Talent Strategy for a Remote-First Organization
It is the dream of many recruiters and hiring managers to no longer be constrained by geographic location in their search for top talent, especially for hard-to-fill roles in competitive job markets. However, laws have not caught up to a company’s desire to hire from anywhere or an employee’s desire to pick up and move wherever they want.
A company that wants to hire all over the world needs to be intentional and proactively plan for how they will employ people. There are many considerations to ensure you are in compliance with local laws, minimize your administrative overhead, and create a positive and consistent experience for your employees around the world. You will need to consider which workforce model is right for you and the tools & processes you’ll use to enable this structure.
Thinking Through Logistics
One of the main benefits for employers considering a remote-first workforce is the ability to broaden your talent pool beyond your HQ cities. Before going forth and hiring anyone, anywhere, there are some important HR, finance, and legal considerations you should weigh to understand costs and balance risk versus reward. The options are endless but so is the strain your global workforce can put on the teams responsible for supporting your workforce around the world — teams whose job it is to protect your company against compliance risks, such as GDPR and misclassification of workers.
Not so long ago, when a company wanted to hire internationally, the only option available was to open an entity right away. There are now flexible, and cost-effective solutions for companies looking to hire abroad. Although there are various employment models a company can take advantage of, keep in mind there are pros and cons to each option.
The typical path for a company early in its remote-first journey is to hire independent contractors in countries where they are not incorporated (and where they do not have the ability to hire people as employees).
Depending on the nature of the work, hiring contractors can be a great approach if companies are looking to save money by avoiding the need to pay contract labor for social security, pension contributions, or company-sponsored healthcare.
Misclassifying an independent contractor as an employee opens your organization up to significant risk. If an independent contractor feels they have been misclassified, they often have legal standing to sue for employment benefits, which can result in costly consequences.
Not all countries are the same—some are much more open to contract labor than others. In some countries, it’s flat out illegal to hire contractors. Be sure to do your research. Papaya Global offers great free resources that provide country-by-country guidance on employment costs and other considerations.
If you are paying contractors across many countries, currency fluctuations can result in dramatic effects on take-home pay month-over-month. You may have to adapt your pay policies to consider whether paying everyone in a single currency or in their local currency is best.
Global Employer of Record (EOR)
If a company is testing the viability of a new market, either as a source for potential revenue or talent, they can employ workers through a third-party global employer of record, often referred to as an “EOR”. The EOR will employ your talent, can provide them with a competitive benefits package, and ensure the proper deductions are contributed for taxes and local programs such as national healthcare and pension.
A Global EOR is ideal for companies looking to hire a small number of people on a short-to-mid term basis. The EOR assumes responsibility for payroll, taxes, healthcare, and all other areas of legal compliance, but this, of course, comes with a cost. This makes an EOR a less risky option than hiring contractors but requires additional budget allocation to support.
An EOR is not a long-term solution for companies hiring globally as some countries put restrictions on the time employees can be employed through a third party. For example, Germany limits the use of EORs to 18 months. EORs also start to not be cost-effective once you exceed 15-20 employees in that country. If your presence is approaching 10+ workers in a given country, it may be time to consider direct employment through an entity.
Direct Employment Through an Entity
Determining where it makes sense to establish an entity is a strategic, long-term business decision. In addition to talent strategy, where to establish entities should be informed by additional business factors such as the current and future locations of your customers, markets, and industries.
Hiring employees directly through an entity is the safest option as it eliminates the risk of misclassification and becomes cost-effective once you have a larger presence in a specific country. Establishing an entity provides your employees there with greater feelings of connectedness to the organization’s long-term goals and mission.
Entities can be cost-prohibitive and limit your ability to hire from anywhere. Companies who take this approach may need to define a list of cities and/or countries where they will and will not hire to focus their hiring in the countries in which they have entities.
Opening an entity can take many months, requires resources across HR, Finance & Legal teams to support, and can cost thousands of dollars. It’s important that your company plans in advance for the time and resources needed to set the entity up effectively before hiring employees in that country.
Some companies establish an entity prior to testing the long-term viability of the talent pool or customer market and then are left with an expensive entity to maintain long after the business has dried up in that market.
In addition to workforce structure, you must also carefully consider how to define holidays, paid leave, and other benefits to abide by local laws and determine what policies are global versus local across your distributed organization. However you end up classifying your workers, you will need clear policies so that your team members understand their classification and what that means for taxes, healthcare, and other important policies.
Developing a legally compliant employment contract, selecting a locally competitive benefits package, and defining local policies takes time. Do yourself a favor and build in time to tackling these areas before extending an offer to a candidate in a new country. This will ensure you set things up properly from the beginning and create a better candidate and new hire experience for that hire in the long run.
In conclusion, the benefits of a distributed workforce outweigh the risks, but companies should take time to develop a thoughtful framework to evaluate hiring in new cities and countries so there are no unforeseen costs and legal issues down the road.