As many companies move towards global expansion, the demand for a diverse workforce has increased significantly. However, companies hesitate to open a foreign subsidiary as they could face heavy overhead costs and potential non-compliance risks. But what if there was a way to tap into global talent without the administrative burden of setting up a local entity? 

In this article, we'll explore two means of hiring internationally without an entity: Hiring international contractors and partnering with an Employer of Record (EOR). 

How to Hire Without a Legal Entity

To reduce the discussed risks and simplify international onboarding without establishing a legal entity, global companies can either partner with an Employer of Record or hire foreign contractors. 

#1 Hiring international contractors

Companies enjoy several benefits from hiring international contractors instead of hiring employees through local entities:

• For starters, they offer more flexibility in project-based engagements, and the workforce can be scaled up or down based on demand, seasonality, and project requirements. 
• They ensure maximum cost-efficiency as they are not subject to the same payroll structure as employees, allowing companies to avoid spending on benefits, healthcare, and even office overhead.
• The hiring process for contractors is relatively faster than for full-time employees as there are fewer onboarding formalities. Also, since they are responsible for managing their taxes and benefits, the administrative burden on the HR department is reduced. 

Companies can also leverage the contractors’ knowledge of local markets. Their insights into customer preferences and local trends will provide them with the ground-level knowledge needed for market entry strategies. 

For example, a tech company looking to launch its latest app in a new market such as Brazil can hire a Brazilian contractor to understand the local culture and customer preferences. 

Through surveys and focus groups, the contractors will gather data on app usage habits, issues, and consumer behavior. This will allow the company to tailor the app and refine its marketing campaigns to create awareness and attract Brazilian consumers. 

Where does the world hire contractors from?

While there are no boundaries to hiring international contractors, companies favor certain countries because of factors like cost-effectiveness, specialized skills, and time zone compatibility. Here are the top five destinations to consider: 

1.India

India is one of the largest outsourcing hubs in the world, boasting a skilled IT workforce and competitive labor costs. More than 50% of the Indian workforce is under 30 years of age and they demonstrate high-level proficiency in technical skills such as cloud computing, AI, full-stack development, etc.

2.Poland

Poland stands out among European countries as a hub for tech talent and has a diverse remote workforce in sectors like banking, finance, retail, manufacturing, etc. The country also boasts a strong education system, particularly in STEM fields. Additionally, its low employment costs and fast-growing economy make it an attractive option for companies looking to hire remote contractors. 

3.Brazil

Brazil’s diverse workforce, competitive labor costs, and growing tech sector make the country one of the best options for hiring contractors. Their proficiency in digital technologies and engineering, as well as creative skills such as graphic design and social media management, make them well-suited for tech companies. The country’s lower cost of living can also provide cost-effective remote talent.

4.Philippines 

The Philippines is known for its well-educated English-speaking workforce with diverse skills in fields like customer service, software development, and creative design. Additionally, they offer competitive rates compared to Western markets.

These factors make the Philippines a standout option for companies looking for BPO contractors.

5.Nigeria

Nigeria offers a large talent pool of young workers — 70% of the country’s population is under the age of 30. The country is showing rapid development in remote services such as digital marketing and financial analysis. In addition, competitive labor costs make Nigeria an attractive choice for hiring contractors. 

To get a comprehensive overview of how and what you should pay your international employees and contractors, you can use our Salary Calculator to determine median salary figures for different countries and roles, ensuring fairness and competitiveness in the global market. 

Problems with hiring contractors

Hiring contractors comes with several challenges companies need to consider carefully:

1. Limited control: Companies have limited control over the contractor’s work schedules and performance. The lack of direct supervision and their commitment to other clients can compromise the timely delivery and quality of work.
2. Employee misclassification: Companies that misclassify their contractors as employees will face legal consequences from the Ministry of Labor of their corresponding countries and incur heavy fines and penalties. To avoid these, companies must adhere to local labor laws and seek guidance from local compliance experts.  
3. Permanent establishment risks: The risk of permanent establishment exists when a business has established an office in another country and has dependent contractors who conduct substantial business operations there. As a result, the company is subject to local tax laws and must ensure compliance with local regulations. 

#2 Partnering with an EOR

An Employer of Record is a firm that acts as legal employers for a company and handles the process of onboarding, paying, and managing employees on their behalf. They take responsibility for handling payroll, benefits administration, and tax documentation of employees. They also handle compliance with local labor and tax legislation.

Hiring employees with an EOR can offer a wealth of benefits, some of which include:

• Access to a global talent pool: Through EORs, companies have access to a variety of talent from different locations with unique skill sets. 
• Lower costs: An EOR allows you to hire workers in a country for a lower, fixed monthly fee without having to incur heavy costs for setting up and managing a local entity.
• Guaranteed compliance: An EOR can help companies navigate the complexities of legal and tax regulations of each country, ensuring maximum compliance. 

How Gloroots Helped PriceLabs Manage Employee Lifecycle and Onboarding

PriceLabs, one of our valued clients, used Gloroots’ EOR service to manage onboarding and payments for their employees. 

The challenge

PriceLabs, a dynamic pricing tool provider for hospitality businesses faced compliance issues with Indian taxation and hiring norms when interviewing, onboarding, and managing candidates. They needed to hire quality talent, fast to sustain their plans of global expansion. 

The solution

PriceLabs chose Gloroots to fully manage their employee lifecycle from onboarding to exit. Visa applications for frequent travelers and filing of compliance paperwork and payments were handled by Gloroots. PriceLabs chose Gloroots over Deel for prompt employee support, their knowledge of the Indian market, and for their transparency regarding payouts.

