With the rising efficiency of digital communication, non-resident job growth has been growing. It seemed to begin with the COVID-19 pandemic, which spurred on a culture of working from home. And, if you can work from home, you can work from a small village in France or on a beach in Bali. 

Whilst the pandemic was an accelerator for hiring remote workers, it by no means began the trend. Digital nomads would like to claim some amount of authorship, but like with anything, once the technology can conceivably facilitate something – it’s already happening.

Recent reports show that it’s more than just workers’ desire to work with a sun tan, but that foreign workers are actually driving growth in some economies, and helping tie over labour shortages in others. 

Of course, governments are exactly ecstatic with the idea of money leaking out of their economy or letting the global market suppress regional wages, but if we fast forward a decade or two, it’s inevitable that national borders are eroding with the rise of supranational states and trading blocs. 

So, unless you’re in a country that is increasing its protectionism like China, most citizens will have increasing WFH job opportunities in the near future and businesses will have more choices full stop.

The benefits of hiring abroad

A clear and obvious benefit to hiring abroad is the cost. This is the sole reason why most of our clothes are produced in South East Asia, and it’s why many firms look to India when outsourcing their customer service or IT support – but there’s more to it than that, of course.

You could likely hire 3 or more workers of a similar education level for 1 American worker. The average salary for an American software engineer is around £60,000, whilst the average Lithuanian software engineer gets just under £14,000 (€16,320). So, around 4.2 Lithuanian software engineers for every British one, with a reasonable guarantee of high English speaking knowledge too.

It’s not just that wages are cheaper in other countries, but it’s also less competitive. There are fewer programming job opportunities in Eastern Europe, for example, though this is soon changing slowly as major companies like Revolut seek to base offices over there.

Some societies are more focused on different skills, and having a global approach to recruitment can tap into that. As we all know, Germany has no shortage of world-class engineers, whilst countries like Estonia are becoming increasingly tech-focused in their education. 

Furthermore, there are some inherent advantages an American or London-based firm may have over a local company besides pay. Mostly, the opportunity for a location transfer (i.e., an opportunity to work in the office), which could be a person’s gateway to being sponsored for a visa. This may or may not be viable, but businesses from some countries undoubtedly hold a lot of sway, making it easier to attract top-class talent overseas than locally.

It’s also important to recognise that it’s not just about replacing local employees with more affordable options. It’s also that these overseas employees may hold unique knowledge. For example, if you’re looking to start selling your e-commerce products in Turkey, it may be worth not just hiring a Turkish translator to convert the English web pages into Turkish, but also a Turkish marketing professional who will have knowledge of that demographic. And, being English speaking, you can onboard them with your current British local demographic quite easily.

Importance of local compliance

Before diving into how to hire employees abroad, it’s important to point out the largest obstacle to it all: compliance. Unfortunately, it’s not as simple as having a private relationship with an individual abroad and paying them for their time. The biggest reason for this is tax and employment law.

The worker will be living in a country with their own employment taxes, employment laws, and so on. To comply with this can be difficult to achieve. For a start, the country that the employee resides in (the country that will govern this relationship) may have more generous worker’s rights, statutory entitlements, and payroll will have to be done on their terms so the employee can pay their local tax properly.

The fallacy of the subsidiary

It’s very common for businesses to have the belief that they must establish a subsidiary in the country in which they will begin hiring. To hire abroad with a local entity is certainly one way to go about things, but it is not the only way. If you’re wondering what this even means, it’s where you create a legal entity in another country under the holding company’s control. Basically, you’re the parent company, or you share a parent company.

This route makes sense, because you’re establishing a clear local legal presence which can then, in a sense, hire locally in that country. There are some advantages to this, and you will have a conceivable path to compliance – but it won’t be easy. 

The main advantage is that you have full control over your hiring and payroll, and can even begin to build a brand under this subsidiary. This is common to do when hiring many employees, but it’s a complex option to undertake, and very expensive to process. Some suggest it’s around $20,000 to set up, but can cost up to $200,000 per year to maintain.

