Many companies that have decided to make their company international decide to hire local employees to help launch their business and assist with operations. This is an exciting time for businesses as they take advantage of new talent pools.
There are several things that employers should do – and should not do – when hiring internationally. A few effective strategies are discussed below.
Establish a Legal Presence
Companies may want to establish a legal presence in the new country by forming a foreign subsidiary. There are ample expenses related to this approach, and considerable time and resources may have to be devoted to this strategy.
Employers who do not want to take on the commitment of establishing a foreign subsidiary have other options, including opening a representative office or using a professional employer organization.
Use a Professional Employer Organization
A Professional Employer Organization (PEO) can help a business establish a presence in a new market without taking on all of the responsibilities associated with being an employer.
Many businesses expanding to new markets use PEOs to help with the expansion process while they are waiting to form a foreign subsidiary. Others exclusively rely on them to provide the entire team of workers and transfer the risks associated with employment to these entities.
PEOs can help to conduct market research and explain the local culture to businesses so that they can target their marketing efforts to the local audience. They can also help recruit and hire talent.
PEOs help companies enter new markets faster because they do not have to worry about all of the red tape associated with establishing a foreign subsidiary.
It is important for businesses to remain compliant with all local rules and regulations regarding the employment relationship. Each country has its own rules regarding the following:
- Employment agreements
- Benefits withholdings
- Mandatory benefits
- Wage and hour issues
In addition to each country having its own unique set of laws regarding these matters, these laws are also subject to change. It is important that employers have partners who are familiar with local laws and remain knowledgeable about changes to them.
If employers do not strictly follow these rules, they may incur significant financial liability to foreign administrative agencies.
If the employer uses a PEO, the PEO is responsible for managing payroll, taxes, entitlements and withholdings. The company is responsible for the daily management of employees while the PEO keeps the employer compliant.
Provide an Attractive Benefit Package
When expanding globally, it is important that companies are able to compete with other employers in the international market. One way to do this is to offer benefits that are attractive to the type of employees the company wants to recruit.
Companies should research the type of workers they want to recruit and which benefits will most resonate with them.
In addition to standard benefits such as health insurance and vacation time, consider offering other supplemental benefits such as:
- Relocation benefits
- Housing subsidy
- Benefits for families of employees
- Foreign language classes
- Childcare assistance
If the company is hiring expats who travel frequently or people who must relocate to take the job, these benefits can better help potential employees acclimate to the new location.
5 Common Mistakes when Hiring Internationally
Companies that are expanding to new foreign markets often make mistakes when hiring internationally. Here are the five most common mistakes they make:
#1 Not Understanding the Laws Regarding Termination in Foreign Jurisdictions
Many companies look at their employment platform based on the laws from their home country.
For example, in the United States, at-will employment is common in which an employer generally has the right to terminate an employee for any reason without giving any warning. However, this system is not the norm in other parts of the world.
Many countries find that ongoing employment should be reasonably expected by employees. These countries may not allow the legal termination of an employee unless the employee has “cause.” Brazil and China, for instance, follow this system. “Cause” may be further defined by the country’s laws.
Employers must learn before even hiring employees the grounds that they will later have to terminate the employment relationship. If they do not, they risk not being able to make employment decisions due to the restrictions the country imposes.
They should learn about what constitutes “cause” in the host country, as well as the termination procedures that must be followed. Additionally, there may be rules regarding termination that depend on the length of service and the employee’s salary.
In these countries, the employer may not be able to terminate an employee due to poor performance or economic reasons.
Some other countries, like Spain, may allow an employer to terminate an employee without cause but may require termination penalty payments. The employer should become familiar with these rules and weigh whether the penalty payments are preferable for the business to incur in order to terminate the employment relationship.
There are also specific rules regarding the notice that employers must give to employees regarding their intent to terminate the employee.
Employers must take steps to ensure that they are compliant with all of these rules before initiating termination proceedings.
#2 Not Providing Paid Time Off or Other Mandatory Benefits
In the United States, employers may not distinguish between sick days, personal days and vacation days. Most laws do not require employers to provide these benefits. Employers often have policies that grant employees a certain number of days per year that are forfeited if they are not used by a certain date.
However, many foreign countries follow a different approach regarding these benefits.
Laws exist in other countries that mandate a certain number of days each year. Leave may be acquired in the year before it is used. Many countries specifically distinguish between sick days, paid time off and vacation leave. Many employees who are too ill to come to work are paid for their time away from court. However, these benefits may be subject to limitations regarding how many days they can take off and salary caps.
