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Accessing pools of talent outside your home country is one of the more appealing aspects of remote work for companies, especially when considering the U.S., where competition for talent is fierce. Being remote-friendly enables companies to cast the widest possible net to find the people they need. This can allow you to hire people at comparable wages outside the competition pools with large companies in expensive urban centers, which can help change people’s lives for the better and bring more mobility and opportunity to underserved communities. Additionally, if your company is aiming to expand into new markets, hiring locally means bringing in people who live and work in the region, who are more likely to know their market incredibly well.
This sounds great on paper, but the reality is far more complex. Hiring internationally means weighing nearly the entire list of considerations from the previous section on U.S. employees, and having to solve for all that in every new country.
importantWhile U.S. companies can hire from any state without needing a physical presence there, it’s not so straightforward internationally. If you aren’t incorporated in a given country, then you can’t hire someone as a full-time employee.
A Common International Hiring Approach
Common questions covered here
What is the best way to hire an employee in another country?
Can I hire remote employees as contractors?
How do you decide to approach hiring internationally ultimately comes down to your company’s philosophy, growth rate, and risk tolerance. Smaller startups often fall below the threshold for certain kinds of benefits requirements or privacy and data security laws—as they grow and scale their remote workforce, their risk exposure grows, but they also then tend to have more capital and people to invest in establishing and scaling programs to ensure compliance with local laws.
You have a few options for how to proceed:
Hire people as contractors.
Hire through a temp agency or local business partner.
Work with a PEO or GEO.
Incorporate your company in that country.
Some companies, like website optimization tool company Convert, prefer to employ everyone as a contractor. It’s logistically easier, and for them supports a philosophical belief that grants everyone the same status. They’re also only about 40 people total, and not growing at an aggressive pace.
Companies also need to consider the costs—incorporating in another country is expensive and time-consuming; and working with a PEO can also be quite costly (though Remote Year CEO Greg Caplan suspects these prices will start to come down as competition in this space increases in the coming years*).
In talking to dozens of remote companies, the pattern we’ve seen appears to be:
Dipping a toe in with contractors in new countries. Many remote startups start here, and choose to stick with remote employees as contractors as their long-term strategy.
Working with a PEO either as they add more people, or if that country has trickier local laws with which to keep up.
Officially incorporating in countries where they have achieved critical mass (typically over ten employees). All the ins and outs of international incorporation are outside the scope of this guide, but what we have seen is that most companies start researching incorporation as an option when they reach around 5 contractors in the same country, and typically move forward once they get to somewhere between 10–20 people there.
While some companies persist with a model where everyone is a contractor, more seem to be following in GitLab’s steps and mixing in different approaches at different stages of growth or for different business needs. GitLab is arguably the largest remote company that has pioneered this approach—they still have a mix of all three options and are incorporated in ten regions.
importantOne notable thing GitLab does is to pay contractors 17% more than they would receive as a salaried employee. That helps them cover all the things they’re responsible for, making it less of a burden to remain employed as a contractor.
The easiest, quickest, no-frills way is to tell people up front when you’re interviewing them, “We’ll just pay you more.” Setting up an entity is expensive; PEOs cost a lot of money as well and have a ton of unknowns. Having contractors becomes a big deal when there’s 20–25 people, and that’s when the economics flip towards thinking about incorporating.*
importantThanks to GitLab’s dedication to public, open documentation, you can get a leg up on figuring out which countries might be trickier than others by checking out their Hiring Status page. It shows how many employees they have in each country, whether they work with a GEO or not, and if they have any “holds” in regions due to complexities hiring or establishing an entity there.
Let’s look more closely at the two most common approaches: hiring international workers as contractors, or working with a third-party company.
Hiring International Workers as Contractors
International contractors offer many of the conveniences that U.S.-based contractors do: they’re typically responsible for their own taxes, health care, et cetera; and are subject to their national and potentially municipal regulations for compliance. But unlike in the U.S., even if you are hiring a contractor, you’re often still responsible for ensuring they receive all their benefits, including paid leave, minimum wage, holidays, and anything else stipulated by their local laws.
importantDLA Piper provides an excellent resource for researching employment laws by 60 different countries.
