I've done this, it's surprisingly complicated. Here are some of the issues I've run into.
* Payroll: how do I pay you, what's the frequency of payment in the region, how do deductions work, is overtime a thing?
* Working time: how many hours, how do I monitor the hours, do I have to give you breaks, do I have to document the breaks?
* Data protection: how do I ensure it, how do I send you the equipment you need, what happens if your device becomes non-compliant?
* Health Insurance: Does your country need it? How much does it cost? How much do I need to monitor it?
* Corporate law: by hiring you, have I established a legal entity in that country? Do I need to make a permanent entity in your country? How does profit attribution work in your country and what are the tax implications of hiring you?
* Personal taxes: Does your country and mine have some sort of double taxation agreement? What about social security type agreement? Who do I pay? Who do I tell that you are working there? What identification numbers do I need in order to tell them you work for me? How do they know who I am if I don't happen to have an entity in that country?
Honestly its just not worth the hassle for most situations. It's expensive, hard to do, complicated and creates all sorts of really difficult to account for edge cases when writing policies or attempting to enforce rules.
There are some SIGNIFICANT downsides as an employee to using an employer of record. It's another example of companies reducing employee rights and outsourcing risk and responsibiility.
1 - No equity. The legal company structure prevents you getting equity in the company.
2 - Significantly reduced employment rights. During the current waves of layoffs people employed through these type of arrangements found they had significantly less rights than normal employees, primarily due to fewer people being employed this way did not meet the usual thresholds for redundancy planning and payouts.
A friend of mine employed through an employer of record was "made redundant" and was offered exactly zero notice, severance or payout. When he tried to negotiate they effectively told him to sue them, knowing it will take significant time and legal costs to bring forward a claim.
which is no different from any international remote work. employee protection does not work across borders unless there are specific arrangements involved (like within the EU).
These services help some issues but don't solve all of them, just a few off the top of my head:
Legal differences can be significant - for example, in France it may be difficult legally to ask an employee to put in more than their contracted hours compared to another country where this could be very normal.
A recent example in the news is the Twitter layoffs - in the EU they may have enacted layoffs that aren't legal there but are perfectly legal in the US.
Taxes in different countries can mean there's a significant difference in the difference between the amount an employer pays and the employee receives per country. Sometimes it's negligible enough for the employer to foot the bill, sometimes it's large enough they may need to pass on the difference. This can get even more complicated when share options come in to play.
If you are responsible for this it all really starts to add up, ultimately the more countries you employ in, the more cognitive overhead which can impact an organisation's agility (or require them to take more risks).
Well yeah, but that includes things like their benefits package, which you'd typically be paying domestically otherwise. $7200 per year of administrative costs doesn't seem that high to be honest. Less than 10% of the average employee's salary, and the "fully loaded" cost per employee, hired domestically even, is usually much higher than $7200 per year (granted, that may include office and office admin fees for non-remote companies)
most countries have some kind of "small business" type entity that the employee can create and you are left to deal with Data protection only. It's a B2B relationship.
It's true, and that's how many companies do it. But in fact it is illegal to hire a person as a contractor when they are de facto an employee in many countries...
In my understanding, it's not that it's illegal to hire a person as a contractor, it's just that it can be re-qualified by a judge as an employee, if some working conditions are met.
For example in France, which is known for its labor code that protects employees much better than other countries, here are some conditions that can lead to this:
- Proven relationship of subordination
- The contractor is only working for your company
- Poorly written contract (specifically, obligation of means vs obligation of results)
Sham contracting is indeed illegal in the criminal sense in some countries. Either outright, or by consequences like failure to withhold tax according to law, or otherwise evading the burdens of employment law, if the facts indicate that was your intent.
only if the company in question has a legal presence in the country and is actually able to hire you as an employee. barring that, for international remote work, freelance or contracting is the only possible arrangement (aside from using some local service company that hires and then resells your work, or some treaties between the two countries to handle cross-country employment (like all EU countries))
In France you can't hire somebody as a Freelance if you are actually his/her only client, the regulators will say you have too much power over that freelance and that she/he should be re-qualified as an employee.
I think we had similar rules and then they relaxed the rules in my country. It's a points rule I believe: if you have more than x criteria (you work at your location, you use your own equipment, you have more than one client and so on) then you are a "company" otherwise you are a employee.
You sort the rules out via contract enforcable in whatever negotiated jurisdiction (yours or theirs). You send payment via Swift. Be mindful of USA sanctioned countries like Iran.
The contract would have to replicate almost the entire contract law of the host country if they wanted to go down this route. It would be very hard to write that contract then keep it up to date.
I disagree. Payroll, data protection, working hours - all things that go into a normal contract plus an enforcement mechanism/agreement.
If they don't work out you just fire them. It's more to give them peace of mind for them to sue you if you don't pay them.
I don't need to know anything about the host country as long as I don't violate sanctions. The idea is you have an employee contract sets out what you want and how much you will pay them, and say nothing about where the employee is allowed to live.
If you are an employer in the US then the US government will care very much about not violating sanctions.
The relevant local government will however care very much about full compliance with HR and tax law. And in an employment situation the employer has those responsibilities. (They are mitigated in a B2B contracting situation.)
As an example, even something like pensions is fiendishly complex nowadays. In the UK we have mandatory enrolment and the numbers you have to pay are a function of income tax and national insurance. Calculating the right figure from Delaware and codifying it an employment contract sounds intimidating enough alone.
I am not one for unnecessary risk averse beuracracy either, but I can understand why companies don’t want to touch this. It’s a minefield.
Incidentally, I suspect it’s a big reason why the Accentures of the world are as big as they are.
It's really not that simple. For example in france the government takes income tax and other social contributions directly from the paycheck. As the employer, it is your reponsibility to pay the french government some corporate tax on top of those taxes, you can't make the employee pay them for you. A solution would be paying directly a french company, for example one that the employee ows (as a self-entrepeneur, for example), but you can't ask that of potential hires. Of course, it's "easy" and well documented so you can figure it out for france, but you can't spend that much time doing that for every country especially when dealing with countries that are much less internationaly navigable.
* Payroll: how do I pay you, what's the frequency of payment in the region, how do deductions work, is overtime a thing?
* Working time: how many hours, how do I monitor the hours, do I have to give you breaks, do I have to document the breaks?
* Data protection: how do I ensure it, how do I send you the equipment you need, what happens if your device becomes non-compliant?
* Health Insurance: Does your country need it? How much does it cost? How much do I need to monitor it?
* Corporate law: by hiring you, have I established a legal entity in that country? Do I need to make a permanent entity in your country? How does profit attribution work in your country and what are the tax implications of hiring you?
* Personal taxes: Does your country and mine have some sort of double taxation agreement? What about social security type agreement? Who do I pay? Who do I tell that you are working there? What identification numbers do I need in order to tell them you work for me? How do they know who I am if I don't happen to have an entity in that country?
Honestly its just not worth the hassle for most situations. It's expensive, hard to do, complicated and creates all sorts of really difficult to account for edge cases when writing policies or attempting to enforce rules.