Throughout the course of the COVID-19 pandemic, business owners have had to overcome numerous obstacles. Some owners faced mandated closures or the need for quick technology updates to facilitate remote work. As processes somewhat returned to normal — or at least a new normal — there were a few surprises. After many business owners were forced to lay off employees in 2020, one of their most pressing difficulties today is a labor shortage.
Strategies for finding competent talent in a competitive market vary, but one solution has been international hiring. And with remote work becoming more accessible and standard, businesses of any size can take advantage of the option.
To determine whether international hiring would benefit your company and fill labor gaps, there are a few things to consider. Deciding what resources are available to you and what type of worker you need will get you started.
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Who Can Help You With the Process?
Generally, two different types of third-party assistance are available to facilitate international hiring. These are employers of record (EORs) or professional employer organizations (PEOs). When deciding to engage with a third party for EOR or PEO services, it’s important to understand the differences between the two.
Typically, hiring international workers as employees rather than contractors carries more stringent requirements than hiring contractors. Unless you are planning on expanding your company to set up additional locations overseas, you will need to engage an EOR.
This is not merely a suggestion for ease of administration. Companies are not legally allowed to hire employees from countries in which they have no business presence (i.e., a local legal entity). The way to get around this rule without costly international expansion is to have an entity hire employees on your behalf. That’s where an EOR comes into play.
An EOR goes through the process of establishing itself in various countries and then offers hiring options from those countries. Once you select the employees you want to hire, the EOR hires them on your behalf.
An added bonus of this method is that employees perform services for you, but the EOR is responsible for proper employer administration. This means that if something is done incorrectly from a legal or financial standpoint, the EOR is responsible for any consequences, not you.
A PEO is only a valid option for third-party assistance when you have a legal presence in the country or are hiring contractors rather than employees. In the latter case, PEOs can assist with the search for international contractors and the onboarding process.
PEOs can also handle report filings with the various countries in question. However, since they are not the legal payor to your workers, any errors in administration are your responsibility. The PEO can assist in resolving legal administrative problems, but you are ultimately on the hook for resulting fines and penalties.
Should You Hire Employees or Contractors?
Deciding whether it is more appropriate to hire a worker as an employee or a contractor can be a somewhat confusing issue. Each country typically has its own set of rules regarding proper classification. When hiring employees, you will need to engage with an EOR if you don’t have a business presence in the country of hire. There are also more requirements with regard to salaries and benefits.
Again, the rules vary among countries, but a common classification factor includes how much independence the worker has over their hours. Other considerations might include whether the worker engages with one or more companies and how long the project lasts.
It might seem tempting to hire all workers as contractors to avoid the issue entirely, but there are two main reasons why this is not advised. Firstly, fines and penalties for incorrect worker classification can be substantial. If caught, you may be responsible for paying back wages and benefits for the entire period the worker was misclassified. This is the case in most countries, including Mexico, which is a popular remote hiring country for U.S.-based companies.
Another downside to automatically classifying all workers as contractors is exacerbation of the very reason you might be looking overseas for talent. If you’re not offering employment, then it is unlikely you are providing the most competitive wages and required benefits. Issuing these benefits, such as paid time off, can go a long way toward attracting better hires. If you’re having trouble finding competent local talent, offering non-competitive wages and benefits internationally will not solve your problem.
One thing to note about worker classification is that it can be updated as situations change. If you classify a worker as a contractor during a short-term project, you can reclassify them later. You might do this if the short-term project concludes and you decide to then hire the worker full-time as an employee. Before you reclassify, though, there’s another factor to take into account. You’ll either need to have a legal presence in the worker’s country or engage an EOR to accommodate the status change.
Flexibility in Times of Difficulty
As your business needs change due to situations either within or beyond your control, looking for new solutions can be beneficial. So if you find yourself struggling to find the necessary labor to maintain high standards in your company, look outward. Remote international hiring options could be just the remedy you’re looking for. And the best part is that modern technology and expert partners make it easy for businesses of all sizes.