A few notable categories that differ outside the U.S. include:
Overtime pay. Other countries tend to be far more generous with their overtime pay than in the U.S. In Europe, for instance, usually only very senior executives are considered exempt.* Some countries, like Britain, have their own exceptions.*
Paid absences and sick time. The U.S makes no difference between personal days, sick days, and vacation days, and scarcely allows carryover of untaken days into the following year. In contrast, most foreign countries separate vacation leave from sick leave and personal leave. These countries permit employees a certain number of paid vacation days per year, and vary in their annual limits and salary caps for paid sick and personal absence.* In some countries, this maximum entitlement increases with service, while in others it depends on the employee’s age.* Further, the laws of carryover of unused leave vary in each country, with most countries permitting it.*
Vacation bonus. Some countries, like Belgium and the Netherlands, require employers to pay employees a “vacation bonus”—usually 25-33% on top of the normal wage.*
Breaks and mealtime. Other countries are far more generous in their breaks to employees and the amount of time workers can take off than the U.S. is. For example, in Mexico, certain types of workers get eight to nine hours of breaks per week. Mexico also gives its workers one out of every six days as paid leave.*
cautionContractors who don’t keep up with local tax and withholding compliance laws can find themselves in trouble with local authorities even when companies aren’t required to provide this. If they’re in certain countries in the Middle East, they can even land up in jail. It’s worth making sure any contracted remote workers are aware of their local laws and are keeping up with them.
Hiring people as contractors appears to be the prevailing approach of most smaller remote-friendly companies with an international workforce. If you choose this route, there are a few things you’ll need to pay attention to on top of all the local payroll and benefits laws.
Classifying International Contractors
As in the U.S., when you’re hiring a contractor internationally, you will want to ensure you’re within the local laws that clarify the difference between employees and contractors. In general, in order to not be considered an employee, the contractor must be in control of their schedule, be able work with other clients, and not have any benefits or performance goals provided by the company they are contracting with. Sometimes there are revenue limitations as well. What you put in your contract matters, but most countries also have multi-factor tests that you’ll need to be aware of.
“The employer stated at the beginning of the working relationship that the worker was an independent contractor.
There were multiple independent contractor agreements between the employer and contractor. This means that both parties were fully aware of the working relationship.
The contractor was able to work with other clients.
The contractor’s net personal income was only a third of the gross revenue of the employer. This suggests that the work provided by the contractor was not solely responsible for the success of the firm.”
Additionally, many international companies have even stricter laws than the U.S. about classifying employees as contractors vs. full-time employees. Both France and Spain have laws in place to protect independent contractors. In both cases, companies are expected to provide benefits and make payroll withholdings for contractors as though they were a regular employee:
A salesperson who represents product lines for a variety of companies in addition to yours might be able to be paid as an independent contractor, but if someone’s title is executive vice president and the person is on your organizational chart, that’s not going to fly. *
cautionIf a contractor takes a company to court over any details of their status as a contractor, they are likely to win and be reclassified as an employee.* The company is then responsible for all the benefits entitled to employees per their local laws, including:
Social Security contributions
vacation and holiday payments.
When hiring international contractors, employers need to pay extra attention to how they structure their contracts in order to avoid potentially time-consuming and expensive legal battles.
importantLocal laws will override whatever might be in your U.S.-based contract. All the “at-will” language you might have used in U.S. contracts won’t apply outside the U.S. For instance, in Brazil causes of dismissal are mostly limited to cases of gross misconduct and exclude terminations for poor performance or for economic reasons.*
To be effective, the agreement should clearly state the scope of services and compensation. It must also indicate the contractor’s independence and the hiring company’s lack of control regarding how the contractor performs the work.
Law firm Jiah Kim & Associates provide a handy list of what a typical international contract should include, which we’re excerpting in its entirety here:
”Confidentiality and/or non-disclosure clauses. These protect the company’s information from disclosure or misuse by contractors.
Indemnity clauses. These protect the company from being liable for any violation or infringement by a contractor.
Intellectual property transfer clauses. These transfer copyrights from a contractor to the company. In the U.S., independent contractors own the rights to the work done for the principal, unless it is transferred in writing. In some countries, certain intellectual property rights stay with creators and cannot be transferred, even in writing. International independent contractor agreements should reflect local laws related to intellectual property ownership.
