Perhaps you have contractors in Brazil, China, and elsewhere around the globe. You fear that the slightest scrutiny would disclose that these contractors are really serving as employees. You can’t imagine adding to the already heavy workload of managing your domestic HR, let alone tackling compliance for multiple jurisdictions. Contracting seems the easy way out, but you know deep down that the risks posed by these global HR skeletons are real and could cost oodles in terms of money, time, and reputation. Bringing the international team onto a compliant employment scheme seems daunting and sounds complex.
As the final quarter of 2015 approaches, it is a great time to take stock of your international staffing situation and make a list of those risks that have been gnawing at you. Here are three tips for building a case to free those skeletons.
1. It’s time to come clean
The risks are not going away, and January 1 is usually the ideal time to start the year with a clean “HR” closet. In order to tidy up outstanding HR issues in advance of the new year, we recommend you get started by the first of October.
In order to address the risks involved, the management team must be on the same page with clear visibility of problems. Anything less leads to wrong decisions and the exposure remains. Clear insight is essential and the first step towards that visibility is to take an inventory of the issues by honestly answering questions like:
- Are the contractors taking direction from us the way an employee would rather than managing their own work?
- Do the contractors work full time for us instead of having a portfolio of clients for whom they perform services?
- Are we paying benefits to our contractors much the way we would offer our own employees?
- Do the written contracts read more like employment offer letters?
A resounding yes to any one of the above questions means that you have risks in the areas of employment law, payroll withholdings, corporate tax, and intellectual property protection in unfamiliar jurisdictions.
2. Research your options
The starting point for most companies is to look into the steps involved in setting up a subsidiary and/or establishing a branch office in the foreign country.
Given the time and investment involved, many companies alternately consider working with a firm like Globalization Partners which offers compliant employer of record solutions in more than 100 countries.
Items to consider include that negotiating with your contractors – who likely have not paid income taxes in some countries – will now receive a reduced “net” pay, and thus may want to negotiate.
These types of negotiations are always best handled proactively. After choosing a partner to manage the onboarding and your new payroll systems, we recommend giving yourself one month to run calculations and determine the best way to make an employee “whole” and another month to negotiate with an employee.
You gather costs involved for the initial set up. You consider the timeline to set up in country and wonder about the local employment laws and benefits.
A long list of to do’s will develop, including the need for further research into issues like setting up foreign bank accounts, annual compliance requirements, employee termination, the need for resident directors, share capital minimums, local licensing, data privacy, insurance, VAT, and so on. Many of these items are eliminated through the use of a Global Employer of Record Platform.
3. Approach the problem from a new angle
There are ways for fast-growing companies, larger entities looking to employ staff in post-merger situations, and international non-profits to avoid the hassle of the typical subsidiary setup. We at Globalization Partners know the risks, understand your needs, and have a solution to streamline global employment. By serving as the employer of record for individuals that you want to engage, we run a locally compliant payroll in the country of the employee’s residence and invoice the client for the total cost of employment plus our management fee.
Our platform transforms global payroll and complex international infrastructures into a simple monthly invoice. We make it easy to hire new employees overseas with minimal time and expense.
For help assessing your situation, please do not hesitate to get in touch with our team.