“You’re Hired!” At least, that’s what you’d like to say. Every business should be able to close the deal when they encounter top talent. When you find the perfect engineer, the high-flying salesperson, the legendary leader, or the highly certified specialist, you want them on your team. But what if they live in another country? Whether they are a few miles away across an invisible line or thousands of miles away through remote work, you know that your business will thrive with the right talent on your team. The only question that remains is: Are you ready to hire them? This is where EOR risk mitigation becomes essential.
Is your business structured to handle an employee in another country? If you haven’t established a locally tailored HR division, an EOR is likely the solution. An Employer of Record can hire international talent on your behalf, acting as your on-site HR while your new hire steps up to the plate as a team member.
An EOR provides risk mitigation when hiring across borders, granting you full access to foreign talent pools while keeping your business secure.
How an EOR Provides Risk Mitigation and Safeguards Your Business When Hiring Across Borders
An Employer of Record (EOR) is an organization that handles hiring and HR services on behalf of a foreign company. In other words, the EOR operates as a local business in the country where your foreign talent resides. It will officially hire your talented candidate on behalf of your company. On paper, the employee will work for a local company, the EOR. However, your business will define the task list, team membership, and employment details.
Why is this structure important? Working through an EOR creates a stable business infrastructure in the new country that can provide your new hires with everything they need while protecting your company from risks associated with operating in a country outside your home borders.
Unplanned international operations pose significant risks, including tax violations and labor law confusion. An EOR helps with risk mitigation by acting as your HR stand-in.
So, how does an EOR mitigate the risks of hiring across borders? We can sum it up in five essential aspects of EOR operational protection.
- Labor Law Compliance
- Avoid Misclassification
- Currency and Payroll Management
- Unfamiliar Tax Codes
- Strategize Permanent Establishment
Labor Law Compliance
Most businesses don’t realize how drastically labor laws can change from one nation to the next. Even crossing state borders inside the US can lead to a landscape of changes. However, labor laws carry serious consequences. A labor law violation can lead to sanctions, hefty fines, and potential lawsuits. No business wants to run afoul of local labor laws.
In your home country, these laws are second nature to the structure of a good business. However, in a new country, there’s a good chance that your standard operating procedure for handling things like paid time off, overtime, vacation approvals, and other vital details could inadvertently violate local labor laws when applied to your new hire.
The EOR Defense
An EOR supports risk mitigation by handling labor law compliance issues. They act as the remote HR department your business needs for talented employees hired at a distance. An EOR offers consulting and facilitation to help you hire across borders and maintain labor law compliance.
Avoid Misclassification
Misclassification poses significant risks when hiring remote employees in a new country. This classification applies to the difference between a salaried vs wage-based employee and the definition of an employee vs a contractor. The trouble is that these classification laws can vary significantly across national borders.
For example, someone comfortably classified as a contractor in the US might not qualify as one in Canada. In many countries, once an employer’s experience and compensation reach specific benchmarks, the worker must be classified as an employee rather than a contractor with scheduled deliverables.
The subtleties of employee classification are also vital. Your company may lack the infrastructure to manage them effectively if you rarely hire beyond national borders.
The EOR Defense
An EOR helps with risk mitigation by protecting your business from misclassification. It ensures a thorough understanding of employment structures within the designated country. Because the EOR is a native business operated by local business people in its own country of origin, it is easier to keep up with nuances such as employee classification.
The EOR ensures your foreign talent is classified correctly based on their role, hours, compensation, and autonomy. They can also offer guidance on whether your business would benefit from an EOR’s expertise to ensure employees are hired through the correct process.
Currency and Payroll Management
Payroll is an essential part of hiring and managing a new team member. Employees also require attentive care and, of course, correct and timely compensation. When compensating an employee in another country, you will often need to pay them in their local currency, not the currency your business primarily operates in.
Handling enough money to compensate an employee may also activate other requirements for functioning as a business across certain borders. This makes it critical to create a solution that can handle currency exchange, payroll, and safe financial operations within the other country, which is where your EOR comes into play.
The EOR Defense
An EOR is a local business in its country of origin. It operates using the local currency and can handle payroll for one or more employees without causing scrutiny into larger business practices. It is more than just a local business structure to handle the technical details of hiring. An EOR provides risk mitigation by acting as an outsourced HR department, specializing in managing local talent hired by an overseas employer.
This allows the EOR to pay your cross-border employees in their home currency and ensure they receive compensation on a reliable pay schedule that aligns with your business operations.
Unfamiliar Tax Codes
Locally founded businesses in each country structure themselves to achieve tax compliance. The system ingrains best practices, basic financial assumptions, and a clear understanding of when a small business should file taxes for the first time. You may have the proper business structure, all the necessary expertise, and an established track record that allows your business to stay on the right side of the local tax code.
However, the rules change when your operations cross a national border. From when and how to pay taxes to how much you might owe, it is normal for a business to be completely blindsided by tax requirements if operations in a new country begin without a plan and a lot of preparation. This includes the taxes associated with hiring and maintaining an employee.
The EOR Defense
The good news is that EOR risk mitigation includes managing local employment and operational taxes. Just as your business is structured for taxes in your home country, the EOR is built on the foundations of tax compliance in your target country. Even more, the EOR business model focuses on providing safe and compliant employee management for companies across national borders.
This allows an EOR to connect local talent with distant employers—all while maintaining tax compliance for each new hire and person on your payroll.
Strategize Permanent Establishment
Lastly, an EOR supports risk mitigation by protecting your business from accidentally establishing foreign operations ahead of schedule. There is a big difference between hiring great professionals who happen to live in another country and establishing your company as ready to open and operate across those same borders. However, if your hired talent engages in profit-generating activities, your business could face the risk of being considered a permanent establishment in the new country.
This could expose your company to double taxes, new regulations, and increased complexity before establishing a presence in that country.
The EOR Defense
An EOR can protect your business from permanent establishment status by operating on your behalf. If an employee engages in profit-generating activities (one purpose of having employees), they will remain employed by a local company. This allows you to access great talent worldwide without fully expanding your business across borders to make the hire.
The Safe Way to Hire Canadian Top Talent With BrightR
BrightR Ltd. has established itself as an experienced EOR in Canada. We help you hire talented Canadian professionals for remote or hybrid work, acting as your EOR and HR partner. Ready to expand your talent pool with the added protection of EOR risk mitigation for international hiring? Contact us today!