Notice clause. Too often, contractor agreements mirror at-will employment agreements, where either party can walk away at any time, without reason nor notice. If the company relies on contractors for important tasks, this could result in interruptions in business. It’s helpful to include a clause that requires a written notice in advance by either party terminating an agreement.
Dispute resolution clauses. These are about resolving disputes when they arise. When multiple countries are involved in the work relationship, selecting governing laws and a forum in advance can save a great deal of time and resources in any future litigation. Parties can also choose to have alternative dispute resolutions, such as mediation or arbitration, instead of lengthy litigation. It’s best to determine if the contractor’s country of origin requires the use of local laws and courts in work agreements.”
There’s a few other things you should consider with international contracts:
Severance pay. Laws regarding what an employee is due upon termination vary by country. Be sure to research the local laws to inform details you’d include about this in the contract.
Liability insurance. Companies often expect contractors to have this coverage in case anything goes wrong during their employment that could put the company at risk (or harm anyone else working there). But in some countries, like the U.K., insurance companies are wary of providing insurance to contractors working with U.S. companies, or at least, they charge more for that coverage.*
importantIt’s also important to specify the contractor’s responsibility to comply with local tax requirements, and to request proof of their tax compliance. This will vary country by country, so you’ll want to consult with local counsel to ensure you’re in the clear.
importantYou’ll also want to consider whether any contractor you hire carries liability insurance. In the U.K., for example, it is quite common for companies to expect contractors to have this coverage in case anything goes wrong during their employment that could put the company at risk (or harm anyone else working there). But U.K. insurance companies are wary of providing insurance to contractors working with U.S. companies; or at least, they charge more for that coverage.*
Even with a clear contract and ensuring you’re complying with local employment laws, you still have to figure out how to pay people, and that can also get tricky.
Paying International Contractors
One additional hurdle when hiring international contractors is how you’ll pay them. For a U.S.-based company, this isn’t as simple as just using the same bank or payroll company you’re using for your U.S. employees. Odds are, your local bank doesn’t handle international payments; nor do many popular U.S. payroll services like Gusto,* so you’re going to have to find a different solution. And depending on where those people live, you may need different solutions for different countries. For example, PayPal operates in Nigeria, however Nigerians are not able to receive that money directly, they can only use it to pay for things via PayPal.*
In general, you have three main options for paying international contractors:
Have contractors sign up for a platform like Upworthy (if they haven’t already), which supports paying international freelancers and contractors.
Use wire transfer.
Work with an international payments service provider.
You’ll want to consider a number of factors when choosing an international payment method:*
Currency. Where is the service available, and what currencies are supported?
Transfer fees. What fees are associated with sending and receiving money?
Conversion fees. These are often built into the exchange rate offered by a company, so it’s not always easy to figure out how much they are.
Ease of use for sender. Cheaper services may not be worth the time or complexity involved in using them. Factors making this challenging could include having to maintain a balance to cover payments, whether or not you can use a credit card, and whether automation or recurring payments are supported.
Ease of use for the receiver. Would your contractor need to create an account with the service to receive payments? And do the payments go directly to them, or to some kind of balance or other kind of account that may not be easy for them to draw from?
HubSpot, which offers its own employee time tracking and payment processing system, has a useful guide for evaluating international payment options.
importantDifferent countries may also have their own specific requirements for what information contractors have to include on their invoices.
The EU provides its own set of rules and a useful tool for searching for specific info on invoice detail requirements for various countries.
story We had issues with both Indian and Romanian contractor invoices. Contractors have to have really specific information on their invoices. We currently have someone working for us from Romania, and he had to decide whether to form his own LLC or work through his brother to get paid. We also had someone in London (a U.S. citizen) who had to fill a W8BEN-E form to work through a company there to get paid and be able to claim tax exemption on U.S.-sourced income.” —Judy Williams, Operations Manager, The New Stack
International Tax Forms
When hiring internationally, you’ll need to file specific tax forms for any contractor you employ. The W-8BEN and W8BEN-E forms help establish that someone is a foreign individual (or an entity) and that their work is not being performed in the U.S.
