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Hiring International Employees: Comprehensive Guide 2024

Finn Bartram

QUICK SUMMARY

Many organizations are choosing to look overseas to access new talent and markets. But hiring abroad is easier said than done. Use this guide to help you make the right decisions and ensure a successful endeavour.

TABLE OF CONTENTS Hiring International Employees: The Options Benefits Risks Challenges

Hiring international employees is an increasingly common tactic in today’s competitive job market.

It’s never been easier to hire across borders and take advantage of international talent, but it’s still not without its complexities.

From staying compliant with new legalities to navigating cultural nuances, there's a lot to consider.

Here I’ll take you through what your options are for hiring in new territories and what to look out for.

Hiring International Employees: The Options

Depending on your needs, you have several options for hiring international employees with varying levels of complexity.

This section will discuss the most popular options in detail, along with the pros and cons of each.

Set up a legal entity

Establishing a foreign entity to hire international employees allows your organization to directly hire talent in a foreign country.

This process involves creating a legal presence in a foreign country, which can be beneficial if you plan to have a long-term presence in that market.

Key steps to setting up a foreign entity

Research and planning: Understand the legal, tax, and regulatory requirements of the country where you want to set up the entity. This includes business registration, tax obligations, and compliance with local labor laws.
Legal entity formation: Choose the type of legal entity that suits your business needs (e.g., subsidiary, branch office, representative office). This will involve registering your entity with the local authorities, obtaining necessary permits, and fulfilling any initial capital requirements.
Banking and financial setup: Open a local bank account to handle payroll and other financial transactions. Ensure you comply with local financial regulations and reporting requirements.
Hiring local staff: Recruit local employees directly, ensuring you adhere to local employment laws, including contracts, benefits, and working conditions. You may need to hire local HR staff or consultants to manage this process effectively.
Compliance and administration: Handle payroll, taxes, and benefits administration internally or through local service providers. Ensure ongoing compliance with local regulations to avoid legal issues and fines.

Pros:

You’ll have direct oversight and control over the hiring process, employee management, and company operations.
Establishing a local entity enhances your brand presence and credibility in the new market.
Potentially lower long-term costs compared to using intermediaries like EORs (more on these shortly), especially as you scale.
Ability to tailor employment packages and benefits to better fit local expectations and company culture.

Cons:

Setting up and managing a foreign entity can be complex and time-consuming, requiring substantial knowledge of local laws and regulations.
Higher upfront costs for entity formation, legal fees, and administrative setup.
Need to continuously monitor and comply with local laws, which can vary significantly from country to country.
Requires dedicated resources to manage the entity, including HR, legal, and financial expertise.

If you believe setting up a foreign entity is the right path for your business, I recommend consulting with legal and financial advisors to navigate the process effectively.

Use an employer of record (EOR)

EORs allow you to quickly expand and hire talent from the global market. They can also support an internal transfer from your legal entity to theirs if you have a current employee who wants to relocate to another country.

EORs act as the legal employer on your behalf and handle administrative tasks such as onboarding, paying international employees, and benefits administration. As part of this, they’ll ensure compliance with the local labor laws and regulations.

Now, be aware that EORs come in two types: owned entity and partner-dependent.

Owned-entity EORs create and manage their own local entities in various countries abroad.

On the other hand, partner-dependent EORs don’t provide these services directly, and instead white-label the services of different providers in different regions.

To minimize risks when using an EOR, I recommend you work with owned-entity EORs.

Pros:

Outsource key HR functions in other countries
Easier to scale your company while working with them
Support a remote or distributed workforce
Access to experts for employment law and compliance advice
Less paperwork and lower time-to-hire
Reduces the likelihood of employee misclassification errors.

Cons:

Potential lack of control over the hiring process
Restrictions around local employment laws, benefits, etc.
Increased cost of hiring as PEOs/EORs charge a premium for their services.

If all you're looking for is a bit of recruiting help, comparing the services of an employer record to staffing agencies might be a good idea, as the latter may be a better fit.

If you think an EOR might suit your needs then check out our shortlist of the best EOR services. We also have lists specific to certain countries, such as the best Canadian employers of record or the best EOR services in India.

Hire as international contractors

Since the remote work boom, freelancing has boomed and accounts for up to 12% of the global labor market.

Startups in particular favor scaling teams by hiring teams of remote freelancers/contractors with specialized skills in web design, graphic design, writing, software development, etc.

