10 Steps to consider before hiring staff internationally

The decision for a family business to employ staff in another country is a common first step to setting up a presence in another country.  So, before you start to officially employ staff you should consider the following steps.

1. What Entity is Going to Employ the Person

Many countries require that a contract of employment is between an employee and a legal entity that is registered in that country.  And sometimes the creation of the entity facilitating the employment can be complex and take a lengthy period of time to create (think 12 weeks to 16 weeks).

Once the entity itself is created, often requiring the Australian directors to prove identity, you will also need to open bank accounts and attend to the necessary tax registrations as an employer in that country.

The work needed to set up is a significant step.  And it requires a local knowledge of the employment laws offshore together with an integration of knowledge for your Australian operations. Thankfully our connection with Geneva Group International facilitates this process.

2. How will you find the employee?

Before you start the employment process you will need to understand the labour market.  A tight labour market can change your cashflows and the break-even point of undertaking business activity offshore.

Many countries are heavily regulated on what different people can and cannot do – so getting clear guidance on the certificates and qualifications needed by your team – is an important step before starting.

3. What are the cultural differences?

Even among English speaking countries the cultural differences can be a significant challenge to finding, rewarding and motivating your team.  Getting clarity on the cultural differences will help shine light on the expected remuneration package including long term incentives, health insurance obligations, termination clauses and employment privileges.

4. How does payroll work offshore?

Each country has their own unique tax and employment laws surrounding the employment.  Getting a handle on the technology needs for the foreign country, tax withholding obligations, reporting requirements and other factors like the impact of unions or collective employment contracts will make a massive difference to how you start the process.

Ideally your local payroll solution should apply for your employees internationally.  Giving your team one platform (tailored for local needs) will simplify your overall administration.

5. What are the minimum statutory benefits?

Many countries protect staff by giving them minimal statutory entitlements.  And often these entitlements are more stringently applied to foreign employers than they are to local employers.

Clear understanding of vacation leave, bereavement leave, annual leave, long service leave and the superannuation entitlements will impact the employment contract you will structure.

6. How can you terminate?

The ability to terminate staff is significantly more difficult in some countries.  Getting sound legal advice about the consequences of termination before you start will help you calculate the cost of exiting the offshore business in the event it could fail.

Further legal advice might be needed to understand the right of the employee to work, anti-discrimination practices or ratio of employees among different categories of employees (some countries have a ratio of different ethnic groups as an employee percentage).

7. Can you manage remotely?

The employment of staff overseas comes with the tyranny of distance.  Your local IT systems should allow for full remote working (preferably cloud based) so that you have a single source of data that your team works within.

The advent of software programs like Microsoft Teams, Zoom, Xero, QBO, KeyPay and Hubdoc has significantly increased the ability to manage staff overseas.  And this technology then needs to be integrated into quality systems so that work can be effectively managed.

8. What are the business impacts of employing staff?

Employing team members offshore is often a key step in the establishment of a “permanent establishment”.  This might then give rise to statutory audit obligations, income tax requirements, GST/VAT obligations, transfer pricing issues for the Australian business and regular reporting obligations for the staff.

9. Do other employment options exist?

The legal, tax, business and cultural obligations to employing staff can be significant.  For some countries the burden can be so great that a single employment contract is not worth the administrative burden of employing staff.

In these options reaching out to a trusted advisor to identify an employment agency might be a simpler solution that creating an entity.

In our experience when you start to have 4 or more full time employees in a country might be a time to fully cost the benefits of using an agency to a dedicated presence offshore.

10. What is the ultimate family outcome?

The decision to start employing offshore staff is a significant step for a commercially business minded family.  The decision to start offshore must be a considered step within the ultimate strategy for the family and for the business.  The offshore operations could well be a good business decision for the next generation as it potentially gives the next generation progression (and travel).

Regardless of the desired strategy the decision should be discussed among the family within part of a larger family and estate strategy.  The offshore operation could open opportunity to some family members that did not exist previously and it could also burden the next generation with additional legal obligations to consider when the succession of the business ultimately occurs.

At Westcourt our connection within Geneva Group Internationally gives us trusted local knowledge in every country in the world.  Our single focus on smart families in business with a commercial focus gives us a clearer and deeper knowledge of employment solutions for families that are looking at starting, growing and transitioning their business – both here and abroad.

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