Dee Coakley, co-founder and CEO at global employment and benefits platform Boundless explores…
In today’s world of work from anywhere, it has never been easier to reach new markets and find the best, brightest, and most diverse talent.
There’s just one problem: people need to be employed where they live and local employment laws are complex. The world still remains highly localised, with regulations and laws fragmented. Here are just three of a number of employment issues you need to be aware of when hiring in another country.
You have to register for (and pay) employer taxes in every country where an employee resides. The process and the amounts vary significantly (see a snapshot of 67 countries). You must also register each employee with the relevant tax and social security authorities to deduct all contributions.
The percentage of taxes you will have to deduct from employees varies significantly. And on top of the income and social security taxes, many countries have additional taxes. Brazil is a striking example that has over 60 different taxes and where every federate unit within the country can enact more tax rules.
Moreover, many tax rules are unclear and are subject to widely different interpretations by tax and social security authorities, making navigating taxes a huge challenge.
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An international hire means you will need to get to grips with international payroll. You will need to figure out if you need corporate presence in the country, as well as register as a locall employer. You will then need to decide whether to run payroll in-house or outsource it.
You also need to consider local net salaries: the same gross salary will equal a different net wage in other countries because of local employee and employer taxes, allowances, contributions, and tax credits variations. This is particularly important if someone is requesting to move to a different country. You will have make the gross to net (capping the company cost at its current level) and net to gross (keeping the employee at the same level of take-home pay) calculations.
Another important aspect of international payroll is that remuneration comes with different requirements in different jurisdictions: primarily this covers minimum wage and pay frequency, but there are also specific cases that you should be aware of.
Most countries have a mandatory national insurance system, to which either the employer or the employee contributes although, as you might have guessed, regulations vary significantly (see a snapshot of 67 countries). Paid time-off benefits all exist in one form or another in OECD countries, with the notable exception of the US.
This area is further complicated by benefits in kind, offered at the employer’s discretion, which are generally treated as taxable income. In most cases, it’s the employee that pays that tax but there are exceptions. You can also look to create a more inclusive workplace through an individualised benefits programme, where employees can pick the benefits they want to suit them.
So how can firms navigate the complexity that comes with international employment? Many organisations turn to the services of an Employer of Record (EOR), which acts as the legal employer of the employee as far as the government, tax, and employment authorities are concerned. It ensures you can legally and compliantly employ someone in a different country without headaches or overheads because all the complexity associated with international employment is taken care of. And that’s a win-win for both employer and employee.