Comprehensive Guide To Hiring International Employees: What Decision-Makers Need To Know
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.
However, the process of hiring from the international talent pool is not without its complexities.
From navigating legalities to understanding cultural nuances, there's a lot to consider.
This article will cover your options for hiring internationally.
Let’s dive in.
Hiring International Employees, The Options
Depending on your needs, you have various 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.
Hire as international contractors
Since the remote work boom, the freelance economy has grown unprecedentedly and accounts for up to 12% of the global labor market.
Hiring international contractors is the fastest way to hire internationally, as most of it happens on online platforms and job boards such as Upwork, Fiverr, LinkedIn, etc. Also, since they're independent contractors, you don’t have to deal with taxes and paperwork.
Startups in particular scale 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 is 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.
The procedure for hiring someone on short-term sponsorship is as follows:
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.
Use a PEO or EOR
PEOs and EORs allow you to expand and hire talent from the global market seamlessly. They’re great options to hire non-US citizens living on foreign land. They can also support an internal transfer from your legal entity to theirs if you have a current employee that wants to relocate to another country.
Many people use these two terms interchangeably, but there’s a difference between a PEO and EOR:
A PEO (professional employer organization) co-employs a foreign employee along with your company and handles certain parts such as payroll, benefits administration, talent management, etc.
If you already have a legal entity in the foreign country you want to hire from, PEOs are both affordable and effective.
On the other hand, an EOR (employer of record) allows for global employment, even without any legal entity abroad.
It employs the worker for you and handles all employment issues, while you only have to ensure workplace safety and compliance. It’ll also ensure that you comply with the local labor laws for each employee. You will want to check with the EOR you are considering to see if they include recruiting in their partnership or have a referral partner they use.
EORs are also of 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, always recommended to work with owned-entity EORs over partner-dependent ones and PEOs, but if you already have a legal entity, the latter may be an excellent option, too.
Pros:
- Not having to deal with payroll and other 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.
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 you think either might suit your needs then check out our shortlists of the best PEO services and best EOR services. We also have lists specific to certain countries, such as the best Canadian employers of record.
Benefits Of Hiring Internationally
Hiring employees internationally might seem like a hassle, but it comes with a lot of benefits, like the ones given below.
Expand the talent pool
Hiring internationally allows you to expand your talent pool as the candidate’s location no longer acts as a barrier.
Karen Weeks, Global Chief People Officer, has worked at several companies that partnered with EOR’s and international employment companies to hire great talent over the years.
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, Chief people officer
You have more resumes to pick and choose from, and while that may lead to more time spent filtering through them, it’s often worth the tradeoff.
On top of that, it also helps you hire for hard-to-fill roles with a shortage of local workers. 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.
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.
International employees often bring a new perspective and unique skills that can help your company innovate better, improve systems, and drive more revenue.
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 “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
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 PEO’s 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
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 more.
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!
Wrapping Up
Hiring internationally might seem daunting, but with the right tools and people, it can become the most transformative activity 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.
It’s always recommended to consult an employment law expert in this case, but the rise of new HR platforms and software has made it easier than ever before.
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.