Remote work is no longer just a trendy buzzword, but a reality for a growing number of companies and their distributed teams. While operating and working remotely has numerous benefits, hiring talent internationally can be challenging for even the savviest companies.
1. Three ways to go about hiring globally
Opening a subsidiary
When you consider remote employees from another country, the first thing that comes to mind for many is to open a subsidiary. This is the scenario in which you have a legal entity of your company registered in another country, with a local address and the ability to hire full-time employees.
Opening a subsidiary is a costly and complicated option for most companies unless you plan to have numerous employees in that country. It requires the subsidiary to operate in full compliance with the local labor laws and other regulations, which means having admin and finance teams on location.
Using an Employer of Record (EOR)
An Employer of Record (EOR) is an organization that deals with hiring and paying full-time employees on behalf of another company. An EOR makes it fully compliant and legal to hire employees in a foreign country without opening a subsidiary.
The EOR can handle multiple roles related to the employees: recruiting, onboarding, background checks, insurance, filing taxes, and running payroll. While EORs eliminate compliance risks, they are not handy for short-term contracts and flexibility and are best for long-term, full-time employees. Using EORs may be a slightly more expensive option for most companies, but it is sometimes necessary.
Hiring an independent contractor
Hiring an independent contractor from a foreign country is the simplest and most commonly used option for hiring remote workers across the globe. It is easy to hire both long-term and short-term foreign workers, and the contractor relationships are easy and flexible.
However, this doesn’t mean companies don’t need to take compliance and labor laws into account since failing to ensure compliance can lead to tax evasion charges and IRS audits in the US.
2. Local labor laws and regulations for hiring independent contractors
When companies hire foreign independent contractors, they need to make sure the relationship is compliant with both countries’ regulations. Compliance is crucial when it comes to determining the status of the worker.
Every company aims to avoid misclassifying independent contractors as penalties and expenses can be severe. Countries like the US, the UK, Serbia, and many others have introduced regulations to determine workers’ status. To make sure the contractor and the client company are compliant with regulations in both countries, make sure to seek the help of local legal experts.
3. Compliance documents and local setup
The first and essential compliance document every company needs to have is an independent contractor agreement. This is the basis for the working relationship of the parties and needs to cover all aspects of their work together.
Consider that every country has a different local setup for what we know as independent contractors in the US. In some countries, contractors are called sole traders, entrepreneurs, sole proprietors, freelancers, etc. Knowing the local legal setup will help you obtain all the documents necessary for ensuring compliance with local regulations.
4. Creating a contract that is compliant in both countries
When drafting an independent contractor agreement, it’s essential to encompass the regulations of both countries and make the contract compliant. This means that in most cases, a free template found online won’t do the job since they usually consider the laws of only one country.
The essential parts every contract should contain are the scope of work, compensation, the relationship of the parties, and governing law that will determine and resolve any potential disputes between parties.
5. Taxes for hiring independent contractors
When a company hires an independent contractor (or any of its legal counterparts in different countries worldwide), taxes are usually the contractors’ sole obligation.
The main difference between contractors and employees is that companies don’t pay taxes or insurance for the contractors. Instead, they pay a lump sum compensation, and the contractor is responsible for their taxes. Make sure to include the fact your company is not liable for taxes in the contract.
There are certain obligations to file and report taxes for US companies when working with independent contractors, both in the US and abroad. For example, if a US-based company pays a US-based contractor more than $600 in one year, they need to file Form 1099-NEC (Non-Employee Compensation).
When collaborating with foreign contractors, US-based companies use Form W-8BEN to collect information from them. The form has two variations: the W-8BEN for individuals and W-8BEN-E for entities. These forms confirm that the contractor is not a US citizen, and the client company can rely on the information provided in them. The W-8BEN forms are valid for three years and should be renewed if the relationship continues.
The tax obligations and liabilities differ from country to country, so make sure to obtain relevant information from local experts.
6. Invoicing and keeping records
Both companies and independent contractors have to keep clean records and maintain their books in case of an audit from a tax authority institution (like the IRS in the United States).
When it comes to invoicing, the company and the contractor need to agree on whether the contractor will charge by the hour or work done. The agreement should be laid out in the independent contractor agreement, where the parties will agree on how to calculate the compensation.
The contractor invoices should contain all the relevant information, such as document name, logo, invoice number and date, the business details of the contractor and the client, list of services rendered, due amount, and payment terms.
Both parties need to keep the contractor agreement, all issued invoices, and payment confirmations as part of their records. In the case of an audit, it will be much easier to go through the process if the documentation is neatly kept and filed.
7. Payment methods for independent contractors
Once the international contractor and the hiring company agree on their compensation and achieve a mutually-compliant contract, they will need to choose and settle on payment options.
One of the most popular options for international payments is Payoneer. It is available in the majority of countries and has its own Mastercard that can be used internationally. However, Payoneer’s fees are higher than their average competitors.
International bank transfer
International bank transfer is the only option that works in every country globally and supports all currencies, though exchange fees apply. Wiring money internationally is a reliable yet expensive option since it most often uses SWIFT.
With SWIFT, both the sending and receiving banks charge fees that can quickly add up. Additionally, the exchange rates differ from bank to bank, which can cause the contractor to receive less money.
PayPal has been synonymous with online payments for years, and with good reason. It is available in most countries worldwide and has special perks for business users, and almost everyone knows how to use it.
The fees PayPal charges are around 2.9% though they can vary by country and clients can not pay contractors through the Friends & Family option.
Transferwise is one of the more cost-effective payment methods, with transparent fees and the possibility to preview all expenses before sending money. The downside of using Transferwise is that they are not available in all countries, so it may not apply to every company-contractor relationship.
Using Deel for international payroll, contracting, and compliance
With Deel, you can hire international independent contractors as well as full-time employees in a few clicks while ensuring compliance. Deel handles contracting, invoicing, and global payments in multiple methods and in over 150 currencies.
Interested in hiring global talent remotely? Get started below!