It’s no secret that the US labour market has seen better days. How do American companies leverage their position and prestige to survive The Talent Recession?
For an increasing number of them, hiring foreign remote workers is proving to be a welcome lifeline.
Whether your firm is in the midst of its own global digital voyage of exploration or has yet to set sail, you’ll want to read our guide to effective, compliant hiring across borders.
- Defining the ideal candidate
- Classification of remote workers
- Filing the right papers
- Funding your global dream team
Applications open: finding the ideal candidate
The good news is that there are highly skilled, English-speaking foreign nationals looking for remote work. And US-based companies are well positioned to take their share of this booming market.
Begin by considering the skills that you need to attract, and use that to define the parameters of your search. For example, the Czech Republic and Romania both offer large populations of skilled developers who speak English proficiently.
In addition, their cost of living and average salary expectations make them ideal for US-based employers.
Refining the search
Our advice: check out the Global Skills Report to find out which regions and countries have the kind of talent you’re looking for. Pair that with our Country Playbooks to develop a strategy for accessing the countries where your next big hires live.
Classifying workers: what’s in a name?
Duration: temporary projects usually require contractors. Employees work on a long-term or permanent basis.
Workflow: employers decide where and when employees complete their tasks. Contractors work autonomously, using their own materials and managing time themselves.
Payment: contractors receive a set (usually hourly) rate, unlike employees, who are paid salaries or wages.
An employer is not liable for contractors’ tax deductions, insurance contributions or stipends. And terminating a contractor agreement is almost always less messy than dismissing an employee. So at first glance, contractors look like a better option and in many cases, hiring foreign workers as independent contractors makes sense.
This can be the easiest way to bring highly skilled digital nomads on board, and many of them are comfortable with this arrangement. It gives them the flexibility to provide services to more than one company, which is not an option for employees.
There’s a catch
But to stay on the right side of the law, companies must classify their workers correctly, and follow the regulations that distinguish employees from contractors in any given country.
Misclassification attracts heavy penalties. Many countries are taking steps to tighten regulations to ensure that foreign companies don’t treat contracting as a tax loophole.
The IRS stipulates that companies who misclassify can become liable for all unpaid employment taxes to date.
If this is your first rodeo or you’re eyeing out talent in a region you haven’t explored before, make sure your payroll officer reads this.
Remote workers and tax: form W-8 BEN
Whether they employ overseas workers or contract with them as independent freelancers, US-based employers must understand the W-8 BEN form.
Who it’s for
Non-Resident Aliens (NRAs) are any workers who are not American citizens, and who live outside the USA. They have a different tax status than resident workers or US citizens.
For remote employees, the W-8 BEN establishes this status. By completing this form, workers also claim the benefits of any tax treaties that exist between their country of residence and the United States.
Depending on the existence of a tax treaty and its terms, this can mean a lower tax rate for the individual. Their American employer can use this rate for tax withholding.
US-based companies should also request a variation of this form, W-8 BEN-E, from any contractors who are NRAs, and who qualify as independent contractors in terms of IRS definitions.
Press play: ways to pay foreign workers
Once you’re ready to roll with your international team, you need a way to pay them. This is where things can get complex.
Put down roots with your own local legal entity
Most countries require foreign firms to register legal entities in their territories in order to hire residents. This involves significant time and cost, so it’s only worth doing in certain circumstances:
- Setting up a large, permanent operation in another country
- Hiring a large number of people in that country (more than 15)
- Countries with strict time limits on the duration of EOR relationships
Professional Employment Organizations (PEO)
One of the advantages of setting up a local entity is that it allows a firm to contract with a PEO. These organisations offer co-employment agreements to companies with local entities. A PEO employs your staff and leases them to you.
The PEO also handles the HR administration for those employees, including payroll and benefits. For US companies who have a legal entity in a foreign country, a PEO is a full-service HR solution.
Employers of Record (EOR)
The only drawback to both of these solutions is that they require companies to first go through the cost of establishing overseas entities.
That’s beyond the reach of companies that are too small or looking for an interim solution before they commit to full incorporation abroad. EORs provide that solution by facilitating zero-entity expansion, including remote payroll and compliance.
Playroll: Employer of Record and contractor management services made simple
Through our network of international subsidiaries, we enable our clients to hire in over 170 countries without the need for a local entity.
Book your demo with the Playroll team to find out more about how we’re helping companies expand their global footprints through the magic of zero-entity hiring.