The forms take into consideration a number of things:
Earnings. These typically are categorized as business earnings, royalties, capital gains, and other forms of income. The earnings of contractors working remotely for your company will be in the form of business profits.
Foreign payroll. Some countries, for example some in Africa, allow an individual employed by a foreign employer without an entity in the country to self-declare as “foreign payrolled” to the local tax agency.
Type of legal entity. This could be an individual, or some form of entity (see below).
Country. Your company may need to withhold taxes on behalf of the contractor or entity, which depends on whether or not there is an existing treaty between the U.S. and the country where the contractor is based. An existing tax treaty offers a reduced rate of, or possibly a complete exemption from, U.S. income tax for residents of that particular country.*
In order to choose which form to file, you first need to establish if you’re working with someone as an individual contractor, or an entity. There are a variety of entity types across different countries, but they tend to fit into one of a few types. The U.S. variations of these include:
A C corporation (or C corp) is a type of stock corporation in the United States with certain federal tax treatment. It is the most prevalent kind of corporation. Most large, well-known American companies are C corporations. C corporations differ from S corporations and other business entities in several ways, including how income is taxed and who may own stock. C corporations have no limit on the number of shareholders allowed to own part of the company. They also allow other corporations, as well as partnerships, trusts, and other businesses, to own stock.
A sole proprietorship is an unincorporated business owned by a single person. Legally, a sole proprietorship does not exist separately from the owner—and hence is not technically an entity—and is subsequently liable for all debts associated with the business.
A partnership is a business owned by two or more individuals. There are three forms of partnerships: general partnership, joint venture, and limited partnership.
For the purpose of hiring international employees as contractors vs. entities, you’re most likely to work with a limited partnership in the form of an LLC.
A limited liability company (or LLC) is a business entity that combines elements of sole proprietorship, partnership, and the limited liability aspects of a corporation that limit the owners’ liability when it comes to debt and other legal issues.
A local business partner is a company that has existing business contacts or partners in a country, and is willing to put another company’s employees on their payroll. This type of arrangement is also known as leased or assigned employment.
We’re not aware of many startups or smaller companies that have this kind of arrangement. It’s much more likely to be feasible for a larger, multi-national company or an organization with large customer or partner companies in multiple countries.
If there’s no local business partner, companies can also employ remote workers through temporary agencies like Adecco, Manpower, or Kelly. This is likely less common now due to the proliferation of freelance platforms like Upworthy, however.
Once you’ve established which type of arrangement you’ll have, the next step is to file either the W-8BEN form for an individual contractor, or W-8BEN-E for an entity. You’ll also need to determine whether there’s an existing tax treaty between the U.S. and the contractor’s country.
importantIn most cases, the contractor or entity is responsible for handling their own taxes. But it pays to research whether there is an existing treaty between their country and the U.S. The IRS provides a resource for researching tax treaties by country. Note that many countries exempt contractors from tax withholdings as long as they are not in the U.S. for longer than a certain period, are paid by an entity outside the U.S., and do not have “permanent establishment or a fixed base” for employment in the U.S.
Individual tax laws in different countries can get complex and confusing for contractors. For example, U.K. and European contractors will be used to adding Value Added Tax (VAT) to their invoices, or accounting for VAT under the Reverse Charge rules when invoicing a client in a European country other than their own. In the case of a U.K. or European contractor invoicing a US company, then the place of supply is deemed to be where the customer is,* which means that no VAT is chargeable.* If in the future the US business were to incorporate in the country where the contractor lives, and the contractor then invoiced their local office, they would need to apply VAT to their invoices.
importantThe above scenario should not be confused with the VAT rules for the provision of digital services. In that situation, if a US company sells an e-book or subscription software to a European customer they are supposed to charge VAT based on the customer’s location and pay it to the customer’s country via the VAT MOSS system.*
cautionIf you don’t file either an W-8BEN or W-8BEN-E form for a contractor you bring on, you will be responsible for withholding 30% of their income for taxes. It’s important not to neglect the research to get this right for each new country you hire in—once you’ve done it, it’s much easier to bring on new people in the same country.