However, there are some legal things you must take care of, such as local compliance, IP, payment methods, and misclassification. You must check the local laws to ensure that the person is classified as a contractor and create contracts with rigorous IP protections.

According to Nikita Agarwal, Director at Milestone Localization, “We have offices in India and the UK with local teams for operations. For sales, we hire people globally. We chose to work with an international employee on a contract because It is less expensive.

There are no management fees, taxes, and compliance, and it is easy to make a contract. We have 3 international sales team members, so it’s easy to manage their contracts and pay.

The main issue with contract workers is that you cannot ask them not to take up other work and have completely fixed hours and pay.

In some countries, this qualifies as employment at a full-time job, and workers are entitled to benefits. We have sales hires with ad hoc timings and variable pay. We added a non-compete clause saying they cannot work with companies in the same industry.

The biggest risk of an international hire is that you have almost no legal remedies against the person. The cost of international arbitration/law enforcement is very high, and the costs don't make sense in most situations.”

Pros:

Allows you to hire specialized experts
Allows flexibility to ramp up and ramp down work
Opens a much bigger talent pool
Easy to hire them using online platforms and tools
You don’t have to bear the burden of taxes, benefits, etc.
Requires minimal training and onboarding.

Cons:

Legal compliance can be a headache
Potentially high risk depending on the country and how many contractors you have hired.

Short-term sponsorship (work visas)

Short-term sponsorship visas allow you to hire international workers full-time temporarily. Here are the main visa categories for short-term sponsorship:

H-1B visa: Necessary for hiring people in specialized areas with at least a bachelor’s degree in a related field. It allows you to hire someone for a maximum of 6 years.
H2A: For temporary and seasonal agricultural work. It’s only valid for people of certain nationalities.
H2B: It’s the same as the H2A visa, except that it’s only for non-agricultural work
I visas: These visas are for journalists and crew representing a foreign media house in the US for work.
L visas: These visas are for people in intracompany transfers at an executive/management level or through specialized expertise.
P visas: They’re for international athletes, entertainers, artists, and their crew in the US for events or competitions.
R-1: Temporary employment at religious institutions in the US for foreigners.
TN NAFTA: Allows people from Canada and Mexico to work in the US temporarily for business purposes.
O1: For people with extraordinary abilities in science, art, entrepreneurship, business, education, athletics, etc., including international recognition.

How to hire someone on a short-term sponsorship

Step 1. Ensure that your job description reflects that it’s a specialty position. You can do so if a bachelor’s degree or higher is normally required for the role.

Step 2. Pay the H1-B workers a minimum salary of whichever’s higher: the prevailing wage rate or the employer’s in-house wage for similar employees.

Step 3. Submit the LCA (Labor Condition Application) to the Department of Labor and notify US workers of the number of non-immigrant temporary workers you’ll employ, wages offered, period of employment, occupational classifications, locations at which they’ll be employed, and the following statement:

"Complaints alleging misrepresentation of material facts in the labor condition application and/or failure to comply with the terms of the labor condition application may be filed with any office of the Wage and Hour Division of the United States Department of Labor."

Step 4. Register with the USCIS and await lottery selection

Step 5. File a form I-129 for the selected beneficiary (employee), along with the DOL-certified and Notice of Selection from the lottery. This step costs a minimum of $460 and can go up to thousands of dollars depending on your company’s situation.

It’s a lengthy procedure, and it’s recommended to consult employment law attorneys during each step of the process to ensure compliance.

Pros:

You often get specialized skills and knowledge not taught in the US
Broad talent pool
An essential part of DEI
Improves cultural diversity and brings new perspectives to your business.

Cons:

It’s an expensive process costing thousands of dollars, including attorney fees
Requires a lot of paperwork, labor certifications, and hassle
Time-consuming process.

Long-term sponsorship

Short-term sponsorship consists of non-immigrant visas. On the other hand, long-term sponsorship consists of EB visas that grant permanent residency to your employee.

Here are the five types of visas that fall under this category:

EB-1: For individuals with exceptional ability in science, arts, athletics, business, education, research, management of companies, etc.
EB-2: For individuals with graduate or advanced degrees and foreign nationals with exceptional ability in their field of specialization
EB-3: For skilled, professional, and unskilled foreign nationals (most popular)
EB-4: For special immigrants such as religious workers, armed forces, etc.
EB-5: For foreign investors who invest in the US.

