different area.
Employees flexing their muscles in this way is a growing retention issue. And in fact, a recent UK study found that a third of employees would leave their current employers if, in the future, they don’t allow them to work in the environment of their choosing.
The reality for employers is two-fold:
Firstly, they need to be able to offer flexible and significantly different working styles to support their people. Employers who want to retain key employees must quickly develop not only new working practices that are compliant with different countries’ working regulations, but also effective processes that create a position of strength for the business.
Secondly, they need a culture that satisfies and engages their people, as well as a remote environment that allows people to work flexibly and productively. The basics, of course, are having the right technology, communication and support, along with competitive remuneration and continuing learning and development opportunities.
A recent survey from Omnipresent showed that employers are open to new ways of working too. Seventy-eight per cent of employers globally are considering hiring remotely, although 47% are concerned about complying with international employment law and 29% are concerned about potential HR overheads.
Businesses have three options if employing people in different countries
Employers who want to enable staff to work in a different country but don’t have an entity there have 3 courses of action – open up a new business entity, shift employees to contractor status or work with an Employer of Record.
Here’s a run-down of each:
Open up a new business entity
When considering employing a remote employee in a new country, a business must have a local entity to operate legally in the country in order to pay employees and adhere to local employment rules and regulations.
In most countries you will be required to set up a local legal presence, either a subsidiary or a branch. This can cost anything from £10 to £50k in upfront professional fees and initial share capital requirements. In addition, it can cost £5 to £20k a year in ongoing professional fees for filings and resident director costs. It can also take a few weeks to over six months to get set up.
Considerations to take into account include labour and employment laws, tax and social contributions, corporate permanent establishment risk and financial disclosure requirements.
Hire someone as a contractor
Many companies aim to reduce employer costs, employee benefits and avoid dealing with local employment regulations, by hiring their people as contractors. But contracting comes with risks.
It’s often assumed that local employment regulations (employee benefits and welfare, compensation, termination and severance, collective bargaining agreements) are avoided. In actuality, employing staff can actually reduce admin and costs in the long-run, especially in cases where employees are misclassified as contractors, which can lead to legal damages and penalties.
One of the fundamental differences between contracting and employing a person is the relationship between the employer or client company and the hired individual. This is defined differently from country to country which means someone legally contracting in one country isn’t necessarily legal in another. Contractor or employee status is generally decided upon according to criteria such as whether a person is subordinate or dependent on a company for paid work, whether the remuneration for a job is a person’s only source of income, how long a person has been working for a company or how crucial an employee’s role is to the routine running of the company. It can depend on cultural employment norms too.
Employment, in comparison, is far more transparent, particularly in countries where contracting is not the norm, companies will be judged as compliant by authorities if they employ right from the start. This can help your company avoid bureaucratic and legal obstacles, while focusing on high-priority return on investment activities and it can give your company greater security with local authorities right from the start.
Use an Employer of Record (EOR) service
To enable companies to retain the benefits of keeping staff fully employed (rather than as contractors) but without the cost and administrative burden of setting up business entities, the third option is for employers to use an Employer of Record (EOR).
An EOR is a business that acts on behalf of client companies. They employ talent on behalf of their clients via a service agreement, effectively taking on the responsibility of complying with local employment laws, paying staff and providing employee benefits.
EORs ensure compliance with local regulations with compensation, holidays, benefits and welfare, severance and termination and payroll tax. An EOR also signs the employment contract. On paper, they are the employer for a client’s chosen people. This means they are legally liable for the employee.
An EOR’s clients retain full control over their relationship with their people, managing the work. This is ensured through the service agreement between EOR and client company.
An EOR may have experts to guide businesses on the complexities of hiring in certain regions around the world too. This can help clients understand the benefits and issues of particular locations, and how these can best support their company ambitions.
There is no right or wrong way ahead when hiring talent in new regions; every business will be different in its set up and needs, but creating a route ahead that supports a business’ trajectory is essential.