Many organizations are looking to the international labor market to access a wider pool of applicants and build a global workforce. Doing so allows them to attract highly qualified candidates, enjoy the benefits of a diverse workforce, and establish a global brand.
But for all the opportunities it presents, international hiring is far from straightforward. Building a cross-border workforce can be complex, and there are key differences between recruiting locally and hiring internationally. By understanding these differences and adapting your recruitment strategy to suit international candidates, you can avoid some of the most common pitfalls.
Here are five financial, legal, and practical pitfalls when it comes to international hiring and how you can avoid them.
1. Starting too late
The added complexities of recruiting international workers can make the hiring process a lengthy affair. Working across time zones can cause delays, as can the use of interpreters. Local processes such as verifying qualifications or contacting references may also work to longer timeframes than anticipated.
Organizations can be caught short by failing to take these factors into account. Rushed hiring decisions can put you at risk of recruiting underqualified or otherwise unsuitable employees. This approach is counterproductive, leading to higher turnover rates and associated costs.
To avoid this situation, start your international recruitment process as soon as possible, allowing plenty of time for potential delays.
2. Ignoring compliance issues
Organizations are usually adept at managing compliance issues in their native country. When recruiting internationally, you need to have the same level of understanding of the complex compliance landscape in various regions. This includes becoming familiar with local rules and regulations around:
- Taxes
- Leave entitlements
- Benefits
- Wages
- Pensions
- Workplace health and safety
- Termination
- Probation periods
While navigating a different system can be a complex task – especially if it involves a different language – it’s not an issue to ignore. If you’re hiring international workers, you must understand and comply with the relevant laws of the region where your workers are based. Failing to do so can result in large financial liabilities.
This also includes staying on top of legal developments or changes to the law. While this sounds overwhelming, a global HR and payroll service such as Remote can assist with managing cross-border regulatory and legal compliance.
3. Misclassifying international workers
When hiring international workers, you should be clear about their employment status. Often, this is a distinction between hiring international workers as contractors versus hiring them as employees. The definition of each of these terms varies from country to country.
Some may try to classify an international employee as a contractor to work around tax liability or other compliance issues. This occasionally happens inadvertently as a result of misunderstanding the characterization. Either way, misclassification opens you up to liabilities.
The law generally looks at the nature of the relationship between an organization and a worker to determine the worker’s status, rather than a label. If you hire an international worker on a contractual basis, yet the law determines the relationship to be one of employer-employee, it can result in significant financial and tax liabilities in the country where you’re located, and where the worker is based.
When recruiting internationally, obtain legal advice on how best to do so. By properly classifying workers from day one, you ensure their rights are respected, and avoid costly financial penalties.
4. Treating international workers the same as local workers
While treating a workforce fairly and equally is essential, hiring international and local workers involves acknowledging and accommodating the differences between the two. These range from practical aspects such as working across time zones and navigating language barriers, or working entirely remotely, to deeper culturally informed workplace differences.
A cookie-cutter approach isn’t effective when it comes to international recruitment. Instead, you should adapt your hiring strategies to accommodate differences between local and international workers.
Failing to do so will likely make new international hires feel unwelcome or unsupported. They may be less likely to stay with you in the long term in this situation, contributing to a higher attrition rate. Instead, place emphasis on recognizing and valuing diversity and the contribution it can make to the workplace.
5. Ignoring permanent establishment criteria
Organizations that fail to consider the permanent establishment (PE) criteria in the country where they’re hiring workers risk being saddled with significant tax burdens.
Permanent establishment (PE) criteria define whether an organization has a fixed place of business in a country. If your situation meets these criteria, it triggers corporate tax obligations on you in that country. This can result in having to pay double tax on the same revenue.
While the specific criteria for PE vary between countries, the central questions determining PE often look at:
- Whether the organization has a fixed place of business
- How long the organization has been there
- Whether the organization regularly conducts business there
- The level of control the organization exercises over its employees in the country
If you’re not aware of the PE criteria when hiring international workers, you may inadvertently attract PE in foreign countries. This leads to unplanned, additional tax liabilities.
To avoid this, familiarize yourself with PE criteria when hiring internationally. One way to avoid this issue arising is to work with a local partner such as an Employer of Record, or a global HR and payroll platform that can help to understand the relevant laws.
Hiring international workers will always be more complex and riskier than recruiting locally. However, by taking a considered approach to international recruitment, you can avoid some of the most common pitfalls and use a cross-border workforce to grow your business.