As a U.S. employer, you can only sponsor two types of visas: EB-2 and EB-3. The procedure is the same as short-term sponsorship. You must acquire an LCA from the DOL and then file an immigration petition form I-140 instead of the I-129.

Once the immigration petition has been approved, the employee must submit form I-485 or DS-260 to convert their status to a permanent resident. This method costs a bit more than short-term sponsorship.

It is strongly recommended that you consult employment law attorneys during each step of the process to ensure compliance.

Pros:

Most foreign workers are very hard-working and loyal to their sponsors
It can improve talent retention and reduce turnover
Foreign employees can transfer knowledge and skills to your local workforce
It puts your company in a good light for being committed to employees
Cost-effective in the long run due to increased retention.

Cons:

Requires a lot of time-consuming paperwork
Employees still might leave, wasting your resources.

Benefits of Hiring Internationally

There are good reasons organizations put in the extra effort to hire internationally:

Expand the talent pool

Hiring internationally allows you to expand your talent pool as the candidate’s location no longer acts as a barrier.

As of July 2023, there were 1.4 job openings for every unemployed person in the U.S.

With a continued talent shortage pushing many employers to raise wages, U.S. companies—especially SMBs—are turning to international employees for the help they need.

86% reported they’re hiring internationally to manage costs. Another 58% said they’re turning to global talent because they’re facing a shortage of available U.S. employees.

Apart from that, hiring internationally also allows you to build a more robust candidate database.

Hiring internationally allowed us to scale our business at times when we needed to add new roles to the team, hire from key industry leaders in different countries that help us expand in those markets, and be flexible with our team to allow them to grow their careers while making life changes and moving internationally. – Karen Weeks, Global Chief People Officer, at Obviously.

Increase diversity

DEI (diversity, equity, and inclusion) are important for higher workplace engagement and performance.

Hiring international employees can boost your DEI, which has numerous benefits as shown by these stats:

Diverse teams are 87% better at making decisions
Throughout 2022, 75% of companies with diverse decision-making teams were projected to exceed their financial targets
Companies with diverse employees have up to 20% higher rate of innovation and 19% higher innovation revenues.

In short, international employees often bring a new perspective and unique skills that can help your company innovate better, improve systems, and drive more revenue. It’s one reason organizations choose to adopt an international strategy.

If you're hiring people who have immigrated to the country you operate in, thinking about the workplace experience immigrants have is essential to the success of your diversity and inclusion initiatives.

Help expand into new markets

Global expansion is much easier with international employees. In fact, diverse companies are 70% more likely to be able to capture new markets.

It can also help secure partnerships with companies based in different countries by having an “on the ground” presence in the same location as a key partner or client.

It’s because they help you understand the market’s culture better and provide you with local knowledge about nuances that could go a long way. Language barriers also play a huge role in your ability to expand into new places.

For example, the style of selling products and negotiating is vastly different in the U.S. compared to India.

In the U.S., you can afford to be much more direct about budgets, expectations, and deliverables which is not the case in India. Having a diverse team can help combat these differences.

Risks of Hiring Internationally

As with most things in business, hiring internationally comes with some risks, mainly related to inadvertently breaking workforce laws.

Worker misclassification

Misclassification refers to the incorrect classification of a worker and can have serious consequences for your business.

There are two worker categories: employees and independent contractors, and they differ based on the control a company exerts on them.

An employee must follow the company’s schedule, code of conduct, directions for completing the work, place of business, and more. On the other hand, a contractor has to do none of this. They’re free to work anytime, anyhow, and anywhere.

Controlling them too much can lead to authorities classifying them as employees instead, in which case you can face tax violation fines, federal law violation fines, and even jail time.

Not being aware of the local classification laws can create issues when hiring international employees.

For example, in some countries, contractors automatically become full-time employees after some time, which could lead to misclassification errors if you’re unaware of the law.

Additionally, some countries do not allow EORs to employ people locally, even if they are practicing in that country.

Always check with an objective employment counsel about local laws for any country you are considering working in.

Permanent establishment

Permanent establishment is an international tax area determining whether your business is “present enough” in a country for you to be subject to local corporate taxes.

If you’re operating in a foreign country and generating revenue there, you might also be subject to that jurisdiction’s taxes.