Three notable exceptions to traditional contractor arrangements exist:*
Foreign employer exception. In the U.K. and Thailand, if your company doesn’t have a local entity, you can hire and pay local staff without making local withholdings and contributions. Typically, the worker bears the burden of tax and social security filings as if they were self-employed. But in the U.K., there are some upcoming changes to this that places more liability on the company to establish that the contractor could not instead be an employee, rather than penalizing the contractor.*
Payroll law compliance. France, Estonia, Sri Lanka and some other countries offer the option for foreign employers with no in-country premises to make special “payroll-only” registrations with in-country tax and social security agencies so they can issue a legal local payroll.
Foreign payroll. Some countries, like South Africa, allow an individual employed by a foreign employer without an entity in the country to self-declare as “foreign payrolled” to the local tax agency.
story“A client once essentially forced me to register with a U.K. LTD company to be paid through. I think this was actually due to a slight misinterpretation of the law on their part. They did increase my contract rate to reflect the hassle, but that contract is now over. There are various strange issues with the status of contractors in different countries—in the U.K., it’s whether the individual is paid as a “sole trader” or through a separate company entity. These have different legal implications. The contractor may not be aware of these and just expect to be paid as a sole trader for example, so the hiring company definitely needs to be aware and not assume the contractor knows the best thing to do.” —Rachel Andrews, technology editor and speaker
Using a Local Business Partner or Temp Agency
A company can avoid hiring people as contractors by hiring through a temporary employment agency or a partner business that hires the workers as employees.
A local business partner is a company that has existing business contacts or partners in-country and is willing to put another company’s employees on their payroll. This type of arrangement is also known as leased or assigned employment.
We’re not aware of many startups or smaller companies that have this kind of arrangement. It’s much more likely to be feasible for a larger, multi-national company or an organization with large customer or partner companies in multiple countries.
If there’s no local business partner, companies can also employ remote workers through temp agencies like Adecco, Manpower, or Kelly. This is likely less common now due to the proliferation of freelance platforms like Upworthy, however.
Working with a GEO
Earlier we covered the pros and cons of working with a PEO. Many PEOs also support hiring international employees, and you may also see a similar option with GEOs.
A global employment organization (or GEO) is a form of professional employer organization that is an employer of record (EOR) that employs people in foreign countries on behalf of a company that is not incorporated in that country. A GEO processes payroll, withhold taxes and contributions, and ensures compliance with local country employment laws.
There’s ultimately no difference between a PEO, GEO, or EOR—it’s all semantics; they provide the same services. That said, many remote companies that we spoke with found working with PEOs or GEOs for international hiring to be challenging. The key issues are:
Transparency. Some PEOs or GEOs may employ other companies behind the scenes, and remote companies have little visibility into whether this is happening or not.
Usability. Most PEO/GEO companies lack modern tools and online services. Modern startups are likely going to be frustrated with conducting business via phone and even in some cases, fax machines.
Price. While using a PEO/GEO can be less complex and expensive than incorporating yourself, pricing can be opaque and still relatively high.
newAccording to Darren Murph, Head of Remote at GitLab, vetting a GEO is a critical part of the process. This can be time-consuming and costly in terms of legal counsel—typically companies will need to work with multiple GEOs as they expand to more countries. Currently, no single GEO covers every country on the planet, though Remote Employ—which launched in early 2020—aims to provide universal GEO coverage within a matter of years.
importantRemotive.io also offers a paid Slack channel where remote leaders can ask questions about and compare their experiences with various PEO/GEO companies.
The tools you choose to support remote work have a significant impact on the levels of trust, productivity, and effective communication on a team, often in subtle and surprising ways. The number of software tools and services can be overwhelming—especially for the growing number of companies suddenly switching to a remote model.
We compiled this set of tools by talking to hundreds of remote workers and experts, surveying Quora topics and other available tools lists, and researching each company on Capterra, Crunchbase, and AngelList. With almost 400 entries broken down by category, this table may be the most comprehensive list of remote tool resources available, and includes pricing information and details about how to get started—free trial via self-serve or (everyone’s favorite!) having to contact a sales rep.
importantIf you haven’t yet, we strongly recommend reading the section of the guide that covers key remote communication channels and tools, to help guide your decision-making when it comes to choosing the tools that will work best for your team’s needs. Starting with the Collaboration and Documentation category will help you form the base of your asynchronous documentation strategy.
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