Some things that stand in the way are that establishing a local entity is just really difficult in a lot of places. In the UAE, for example, you need to have 51% UAE citizen ownership. Of course, even if you’re given the green light, you have no idea about the bureaucracy, local laws and protocols, and it can be very expensive if you slip up (i.e. fines). This often means hiring someone with local knowledge to help with compliance and paperwork, making it all the more expensive and timely.

Ultimately, given that cheaper labour from a larger skill pool is a driving factor in most businesses’ desire to hire abroad, would it even be economical to do it through a subsidiary? Unless you’re hiring a large team of people, the answer is likely no.

An alternative: Employer of Record

A global Employer of Record is essentially a way to sidestep the whole ordeal of setting up a local entity yourself, and is much more suited to smaller firms hiring fewer employees. Hiring abroad via Global EOR service is cheaper, faster, and a stress-free alternative.

An Employer of Record is basically a service that will do this for you. They handle the international payments, manage the employee, and are technically the ones who will be hiring the employee. It feels like a loophole, but it’s a fully legitimate way to hire abroad. And, of course, they take a fee.

There are some clear advantages to this, and invariably, some minor disadvantages. In essence, you’re passing over the liability of the employee to the Employer of Record. Passing over liability is clearly another way of saying “give someone else that headache and responsibility”.

Of course, not having the liability also means not having as much control. You may feel like you have slightly less involvement in the onboarding process (it should be made clear that the EOR service will have its own in-house professional HR specialists, but still).

If you’re big into having a tight company culture, you could perceive this as a possible threat. There may be a slight friction, though many businesses claim they do not experience much friction after fully establishing the relationship and trust. Things like offering equity incentives may not be viable through this method, and you may have to work hard to overcome a feeling of this being a temporary arrangement from the employee’s perspective. Though, these kinds of challenges already exist when hiring abroad anyway.

Again, it takes a huge weight off the shoulders of your HR department, but we can find pros and cons to this. Ultimately though, it’s important to realise that this is so often the only viable way of hiring overseas employees, with local subsidiaries costing too much.

So, your decision may become less about which way to go about it, and more about weighing up the pros and cons of using an Employer of Record, as these could exacerbate the challenges of hiring abroad.

The risks, though, may be inherently minimal. Employer of Records are designed to take on the liability, so you’re inevitably entering into a flexible and versatile arrangement. This makes it great for testing new markets, trying out new workflows, and ultimately a super-fast way of scaling up your international workforce.

The costs and benefits of an EOR

Above, we have covered some of the basics, but here’s a more concrete idea of the costs of an EOR and the benefits when using the best employer of record providers.

One quote from a mainstream EOR provider was $650 per month, per employee. Some may be slightly cheaper or more expensive, but we should expect a sizable amount like this. This kind of pricing, if too expensive, may point you towards more contractors, which can be around $50 per month, or just to hire highly skilled personnel abroad, in which this cost takes up a smaller percentage of the salary.

Collection of benefits taken from the best EOR providers:

• The burden of compliance is taken off your hands
• Employment contracts are taken care of
• Less legal liability
• Frees up HR resources
• Cheaper than establishing a local entity
• Streamlined documents
• Payroll automated and streamlined (i.e. one bulk payment)
• Employees get paid in their local currency
• Easily manage bonuses, expenses, and perks
• Payroll data with valuable insights and easily visualised, making it a BI benefit
• Global salary insights 

Are Employer of Records the same as a Global PEO?

A global PEO, which stands for Professional Employer Organizations, can often be confused with an EOR. However, they are very much two different things, with PEOs requiring you to have your own legal entity (as talked about above), whilst EORs become the legal employer.

An international PEO is a kind of a co-employment arrangement, but you remain solely responsible for compliance and local labour laws. A PEO is essentially the better option if you decide to take the route of setting up a local entity, whilst an EOR is ideal for the alternate route of staying remote.