
Can a US Company Employ and Pay Someone in Another Country?
The growth of remote work has opened up a global talent pool to US employers, but hiring abroad is not as simple as with a US-based employee. US companies recruiting
Read MoreOnce your company commits to recruiting and hiring remote workers overseas, you will face a decision on how to best hire the new employee. The hiring method selected will not affect the employee as much as it will your company, and depends on your overall global HR strategy.
Is this your first time hiring employees abroad? Do you have plans to hire employees in multiple countries? Will you hire a locally managed team of remote employees? The answers to these questions will guide your decision on the best hiring method for your company.
There are a number of ways to hire overseas employees, but the two that are used most frequently are incorporating an entity or using an employer of record. This article will look at the advantages and disadvantages of each method.
The traditional way of hiring foreign employees (or expats) was to set up a branch or subsidiary in the host country and run payroll on your own. Setting up an entity will require incorporation, registration and possibly meeting capitalization requirements. There are pros and cons to this approach, that have to be weighed against other options.
Another method used by companies hiring abroad is the employer or record (EOR) solution. The EOR is an entity already set up in the foreign country, ready to administer employment for your company. As the legal employer, the EOR onboards the employee and runs a local payroll while you still manage the employee’s work and schedule.
Here is a comparison chart breaking down the differences between hiring foreign employees through setting up your own entity versus using an employer of record:
|
Entity Setup |
Employer of Record |
Setup costs |
Initial setup more costly |
Low one-time fee |
Employment costs |
Low cost to add employees |
Fee for each employee hired |
Hiring and onboarding speed |
Slower initially due to setup |
New employees hired quickly |
Expertise in local regulations |
Local experts need be hired |
EOR has current expertise |
Terminations |
Entity handles terminations |
EOR handles terminations |
Exiting Country (if the company wants to exit the country completely) |
Difficult to exit country quickly or transfer employees |
EOR is fixed entity and no exit requirements for employer |
Overall compliance risk |
Low, if the right local expertise is found |
Low due to EOR existing expertise and experience |
Choosing the best option will depend on your company’s global expansion strategy, the number of employees being hired, and if you are recruiting in multiple countries. Some companies may begin with an EOR and then transition to their own entity, or vice versa where they wind up their entity but still need a solution to retain remote employees.
Multinationals with business activity in foreign countries will often set up an entity, where they have a long-term commitment to the market. This can also make sense if a company wants to recruit an entire remote team in the same country due to skill set, language and proximity. But incorporating is not really cost-effective for hiring one or two remote employees, if you don’t otherwise need to establish a legal presence in the country.
Companies will use an employer of record when they have found one or more employees that they want to hire and onboard quickly. Smaller companies or startups may not have the HR background to run a payroll DIY and would need to rely on the expertise of the EOR to remain compliant.
The EOR also works well in a situation where a company located in the US for example wants to hire EU-based employees located in different countries. The EOR in each country would take care of the respective employees seamlessly. The EOR solution is also used to bridge the time gap for companies that are going through the process of setting up an entity, but want to hire employees immediately. The employees would then be transferred from the EOR to the entity at a later date.
Shield GEO has employers of record in all major markets that are already setup and ready to hire your new overseas employees in one or more countries. The EORs have the background in local employment laws to ensure your company remains in compliance, while you can focus on employee management and performance. The whole process is guided from the outset by a regional account manager that gives you a single point of contact and support.
We make international employment simple.
The information in this article is subject to changes in local legislation.
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