UK companies may often look within their own borders when hiring highly skilled talent. After all, London is a financial hub — its very own Canary Wharf district rivals Wall Street, and the London Stock Exchange (LSE) easily compares to the New York Stock Exchange. Additionally, business in the UK is incredibly diverse; from successful startups to many notable global trading companies.
However, despite the successes of the UK’s economy, hiring international talent comes with numerous benefits. International hiring gives employers the opportunity to expand into new markets, gain worldwide coverage, and enjoy fresh perspectives from a global talent pool.
In order to experience these benefits, UK employers must remain compliant and streamline the hiring process. Not sure how or where to start? From determining the hiring status, onboarding, and finally, to paying your overseas contractor or employee, Borderless is here to help.
Here are some tips and considerations for UK companies looking to hire international talent.
Challenges When Hiring International Employees
Global hiring comes with numerous advantages, but there are also some challenges employers need to be aware of. Misclassification, permanent establishment risk, determining compensation based on the local market, intellectual property regulations, and local labor laws are just a few challenges employers may face when navigating the waters of overseas employment.
There is the risk of misclassification
Employee misclassification is when an employer classifies a worker as an independent contractor, but are treated as if they were a full-time employee. You cannot pay people as contractors, even if it’s just for a brief period, if they are performing the roles and responsibilities of an employee.
Employee vs. contractor
Employees, in general, are defined as people who are in subordinate working relationships, are on a company’s payroll, have deductions taken off their paycheck, and work a set amount of hours.
Independent contractors, on the other hand, are not in subordinate working relationships, get compensated via invoice, and are free to work whenever they want — as long as they meet the necessary deadlines.
Sometimes, employers may purposefully classify an employee as an independent contractor as a means to avoid taxes and the additional costs associated with hiring an employee.
This is a challenge for UK companies looking to hire abroad because many countries have labor laws prohibiting misclassification. Employers who misclassify an employee, on purpose or accidentally may face steep financial penalties.
You need to be mindful of permanent establishment
Permanent establishment risk, in summary, is a tax term that shows a company has a strong enough presence in a country abroad where the local government believes that the company should be charged taxes. In some cases, permanent establishment can lead to companies facing hefty taxes, penalties, and in the future, double taxation — in the country where the company is based and the country where the employee works.
It’s important to note that UK companies don’t need an office in another country to be deemed permanently established. There are numerous things that can trigger permanent establishment risk, some of which includes the following:
- Generating sales or revenue in the country
- A fixed place of business, bank account, or other physical presence
- Enough time spent in the country to trigger permanent establishment (typically six months)
Compensation gets tricky
When hiring internationally, paying international contractors and employees can get challenging. Not only do you have to figure out how to adequately pay your overseas hire, you also need to remain compliant with local labor laws. Each country where you hire from has different minimum wage laws, currencies, payroll periods, and social security contributions. Knowing the regulations of the country where you’re hiring from is essential in maintaining compliance.
Intellectual property laws need to be considered
Intellectual property (IP) laws differ from country to country, so when hiring abroad, it’s essential to protect your IP. Common types of IP that are at risk include copyrights, patents, and trademarks. Particular industries that should be proactive and careful surrounding IP include technology, finance, energy, and manufacturing. If you’re hiring remote workers, be sure to keep intellectual property, such as your innovations, inventions, and creative assets fully in your control.
Keeping up with local labor legislation may be tough
Perhaps one of the biggest challenges that employers may face when hiring abroad is the task of keeping up with local labor laws. Labor laws are constantly changing and being updated, making it hard to maintain compliance, especially without legal expertise.
Determine the Hiring Status
Once you’ve decided that you’re interested in recruiting international employees, the first thing you need to do is determine the hiring status of your future employees. There are three ways to go about hiring abroad: hiring independent contractors, setting up a foreign subsidiary, or working with an Employer of Record (EOR).
Onboard international contractors
In general, hiring independent contractors is an easy and efficient process. Independent international workers are not on an employer’s payroll and are required to deal with taxes on their own.
Because of this, independent contractors are paid once an invoice is submitted. As an employer, paying foreign contractors is easier than paying employees. They receive payment through a method of their choice. This could be a wire transfer, a global banking service, such as Wise, or a global payroll platform, like Borderless.
