Vistra Insights

Important considerations when recruiting and hiring workers in other countries

Companies have many reasons for hiring a small number of employees, or even just one, in a country where they don’t have an existing presence.

They may want to test the waters in a new market or fill a need for specific technical skills. They may acquire cross-border employees as the result of a merger or obtain a client contract requiring them to hire in-country workers by a certain date.

Or they may discover a can’t-miss opportunity for a new business line.

“The CEO or the head of sales will return from a business trip and say, ‘I met a person we can’t live without; we need to bring them on ASAP.’ I see that happen a lot,” says Saul Howerton, vice president, advisory at Vistra in the US.

“Today’s HR leaders have a world of borderless talent to choose from,” adds JP Gooch, vice president of Vistra EOR operations. “And it’s increasingly common to find promising prospects in other countries for any number of reasons.”

In these kinds of situations, employers must act quickly to secure the talent they want. But rules and expectations surrounding employment are unique to each country. And employers can run into trouble if they don’t take these differences into account when hiring — especially if they cut corners by skipping the employment process entirely and hiring contractors.

Contractor versus employee

Using independent contractors allows companies to jumpstart operations and avoid setting up a local payroll and providing benefits. But right off the bat, they’re shrinking the talent pool.

“If you want to attract the best talent, you’ll find that most people prefer to be employees with steady work and benefits,” says Bill Kirwan, vice president, advisory at Vistra in Europe.

The exception has been the IT industry, where workers have long been hired as contractors and often have come to prefer that arrangement. But today’s regulatory environment makes hiring contractors in any area a risky proposition, even when both worker and employer agree to terms up front.

“Are these people really contractors under local law? Most tax authorities have quite stringent views about it,” Kirwan says. “In the last two years, the UK has created specific legislation to catch situations where people paid as contractors should have been employees, and companies are getting penalized. It has turned the IT industry upside down.”

Rules governing the contractor relationship generally centre on the amount of independence the worker has.

“If you direct everything they do, if they hold your company’s business cards, if they work only for you, it builds an ‘employee’ picture,” Howerton says.

Employers who run afoul of the law can be assessed fines, as well as back payments of social security, holiday pay, pensions and other benefits.

For that reason, many companies expanding on a small scale elect to use an employer of record (EOR) company — sometimes called an international professional employer organisation, or international PEO. The EOR provider hires workers in-country on their clients’ behalf and pays the employees, as well as providing all required benefits.

“An EOR makes it easy,” Howerton says. “You don’t have to set up an entity. You can quickly bring people on and know you’re compliant.” It should be added that, while certainly less risky than hiring contractors, an EOR is not always appropriate when hiring workers abroad, even with a small number of employees. Determining whether to establish a legal entity or use an EOR will depend on a number of factors, including the nature of employee activities and local laws related to permanent establishment.

Determining compensation and benefits

To attract talent, employers need to offer a competitive compensation and benefits package, which will likely be different from that of the home country. Corporate services providers specialising in international expansion, and many EOR providers, compile reports for specific industries and roles showing ranges for high, mid-range and low compensation in countries where they operate.

They’ll also understand a target country’s mandatory benefits under local law; but sometimes providing only what’s required is not enough.

“You need to understand the local landscape and offer not just the statutory minimum, but what is considered best practice for attracting and retaining talent. You might be missing the boat if you don’t know what it takes,” Howerton says.

Job candidates may volunteer benefits information, but employers can’t always take it at face value.

“Employees are going to push for everything they can, especially if you’re not in their marketplace. They may say, ‘In this country, everyone gets a car lease,’ but that may not be the case,” Howerton says.

On the other hand, benefits outside the norm in the home country may be expected, even if they’re not required, and employers who neglect to provide them risk losing workers.

“Employees do talk: ‘You got a housing allowance? I don’t have that.’ Howerton says.

Holding discussions with in-country experts can help companies gain knowledge about customary ways of enriching benefits to lure workers. Common upgrades include private medical care in countries that provide standard public health benefits, long-term disability insurance and employee wellness programs.

Following local recruiting laws

Though they may be in a rush to hire talent, companies must ensure they comply with local laws during the recruitment process.
Many countries require employment contracts to be written in dual languages, which protects parties on both sides. In some countries, an offer letter can be considered legally binding, even though many of the terms are not spelled out.

“Instead of using a US-based offer letter, employers should draft a full employment contract with all the terms and conditions to remove uncertainty,” Howerton says.

In the EU and the UK, GDPR and other regulations require candidate consent for obtaining personal information during the recruiting phase. Background checks may be limited, excluding banking information or criminal record checks. Rules also restrict the length of time you can hold personal data and how you can use it.

Obtaining referrals can help fill some of the gaps and give employers the confidence to extend an offer.

Keeping workers engaged

Once you’ve hired employees abroad, it’s important to stay in touch with them. They will be gratified to learn that out of sight doesn’t mean out of mind.

“Employees’ needs change,” Howerton says. “During Covid, wellness programs became more important. Some people needed allowances for technology. Taking the pulse of employees on a regular basis and finding out what matters to them is the key to keeping them engaged and happy.”

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