The result

PriceLabs’ Indian team grew from 5 to 80 employees in 1.5 years and Gloroot’s streamlined processes saved the company nearly 250 person-hours monthly. Their transparency in payments and adherence to compliance ensured their peace of mind and more clarity on every dollar spent. 

How does partnering with an EOR work?

EOR providers are responsible for undertaking the following responsibilities on behalf of a company:

• Ensuring compliance with local labor laws. 
• Helping the company mitigate legal and non-compliance risks such as employee misclassification, permanent establishment, and onboarding and offboarding risks. 
• Managing the payroll, taxes, and benefits administration of employees and contractors. 
• Reducing the administrative burdens of the HR. 

The company, on the other hand, is responsible for: 

• Defining the roles of employees and contractors. 
• Maintaining proper communication with them and the EOR. 
• Fostering employee engagement. 

Types of EOR pricing

Employer of Record (EOR) providers offer different pricing models and understanding them can help companies choose the right plans that suit their respective needs. 

Pay-per-employee model

This is a common EOR pricing model where businesses pay a flat fee for each employee the EOR provider manages on their behalf. The fee covers all HR-related services such as payroll management, benefits administration, and compliance management. Companies with a small or fluctuating workforce typically go for this model as they only pay for the services they need, as opposed to the percentage of payroll. 

Fixed pricing model

Under this model, companies pay a fixed fee for a certain number of HR-related services that cover a specified set of employees. This model is popular among companies with a stable workforce as it provides them with better cost control.

Custom pricing model

Some EOR providers offer customized service packages tailored to a company’s specific needs. The company works together with the EOR to determine the scope of services it needs for the specified number of employees it manages. 

Can a U.S. Company Hire a Foreign Employee in Another Country? What are the risks involved?

Yes, a U.S. company can hire foreign employees from other countries, although it can be a risky endeavor due to compliance issues. Some of the prominent risks U.S. companies face when hiring international employees include:

Permanent establishment (PE) risk

This is when a U.S. company has a fixed establishment and generates revenue in another country. In this case, the company is subject to local corporate taxation and if they ignore these obligations, they will be subjected to fines and tax arrears.

Misclassification risk

This occurs when a company incorrectly classifies a worker as an independent contractor rather than a full-time employee. For example, when contractors are paid a fixed salary or required to work fixed hours, local authorities regard them as full-time employees as per local labor regulations.

Misclassification can make your company liable for retroactive payment of employment taxes and benefits and legal fines.

Unfamiliar labor laws

Local labor and employment regulations in the U.S. differ significantly from those in other countries. To avoid the risk of penalties for non-compliance, U.S. companies must establish international employment contracts that satisfy certain factors like leave entitlements, overtime regulations, and statutory benefits for international employees. 

Payroll setup and accurate contributions

If a U.S. company fails to accurately calculate payroll taxes and contributions for foreign employees or fails to comply with local payroll regulations, they will be subjected to fines. To mitigate legal risks, they must follow the appropriate payroll cycle and reporting regulations.

What Are the Tax Implications of Using an Employer of Record?

The tax implications of setting up an EOR depend on numerous factors such as the nature of the business, the country where the EOR is established, and local/national laws that may be subject to change. 

Generally, the primary tax responsibilities managed by an EOR include:

• Employee income tax: Withholding a portion of the employee’s salaries and remitting them to Government tax authorities as payment of estimated taxes.
• Payroll taxes: Involves social security contributions such as Employee Provident Fund and Employee Pension Scheme. For example, in India under the EPS scheme, out of the 12% the employer contributes, 8.33% is directed to the employee’s EPS account, while the rest is directed to the EPS scheme. 
• Tax compliance: Monitoring modifications to tax laws and ensuring compliance with all tax regulations. It also includes changing the employee’s withholdings based on tax requirements such as deductions, exemptions, and thresholds.
  

Simplified tax management by an EOR also entails a few benefits such as:

• Maximum cost savings by reducing overhead costs for companies and leveraging economies of scale.
• Benefits administration that include employee enrollment, managing employee information, and ensuring compliance.
• Payroll management through issue of paychecks, payroll processing, managing employee taxation forms, etc. 
• Continuous HR support.
• Regular reporting and analytics to better understand HR operations.
• Risk management in regards to payroll management and employee benefits. 
• Compliance with state and federal labor laws, tax regulations, and benefits regulations.

Choosing The Right Employer of Record

Choosing the right EOR service is critical for streamlining employee onboarding, global payroll, benefits administration, and contractor management. A good EOR service should have the following features:

• A short and smooth onboarding process
• An intuitive dashboard that offers a 360-degree view of each employee’s onboarding journey
• Maximum compliance during onboarding and offboarding of employees
• Global payroll processing in multiple currencies while offering simplified invoicing options for salaries, taxes, and benefits of employees.
• Hassle-free contractor management, meeting local employment laws. 

Revolutionize Global Hiring with the Right EOR Partner

By choosing the right EOR, companies can efficiently hire international talent without having to set up one or more local entities in other countries.

Gloroots can also help you achieve that by expediting the onboarding process of new talent for your company within a short period of time, while ensuring maximum transparency, compliance, scalability, data security, and cost-efficiency in the process. 

If you’d like to get comprehensive insights about the capabilities of our EOR service, contact us today and break the boundaries of global hiring.