After five years of leading product development at GitLab, a tech company that has always been 100% remote, and since having founded my own startup, I have experienced all the complexities that often get overlooked when hiring remotely. Big corporations have legal departments and corporate entities across the world that make hiring in India, China, France, and other countries easy. Not so for small companies, which regularly pass on great new hires internationally because the hiring and onboarding process is often too complicated.
A lack of resources to address payroll, labor laws, job-status classification, and other compliance elements has limited which companies can hire and onboard remote employees from across the globe. Complexity and cost have locked out even well-funded companies from the international talent pool.
Exactly how complicated is it to hire remote workers overseas? Read on.
When it comes to hiring international employees, the main challenge is how to pay new hires without breaking the law. Many smaller companies find this first step to be such a major hurdle that they avoid hiring remote employees and instead sometimes bring people on as independent contractors.
This can lead to misclassification issues and legal ramifications, not to mention a lack of financial security, benefits, and support for such workers. (Independent contractors must navigate on their own when it comes to tax compliance and employment verification, and they are not treated equally when it comes to banking, loans, and mortgages.)
To assure your company is compliant with another country’s labor, payroll, and tax laws, you need a local payroll provider, a local bank account, an accountant, and a lawyer. While it may sound like standard bureaucracy and fine print at work, my own experience has forced me to crisscross the globe, flying to several countries multiple times to complete a single document. I also have a standing, weekly appointment at my local notary office because of all of the documents that need to be notarized. I have multiple mobile phone contracts to be able to receive SMS codes. In one case, it took more than six months of active work to open an entity in a country. Without a third party, this process is not a financial possibility for an average small- or medium-sized business (SMB).
So just get a third party, you might be thinking, right?
Here’s the reality: If your organization decides to go this route, prepare for sticker shock. Using traditional employers of records (EORs) in different countries can be prohibitively expensive, especially for SMBs. EORs that primarily target enterprise businesses can span anywhere from 18% to 60% of total cost of employment — in addition to hidden fees, long-term commitments, and security deposits. This is how the system has worked for decades.
Even when businesses do budget for additional expenses, the system disincentivizes companies from offering competitive salaries and raises. For instance, a business that must pay a third party more money to give an employee a raise will avoid giving that raise for as long as possible.
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The 2021 Recruitment Marketing Benchmark Report
This trend has grown as offshoring and outsourcing have risen, and it is why the international employment market needs more awareness and accountability. Practices that discourage fair benefits and compensation deserve heavy scrutiny, especially as more people seek access to remote opportunities.
Granted, some smaller companies address remote hiring with a patchwork approach that may be only partially compliant. For years, the number of truly remote, full-time employees has been negligible enough for these companies to go by unscathed, but times are changing.
It isn’t hard to predict that certain governments, seeking to make up lost taxes and revenue from the economic turbulence we’ve experienced, will be pulling out a fine-tooth comb to assure they are getting all the labor fees.
A Global Economy That Isn’t
Our “global economy” is not set up to be truly global, especially for fast-growing businesses. For a small business to hire even one person in a new overseas market, barriers of time, cost, and resources almost always prevent the business from making the hire. As remote work becomes the norm rather than the exception, these operational elements are the only things standing between small businesses and the best global talent.
Great talent exists all over the world. Access to that talent should not be limited to a handful of enterprise companies.