Business leaders constantly look for ways to keep their companies competitive. Those strategies may include boosting product development, refreshing the brand, or bringing international staff on board. Going global used to only apply to large corporations. But with advances in technology and the rise of remote work, hiring international teams is something smaller companies can consider.
Implementing global hiring, however, is something that requires a bit of forethought. As with any big move, leaders must think through the business’s resources, capabilities, and short- and long-term needs. While there’s no right or wrong way to assemble an international team, below we outline typical methods to consider.
Engage a Third-Party Organization With the Right Expertise
Hiring employees in other countries usually means companies must establish a local legal entity. This can be a branch office or an entire subsidiary. Each nation might require different paperwork and financial considerations. And it can take time to work through the red tape and move to the operational stage.
For businesses with more time and money to spare, setting up separate legal entities can make sense. A company’s plans may only include hiring from a few countries or assembling a team in a single international market. Opening new entities takes both time and money, so smaller companies usually don’t take this route at first. Instead, companies use employers of record (EORs) to hire employees in other countries on their behalf.
However, leaders of companies who do choose to open entities will still likely need help managing typical HR functions like payroll and employee benefits. They may be unclear on the labor regulations in other countries or lack the resources to get up to speed easily.
In these cases, it can be a good idea to work with a professional employer organization. What is a PEO? A PEO is an organization a company can partner with to outsource payroll, benefits administration, and taxes. Professional employer organizations handle the administrative side of hiring and maintaining an international team, co-employing workers with the company to provide HR assistance.
While PEOs are helpful, businesses without the time or resources to set up local legal entities may need to pursue different options. Arguably the best strategy here is to use an employer of record, which can employ international talent on a company’s behalf. An EOR can also handle the same administrative tasks a PEO does. EORs enable companies to hire employees from various countries and remain compliant with local labor laws without having to establish a physical business presence.
Consider Hiring Contractors or Freelance Talent
Since contractors are not considered employees, businesses usually don’t need to set up local legal entities to hire them. Bringing freelance talent into the mix can be an easier and more cost-effective way for companies to grow. International contractors are also a way for businesses to learn about global markets. When local boots are on the ground, leaders can determine whether more permanent expansion plans are viable.
Nonetheless, there are risks to consider if businesses choose this route. One is the chance that a company could misclassify workers under a country’s labor laws. Classification rules in other nations may vary from those in the United States.
For instance, the IRS outlines three main factors that help businesses classify workers correctly, one of which is “behavioral.” That means someone is usually a contractor if they control when and how they work. Employees, on the other hand, typically work certain hours or schedules. Other countries may be more or less stringent on this and other points.
Before business leaders hire international contractors, they have to become intimately familiar with local classification laws. Otherwise, they could face government fines and other penalties, such as retroactive pay, benefits, and payroll taxes. Other risks associated with hiring freelancers include exposing proprietary information and having less control over the work contractors deliver.
Merge With or Acquire an International Company
Businesses can quickly expand into global markets by merging with or acquiring existing companies. By doing so, an organization inherits the assets of an established business. A company gains an international team overnight, along with a local legal entity and market presence. Mergers and acquisitions can become a successful global expansion strategy for companies with the required internal know-how and financial resources.
Yet acquiring a whole new team in a different country does call for careful navigation. These are employees who may not be happy about the merger or acquisition. They’re used to working under the previous business’s rules. Companies that acquire or merge with other organizations in the same country sometimes find combining human resources challenging. When international cultural differences come into play, those difficulties can increase.
Businesses may need help from culture and HR experts and some of the previous company’s leaders. Newly combined organizations may also want to identify or appoint change agents to manage the internal aftereffects of a merger/acquisition. Change agents can help overcome resistance and champion the benefits the combined organization stands to gain.
Instead of a merger or acquisition, a joint venture might be more financially feasible for smaller companies. In a joint venture, each organization works with the other and combines some resources. These can include global teams that carry out specific initiatives or assignments. However, each business keeps its separate identity and legal entity. A joint venture is usually less risky than a merger or acquisition, both from a financial and cultural perspective.
Determining the Best Way to Make the Leap
Companies can reap several benefits when they hire internationally. Increased knowledge, competitive advantage, and market expansion are a few. But before businesses go global, owners and managers must know what they’re about to face. Critical decisions, such as whether and how to create local legal entities, will shape a company’s hiring strategies.
While some businesses may have the expertise to go it alone, others will need the assistance of outside organizations. PEOs and EORs are effective and streamlined ways to make the leap to global hiring. For leaders who want to expand hiring possibilities without setting up legal entities,though, EORs are the way to go.