Cross-Border Employment for Scaleups: All Tips & Tricks

Cross-border employment refers to when a company hires an individual in another country. When you're scaling up a company, and realise the potential of foreign markets for your product/service, cross-border employment becomes a crucial part of your development strategy.

It may involve either short-term or long-term employment, depending on the needs of your scaleup. Cross-border employment is becoming increasingly popular in today's globalized economy, as businesses expand into new markets and seek to tap into a wider pool of talent.

Planning for Cross-Border Employment

Planning for cross-border employment involves several considerations to ensure that the employee and employer are complying with all legal and regulatory requirements. The following are some essential considerations for cross-border employment planning:

Researching Employer and Country Requirements

Employers need to research the legal and regulatory requirements of the country they intend to operate in and the specific industry requirements. Employers should understand, to the extent that's needed of them, the local labour laws and regulations, including employment contracts, working hours, minimum wage requirements, as well as the competitive pay for the roles you're looking for.

You don't need to become an encyclopedia on the matter, as many scaleups use outside companies to help them settle in other countries. Some will prefer to do it all in-house, though, which might require to do more legwork.  

Employment law considerations

Employment laws vary from country to country, so an employer typically need to ensure that they are aware of their legal obligations in the target country.

This includes understanding the laws governing the hiring process, termination of employment, and the rights and protections afforded to employees under local law.

• Are there any local laws that permit full-time work from home on a permanent basis?
• Does a business need to maintain a physical office where it stores employee records?
• Is a business required to consult with employees regarding changes to their employment terms and conditions, such as their place of work or employing entity? If yes, what triggers the requirement to consult?
• Does a business need to inform or consult with unions, works councils, or other employee representative bodies before implementing or changing their remote work system?
• What are the consequences if employees or their representatives do not consent to remote work?

Compensation and benefits

Employers need to establish a clear understanding of the compensation and benefits package they will offer to cross-border employees. Employers should understand the cost of living in the host country and how it will affect the compensation package offered. Employers should also research the various benefits that are required by law in the host country, such as health insurance, retirement benefits, and paid time off.

Securing a Work Permit

In most cases, cross-border employees require a work permit to legally work in the host country. Employers need to understand the requirements for obtaining a work permit and ensure that all necessary documentation is in order. Failure to secure a work permit can lead to legal and financial consequences for both the employer and the employee.

Understanding Tax Implications

Employers need to understand the tax implications of cross-border employment, including the taxation of income and benefits in both the employee's home country and the host country.

Employers should also be aware of any tax treaties or agreements that may affect the taxation of cross-border employees.

Whether you’re a legal entity in the target country or not changes tax implications drastically.

Compliance Requirements

Employers need to comply with all local and international laws and regulations governing cross-border employment. This includes compliance with immigration, labour, tax, and social security laws, among others.

• If employees have not worked remotely before, does the company need to update its policies and procedures?
• Can the company unilaterally amend terms and conditions of employment, or are there legal restrictions on doing so?
• Is there a requirement or necessity for the company to create a new policy for virtual or home-working?
• Are there established and equitable procedures in place for employees to request remote work arrangements?

The pandemic created a precedents for new regiments of regulations concerning cross-border employment , for more information, check : OECD – Recent Guidance on Cross-Border Workers - KPMG Global.

Conclusion

Cross-border employment offers opportunities for both employers and employees to expand their horizons and tap into new markets.

However, it is essential to plan and prepare adequately to ensure compliance with all legal and regulatory requirements.

Employers should research the employer and country requirements, consider employment law considerations, establish a compensation and benefits package, secure a work permit, understand tax implications, and comply with all relevant regulations. By taking these steps, employers can ensure a successful cross-border employment experience for themselves and their employees.

Three Types of Contracts For Cross-Border Hiring

Here's a brief overview of the three ways of adding global talents for your scale-up, highlighting their advantages and potential drawbacks, in terms of speed of hire, compliance issues/risks, and speed to engagement.

Independent Contractor Hiring

Independent contractors is a popular option for startups and scale-ups that need to quickly fill specific roles on a project or task basis. Independent contractors are self-employed professionals who provide services to your company under a contract.

Advantages:

• Speed of hire: Independent contractors can be hired relatively quickly, as they are not subject to the same onboarding and HR processes as employees.
• Cost-effective: Hiring independent contractors can be a cost-effective way to access global talent, as you can avoid many of the expenses associated with hiring full-time employees.
• Flexibility: Hiring independent contractors can provide you with the flexibility to scale up or down your workforce quickly, as needed.

Potential drawbacks:

• Compliance issues/risks: Misclassifying independent contractors as employees can lead to compliance issues and legal risks.
• Limited engagement: Independent contractors may not be as engaged with your company as full-time employees, as they are not part of your core team.
• Limited control: As independent contractors are not employees, you may have limited control over how they perform their work and when they do it.

Third-Party Institutions

Third-Party companies can help you set up in a new country, either as a legal entity or as a foreign business. They can help with crafting contracts which follow local legislations while retaining the general feeling of your original contracts.

A good example of these entities is employers of record (EOR): third-party companies that act as the legal employer of your global workforce. The EOR handles all HR, payroll, and compliance issues, while you retain control over the day-to-day work of your employees.

Some companies provide similar services without acting as legal employers. They will help you navigate legislation, paperwork etc...

Advantages:

• Compliance: An EOR can help you comply with local labour laws and regulations, reducing your risk of legal issues and penalties.
• Speed of engagement: By using an EOR, you can quickly engage global talent without having to set up legal entities in different countries.
• Flexibility: Using an EOR allows you to easily scale up or down your workforce in different countries.

Potential drawbacks:

• Cost: Using an EOR can be more expensive than hiring independent contractors, as the EOR charges a fee for its services.
• Limited control: While you retain control over the day-to-day work of your employees, an EOR may have some influence over the hiring and firing of your staff.
• Administrative burden: While an EOR handles all HR and payroll tasks, you may still need to provide some oversight and support.
  
  

Direct Hire

Direct hire involves hiring full-time employees in the country where they will work. This option provides the greatest level of control and engagement with your workforce.

Advantages:

• Control: You have complete control over the hiring, management, and development of your employees.
• Engagement: Direct hire employees are fully engaged with your company, and can become valuable members of your team.
• Flexibility: You can hire employees in different countries, providing you with the flexibility to access global talent as needed.

Potential drawbacks:

• Compliance: Direct hire involves setting up legal entities in different countries, which can be complex and time-consuming. You may also need to comply with local labour laws and regulations.
• Cost: Direct hire can be more expensive than hiring independent contractors or using an EOR, as you are responsible for all HR and payroll costs.
• Time to engagement: Hiring full-time employees can be a slower process than hiring independent contractors, as you need to go through the full HR process.

In conclusion, the best way to add global talents to your scale-up depends on your specific needs and priorities. Each option has its advantages and potential drawbacks, so it is important to carefully evaluate each option and determine which one is the best fit for your company.