If you’re hiring internationally, you need to understand all the options available to decide which is best for your business.
Today’s business world is more connected than ever. Thanks to the rise of digital technology businesses of all sizes can now work with people in a wide range of disciplines in any country in the world. It can open doors into new markets, widen the available talent pool, and allow you to save on staff costs by choosing countries where the cost of labour is lower.
Whatever, your reason for hiring internationally, though, you need to do it in the right way. The good news is that, with more businesses hiring internationally, the number of options is growing. Here are four of the most common.
Open a local entity or foreign subsidiary.
The traditional approach has been to open a foreign subsidiary. Opening a daughter company can be a good way for the parent to expand its reach into new markets. It establishes a legal entity in the country and allows it to hire employees as any domestic company would.
However, it can come with several complications:
• Compliance: businesses must abide by a complex set of regulations. Managing compliance in your domestic country can be complicated enough, but in another country you’re not familiar with it’s all too easy to make critical mistakes that attract the wrath of the regulators.
• Expense: Costs can vary from one country to another. Setting up a subsidiary comes with substantial overheads and logistical requirements. If you’re just launching in a new market this can be a major financial outlay.
• Ownership laws: Some countries have restrictions on foreign ownership which can make it difficult to gain a foothold.
• Market challenges: each market is unique with its own set of challenges and characteristics. Just because you’ve been successful in your market doesn’t mean things will go as well in the new one. For example, when US giant Walmart tried to expand into Germany it struggled with labor laws, restricted business hours, and red tape. The famous Walmart greeters also freaked out the Germans who valued their personal space. Unless you understand the nuances of a new market, even the biggest names can be set up to fail.
Setting up a subsidiary can be a great way to manage your operations in a new market if
you’re looking to be well-established. However, if you’re just starting, outsourcing, or dipping your toe in a new market it can be an expensive risk.
Use a professional employer organization (PEO)
A PEO is a human resources company that provides services to companies by allowing them to outsource their human resources department. They handle all the legal and administrative requirements of managing your employees. They process payroll, ensure all relevant taxes, and manage employee contracts overseeing issues such as taxes, employee benefits and entitlements such as annual leave.
They provide expert domestic knowledge that can ensure you comply with all regulations and keep you up to date with any changes to the rules.
Their expertise and dedicated resources take away the pain points of hiring international employees. You needn’t worry about admin freeing your team up to focus on moving forward into this new market.
To use a PEO, you will already need to have a legal entity in the country, such as a subsidiary. However, you will share the employment of the individual in which you and the PEO will share all legal liabilities.
Use an employer of record.
If you don’t want to set up a legal entity but still want to hire full-time employees, an employer of record can be the way to go.
These companies serve as the legal employers of your international workers. They handle all the legal requirements such as tax and legal obligations and make all relevant filings with the authorities.
Their domestic expertise ensures you comply with all labor laws and minimizes the risk of any accidental noncompliance due to ignorance about local laws.
It’s much cheaper than hiring a subsidiary and the local expertise of the company can help you access a wider talent pool of multidisciplinary professionals to help with your work.
For those looking to start their expansion or outsource certain services, this can be a low-risk way to experiment with employees in a new country without making a full commitment.
Hire international contractors
A fast and convenient way to get started can be to hire contractors on a freelance basis. There’s no need to set up a legal entity in the country and you can pay them on an ad-hoc basis. Freelancers also manage their taxes, which means you don’t have to worry about any
payroll, tax, or other legal obligations.
However, the cost of hiring a contractor can be higher than a salaried employee if you’re working with them over the long term.
You should also be careful when engaging with freelancers in the long term. Governments are keen to address rising instances of disguised employees – companies who classify workers as freelancers to avoid the costs of managing employee benefits and entitlements such as paid holidays. If the government feels that your contractors are secretly employees, you may be in for a considerable fine.
Why start hiring in South Africa
Each of these options has its pros and cons. Your choice will depend on the size of the company you are, your stage of development and why you’re choosing to hire employees overseas.
If you’re a large corporation, looking to bring the full force of your resources to bear then a subsidiary can help you approach a new market in the most robust way possible.
Alternatively, if you have a legal entity in the country a PEO can be a lighter-touch approach that takes on the HR burden of employees.
For those earlier in their journey, without a legal entity, meanwhile, an EOR can be a good way to get a foothold in a market or to run outsourcing operations. It is highly cost-effective and gives you the benefit of strategic advice benefitting from the company’s local expertise.
Contractors, tend to be more effective for ad-hoc work. They are useful for short-term engagements when people are hired per job or on an hourly basis. You just have to be mindful of local regulations to make sure you’re not inadvertently misclassifying them.
Perhaps the most important factor will be the choice of country. The costs and regulations involved with hiring international employees can vary dramatically from one location to another. Some will be wary of foreign investment, while others will welcome it with open arms. Labor costs will vary as well as the depth of skilled, qualified professionals in the territory.
All of which explains why so many companies are looking to hire workers in South Africa. With a growing economy, an educated workforce a diverse talent pool, and relatively cheap labor costs, South Africa has something for everyone.
• A welcoming regulatory environment: The government has actively set out to attract foreign investment into the country with attractive incentives on offer for any
company employing more than a set number of people.
• Low cost of labor: Although labor costs are higher than in some locations such as India, they are much cheaper than in established Western economies such as Europe or the US. When recruiting professionals in South Africa, companies are finding they get a good bang for their buck.
• Highly educated workforce: The levels of further education in South Africa are relatively high which contributes to a highly skilled workforce across a range of disciplines. Whether outsourcing certain operations or looking to engage with talent to supplement their domestic workforce, companies find themselves with plenty of highly skilled professionals to choose from.
• Common language: English is widely spoken across South Africa which removes many of the common barriers that put companies off regarding lower-cost destinations such as India. When outsourcing customer service operations, for example, people will experience the same level of service they can expect back home.
• A great position: The common language and cultural similarities with Western countries make South Africa a great gateway to the lucrative market. Get it right here and you can be set for success across the entire continent.
With digital technology making it easier than ever to collaborate with people across borders, hiring employees in South Africa offers benefits for companies of all kinds. Whether you’re looking to outsource domestic operations, widen your talent pool by hiring freelancers, or get set to expand into the South African market you’ll have a host of opportunities at your fingertips.
With the right structure, you can optimize your costs and minimize your exposure to ensure you get the best value possible from your South African employees.
If you want to know more about hiring international employees, download our free guide today.