Independent contractors are not entitled to benefits or vacation. They are also not required to work a set amount of hours, either — they work whenever they please, wherever they please, as long as they meet their deliverables.
However, hiring independent contractors often comes with the risk of misclassification, lack of company integration, and high turnover rates.
Establish a foreign subsidiary
A foreign subsidiary is a legally independent business entity that’s set up in a foreign country. Establishing a local entity abroad independently takes copious amounts of time, money, and resources. Doing so also requires expertise and advanced knowledge of the United Kingdom’s complex labor laws, tax regulations, and employee protections.
Work with an Employer of Record or Professional Employment Organization
Working with an Employer of Record (EOR) is the simplest and most efficient way to hire foreign workers. An EOR, essentially, acts as the legal employer where you want to hire and takes care of all the necessary administrative work. It also offers global payroll services and other value-added benefits.
Contracts are compliant and all documentation is collected
An EOR ensures that employment contracts are compliant. EOR services also ensure that all documentation from the employee is correct and submitted. This includes visas, banking information, employment agreements, and more. Collecting the necessary documentation from your overseas hire prevents compliance risks whether you are onboarding remote workers, international contractors, or both.
Insurance and benefits are covered
An EOR deals with all mandatory benefits required for legal employment. Also, EORs, like Borderless, offer attractive global benefits. This includes medical, dental, vision and life insurance coverage, as well as retirement savings plans.
Vacation and public holidays are tracked
Navigating public holidays and vacation for employees abroad can get complicated. By working with an EOR, keeping track of vacation allowances and public holidays is simple.
Social security and tax obligations are taken care of
Everywhere has different social security and tax obligations. UK companies hiring abroad don’t need to worry about making the correct contributions or meeting the required reporting deadlines when working with an EOR.
Paying employees is seamless
An EOR takes care of international payroll. It ensures that paying overseas contractors and employees is a seamless and secure process. Your overseas hire will be paid in their correct currency, on the correct pay period, securely and on time.
Maintain Compliance With Employment Contracts
One key element of compliance when looking to hire international talent is to be aware of the lengths and limitations surrounding employment contracts. Employment contracts, such as indefinite contracts or fixed-term contracts, all have different requirements across the world.
Indefinite contracts
Indefinite contracts, also referred to as full-time contracts, are considered the standard way of hiring an employee. With indefinite contracts, there is no fixed period of employment — the role is seen as permanent.
Indefinite contracts must include the expected start date, base salary, expected hours to be worked, and benefits included with employment. However, some countries may require additional information to be included.
Fixed-term contracts
Fixed-term contracts are a type of employment contract that have a definitive start and end date that is agreed upon by both the employee and employer. These contracts are usually used when organizations are testing new roles, expanding to new locations, or covering for an employee that is on leave, like maternity leave.
Fixed-term contracts have lengths and limitations that vary by country — this is where the compliance aspect comes in. For instance, in Costa Rica, employees are allowed to work under a fixed-term contract only when necessary and for a maximum period of 12 months. However, there is no limitation on how many times the contract can be renewed. So, as a UK company, if you’re looking to hire international talent from Costa Rica, keep this in mind.
Another example of these lengths and limitations is Brazil. Brazil only allows employees to work under a fixed-term contract for a maximum of 24 months. And, employees are only allowed to work two fixed-term contracts continuously. After two consecutive fixed-term contracts, employers must offer employees an indefinite contract, or, in dire circumstances, part ways.
Be Mindful of Home Office Stipends
As working from home has quickly become the norm, many employers now offer remote work or home office stipends as a fringe benefit. However, more and more countries are actually making home office allowances a legal requirement of employers.
What exactly is a home office allowance, though? These allowances are either a lump sum payment or a regular monthly stipend to help cover any extra costs that may arise when working from home, such as increased utility bills, home office equipment, or internet fees.
Countries including Canada, Spain, Portugal, Netherlands, France, and Belgium are legally mandating home office allowances. The requirements for these allowances vary from country to country, so it’s essential to do your due diligence to maintain compliance.
Navigating Compensation
One of the murkier waters to navigate when hiring abroad is compensation. This includes building a compensation package, offering a competitive salary, and figuring out how to securely pay your international employees on time.
It also encompasses all aspects related to global payroll: currency, payroll cycle of the country you’re looking to hire from, tax deadlines or deductions, and social security contributions.
What encompasses a compensation package?