Additionally, rules regarding carrying over these earned benefits also vary. Many countries allow employees to carry over their accumulated time to the next year.
Some countries require vacation time be provided to employees. Others require this benefit after the employee has worked for a certain amount of time. Others base vacation time on the employee’s age. Belgium and the Netherlands require employers to pay employees a higher rate of pay during vacation time, between 25 to 33 percent more than their normal wage.
Employers must learn about these rules and ensure that their policies are in compliance with local rules and customs. At a minimum, employers should be aware of the following information:
- The statutory entitlement to annual leave and how it accrues
- Whether the statutory entitlement to annual leave adjusts due to service, age or other factors
- Whether the employer should provide more leave than the statutory entitlement to be competitive with local companies
- The rules regarding whether leave carries over after the year
- How many sick days are permitted and whether employees are compensated while ill
- Whether a doctor’s note is necessary for sick days to accrue
- Whether a vacation bonus is required
- Whether the employee is entitled to any other type of leave and the rate of pay that the employee is entitled to receive when using this leave
#3 Trying to Exempt Employees Based on Home Country Rules
In the United States, it is a common tactic for companies to exempt many employees from the requirement to pay overtime pay based on their job description and duties. Large portions of the American workforce fall under these exempt categories and may not be entitled to a higher rate of pay when working overtime.
Like many other employment laws, foreign countries have different rules regarding exempt employees with many of these countries not allowing for as many exemptions as the United States.
For example, only very senior executives are usually considered exempt in many European countries. However, there are exceptions. For instance, in the United Kingdom, employees can alter the standard rules per their own agreement with the employer.
Employers need to learn about the rules regarding the exemption of certain employees and whether the employee can waive these rights. Employers must also be familiar with overtime laws and regulations, including knowing when employees are entitled to overtime pay and the rate of this pay.
There may be rules regarding the maximum number of hours an employee can work even if receiving overtime pay.
Because overtime pay may be required in the foreign country, employers must carefully monitor their time. They should have clear guidelines regarding the standard work week and what day of the week the work week begins.
#4 Restricting Employee Competition and Inventions
In the United States, many employers use non-compete agreements that are designed to protect the business interests from an employee becoming competition after the employment relationship terminates.
Typically, these non-compete agreements state that the employee cannot work for a competitor or open his or her own business. These restrictions limit the area where the employee can work and state how much time the restrictions are in place.
These restrictions must be targeted to protect a legitimate interest of the business and be reasonable. Many countries require this same framework, but there may be countries that do not allow these agreements or that carefully scrutinize them.
Employers who use non-compete agreements must usually make these agreements as part of the condition of employment and must require the agreement at the beginning of the employment relationship in order for them to be enforceable. Some countries require employers to pay employees while these agreements are in place.
There may be rules that allow non-compete agreements to be withdrawn. Notification requirements may have to be met if the employer opts to withdraw it.
There are also rules regarding inventions that an employee makes related to the work that he or she performs. Employers in the United States may require employees to waive any rights to their inventions that they make during the course of their employment or transfer these rights to their employers. These agreements may be based on any future invention the employee makes.
However, in many other countries, such future-based contracts are not enforceable. The invention may have to be already invented in order for the employee to transfer these rights. Additionally, there may be additional rules regarding notification and claims related to these inventions.
Employers must familiarize themselves with these rules as well as whether payment is required for the invention and claims the employer makes against an employee for trying to profit off an invention that was part of an agreement.
#5 Hiring Employees
While employers may want a local team on the ground to help manage expansion, hiring employees may not be necessary. There are other options that can help build a team without having to incur all of the legal duties and responsibilities of being the employer.
One option is to hire independent contractors. Many of the laws that apply to employees do not apply to independent contractors. For example, these workers often are not entitled to leave time or other employee benefits that may be mandatory in foreign countries.
Using independent contractors can help companies minimize risks. Independent contractors provide services to companies. The company can establish a framework regarding the work that it wants completed without having to provide direct rules or supervision to them.
It is important to have a clear contract with independent contractors that defines the scope of work and to follow the local rules to prevent an independent contractor from making any claim that he or she is an employee and entitled to certain benefits or protections.
Another option is to use a professional employer organization. This is a company that is the employer of record and hires the employee. This company is responsible for payment of wages, benefit administration, and compliance matters. The employer can use this company to secure workers without having to tackle all of the hassles associated with direct employment.
While there are many complexities associated with hiring internationally, tapping into new local talent pools can be a risk worth taking when expanding your business. Seek assistance to understand the important differences in the laws related to international employment and how they differ from your local country’s rules.