From contractors to local entities: Your guide to international hiring

With many companies experiencing difficulties in finding the talent they need in the UK, hiring overseas labour who can work on a remote basis is an increasingly attractive proposition for employers. “Hiring international employees widens the talent pool available for employers,” says Ian Abel, senior associate in the employment team at law firm Knights. “It can also translate to cultural benefits for the business, as the overseas staff may have different perspectives to bring to the company. It can help overcome any potential language barriers, which is critical if the company is looking to expand into new markets.”But, finding the right model through which to hire overseas labour can be difficult, and the various arrangements will suit different employer circumstances. Here, we outline the most common models, and some of the pros and cons.Hire independent contractorsMaking use of independent contractors can be a good way of hiring talent where there’s no entity in the country in question and you’re keen to get up and running quickly. “Often they begin work straight away, even on short notice, and offer more flexibility,” says Helen Watson, partner and head of the employment team at Aaron & Partners. “Other advantages include reduced business costs for organisations. The use of independent contractors would practically suit organisations which are project-driven or those wishing to employ a consultant to assist for a particular reason as it would allow them to contract for a specific time and length to assist.”But there are complications. The main one, says Katherine Loranger, chief people officer, at global hiring and onboarding platform Safeguard Global, is the risk of misclassification, which can result in legal penalties and financial liabilities. “Misclassified contractors deemed as employees may lead to back taxes, benefits and legal fines,” she says. “Additionally, managing contractors across different jurisdictions can be complex, requiring robust contractual agreements and ongoing compliance monitoring. Companies must ensure contractors are genuinely independent and not integrated into the organisation as regular employees.”Set up as a local entityAnother option is to establish a local presence in the market you’re hiring from, and employ people directly. This is only likely to make sense in certain circumstances, says Jim Moore, employee relations partner at HR consultancy Hamilton Nash. “If you're building a new hub location and plan on hiring a reasonable number of people, then it may be worth the overhead of investing in a local entity in that location and employing them directly via that local entity,” he says. There are advantages to this approach. “It enables full compliance with local employment laws, tax requirements and social benefits, reducing legal risks,” says Loranger. “Establishing a local entity helps build a stronger local brand and presence, making it easier to attract and retain local talent and integrate into the local market.”But this won’t be right for every organisation. “Setting up a local entity is costly and time-consuming, requiring significant administrative and legal work to establish and maintain compliance with local regulations,” adds Loranger. “It necessitates a physical presence, which can be a financial and logistical burden. Additionally, the company must navigate complex local laws and cultural nuances, potentially requiring local legal and HR expertise. The ongoing management of a local entity can also add to operational complexity and overhead costs.”Use a global employer of record This allows companies to hire employees in a foreign country without setting up a local entity. “An employer of record (EOR) is a local company that acts as the local employer, and handles all the employment law, compliance, contractual and payroll obligations for the overseas employer,” explains Moore. “You still manage the employee and direct their work, but the employment relationship is managed through the EOR. There is, of course, a cost overhead for this service but for small numbers of workers that is typically much lower than setting up your own in-country entity.”This model is ideal for companies needing to quickly scale operations globally, test new markets or hire remote talent without the administrative burden of establishing a local entity, says Loranger. “It provides a quicker, more flexible way to enter new markets and manage international teams.” There are still legal issues to consider here, though. “When employing the use of a third-party employer of record, organisations should ensure that clauses including covering confidentiality of information, intellectual property rights to the employer, or return of company property at the end of employment are provided for within the contract between the employer of record and their workers,” says Watson. “Organisations should also ensure that those provisions reflect the laws of the specific country from which they have hired.”Finding the right set-up for overseas hiring will provide employers with the footing to bring in the talent they need. “Choosing the right hiring model ensures compliance with local laws, optimises costs and enhances operational efficiency,” concludes Loranger. “A thoughtful approach helps mitigate legal risks, ensures proper management of talent and aligns the hiring strategy with business objectives.”To find out more about how Safeguard Global can help your organisation find the right hiring model, go to safeguardglobal.com.

From contractors to local entities: Your guide to international hiring

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