In the case of international hiring, issues related to permanent establishment can arise due to the following conditions:

If someone makes decisions for your company from a foreign country, you might be subject to that country’s taxes. This could be executives, partners, board members, or managers closing deals.
If your employees are directly engaged in revenue-generating activities abroad, permanent establishment could be considered—for example, a team of international salespeople who regularly book and close appointments for your business.
If the employee uses a dedicated workspace abroad provided by you, an office space, or something similar, then it could create a “fixed place of business,” which can lead to permanent establishment issues.

Using EORs can remove this risk to a great extent, and they can also provide some guidance.

Intellectual property (IP)

IP refers to all creations as a result of mental work. A new piece of software, documents on the working of a new manufacturing system, novel art, etc., are all examples of intellectual property, and you must make sure that they belong to your company, not the employee.

Not doing so can lead to lengthy court battles, negative press, inability to use the invention/IP, failed audits, and much more. Plus, you’ll have to deal with this in international courts, which is even more expensive and cumbersome.

In some countries, the creator (employee) is automatically rewarded IP ownership for their creations instead of the company, which you must watch out for. Creating iron-clad contracts is necessary to ensure maximum IP is transferred to you. It applies when hiring both independent contractors and full-time employees abroad.

You could also use an owned-entity EOR that deals with these issues.

Challenges Expanding Internationally

With the above in mind, here are some key challenges when hiring international employees.

Remaining compliant with local employment legislation

Employment law expert Richard Reice, Partner at Messner Reeves LLP, says,

“Compliance is the most important aspect of international hiring. There are two categories within this: hiring non-citizens living abroad and hiring US citizens living abroad. For example, if you’re an oil company and you hire American residents living in Norway to work in oil fields, you’ll have to comply with both US employment laws and local Norwegian laws. However, for the latter case, you’ll have to comply with the local and employment laws of the jurisdiction where the employee works.”

According to Gusto’s recent survey, nearly 3 in 4 companies (71%) said understanding and complying with foreign employment and tax laws is one of the most important issues they face when hiring and working with international employees.

Payroll

International payroll often involves a lot of challenges due to the varying laws regarding benefits, payroll taxes, reporting, inflation, and currency fluctuations.

Apart from the difficulty of compliance, it also poses a data storage risk as you must account for all the countries' data protection laws.

To carry it out, you have a few options like:

In-house global payroll
Outsourcing it to local payroll providers
Using a centralized platform.

In-house and outsourcing payroll may provide you control, but they aren’t scalable.

It’s also hard to combine data from multiple vendors to extract meaningful insights. In fact, more than half (56%) of companies don’t have complete visibility of all payrolls across all countries, and 65% lack key capabilities such as a global insights dashboard.

Centralized, integrated payroll platforms are the future. However, they’re quite expensive and more suitable for hiring many international employees over a more extended period, which might not be the case for small businesses/startups.

Global compensation

45% of employees consider pay the most important factor in a job so creating a fair global compensation plan for your global workforce is essential.

A transparent global pay policy motivates employees and helps your business comply with several countries' wage and benefit regulations.

For example, mandatory or statutory benefits for French employees are health insurance, pension, life and disability insurance, death insurance, unemployment benefits, generous leave and time off policies, and workers’ compensation, which are significantly different from statutory benefits in the US.

While developing your global compensation strategy, you must first decide on the base pay, which can be based on employee location, experience, role, talent availability, and more.

You could either pay all your employees at a similar role and level the same salary regardless of their home country, or you could adjust it according to the cost of living of each place.

Most companies choose the latter option. Next, you must decide on the variable pay and allowances, usually a % of the base pay. Finally, employee benefits must be based on the local regulations and the market.

Once you have decided on these, you can set goals and decide on a budget before finally implementing it.

Then, you can start to think about establishing a profit-sharing plan or other additional compensation strategies.

It’s Never Been Easier To Hire Internationally

Hiring internationally might seem daunting, but with the right tools and people, it can be transformative for your business.

By leveraging international employees’ perspectives and knowledge, you can expand your market, foster cutting-edge innovation, and enhance your company culture.

This guide explored various options for hiring internationally, the benefits, the risks, and the challenges you might face during this process. However, we always recommended to consult an employment law expert if you’re unsure about anything.

As a next step, check out this article on how to hire remote employees and then, once they're on board, how to manage remote teams.

For organizations wanting to expand into the UK specifically, then our pick of the best UK EORs might interest you.

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Hiring International Employees: Comprehensive Guide 2024