When UK companies start to look at how to hire international talent, compensation packages must be considered. Compensation packages include numerous different elements.
Obviously, the first and most important element is the salary. Be sure to offer salaries on par with industry standards in the country you’re looking to hire from, and of course, adhere to the minimum wage.
Other elements of a compensation package include benefits, both mandatory and non-mandatory. This can include home office allowances, retirement savings plans, insurance, or equity stock options.
What are global compensation strategies?
Before you make a formal offer to an international employee, it’s important to figure out your global compensation policy. There are numerous strategies or approaches you can implement when developing your global compensation policy, especially when you plan on hiring employees in more than one country or location.
Determine compensation on a case-by-case basis
This compensation strategy would entail you developing a customized compensation plan for every single employee. Doing this would involve research, and if you’re planning on hiring a high number of employees from different countries, time may be limited. However, this may be a good option for companies that only plan to have a limited number of employees.
Adopt a location-agnostic pay model
Adopting a location-agnostic pay model essentially means that you would pay everyone the same rate, regardless of where they live. You would set pay grades based on title and seniority level. So, your employees in London would be paid the same as employees in Bogota.
This model does have some advantages; there would be no pay disputes among employees because everyone knows they’re paid the same. However, there are some disadvantages.
Cost of living varies significantly across regions and countries, so paying everyone the same rate may not be fair. In addition, you may not be able to attract employees who live in an area with a high cost of living, like San Francisco or Paris — unless you pay everyone high salaries, which might not be realistic.
Adjust pay based on cost of living
By adjusting pay based on where the worker lives, you would be adopting a location-based pay model. Compensation would be set for each region and would give each employee an equitable standard of living. This works best when salaries are transparent among employees.
The argument for location-based pay is ongoing. There are a few pros to it, such as:
- Employees understand that compensation is designed to provide everyone with a standard way of living.
- Companies can offer competitive compensation packages in different locations, which allows the company to tap into talent anywhere.
That being said, there may be some negative aspects to keep in mind. Potential employees with highly specific and desirable skill sets may look elsewhere to make more money working in a different region or employer. And, if an employee moves to another country and their salary is lowered, it may make them feel undervalued.
Consider global payroll solutions
Paying international employees is a whole different process than paying overseas contractors. Managing global compensation for employees has a lot of moving parts. Thankfully, global payroll services from Borderless can make it a bit easier. Global payroll solutions take care of social security contributions, meeting tax deadlines, mandatory and non-mandatory bonuses, and benefits.
Once you’ve developed your global compensation strategy, Borderless can help you pay your international employees in a timely and secure manner in their currency and pay period.
Legislation to Keep in Mind When Hiring in the European Union
Many UK companies look to hire in the European Union (EU) primarily due to its proximity, near-same time zones, and similar business culture. However, working with EU employees requires some extra considerations and factors to maintain compliance.
General Data Protection Regulation
The General Data Protection Regulation (GDPR) was implemented in May 2018. It is a set of guidelines and policies that governs personal data privacy across the EU. If you plan on hiring a citizen from an EU member state, you will need to comply with this regulation. It requires employers to restrict the processing of data and protect systems from data breaches.
Parental leave policies
The European Union also released numerous legislative acts that grant citizens to have parental leave. For example, under Directive 92/85, women have the right to a minimum of 14 weeks of paid maternity leave — two of which are compulsory.
Directive 2019/1158 also requires paternity leave, in which new fathers are entitled to ten paid days off. Directive 2019/1158 also provides employees with the right to take parental leave, which is a minimum of four months.
When hiring from the EU, being aware of these directives is essential in remaining compliant with labor legislation.
Whistleblower Directive
The European Union’s Whistleblower Directive’s main objective is to protect whistleblowers and offer them security against retaliation and harassment. Under this Directive, employers must implement reporting channels, either internal or external, and protect the anonymity of whistleblowers. This Directive applies to employers who have employees in the European Union. If employers are found non-compliant, they may face hefty fines or legal sanctions.
Hire an International Team with Borderless
As a UK employer, hiring abroad may seem like a complex process. While setting up a foreign subsidiary on your own may be a time-consuming and intricate process, working with an EOR isn’t. Working with an EOR, like Borderless, makes hiring abroad easy, compliant, and safe.
Speak with us today to learn more.
Disclaimer
Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
