More and more UK companies are looking to hire employees overseas. If you’re one of them, this guide provides all the information you need.
The world is becoming more global every year. With the pandemic accelerating digital transformation and remote working, businesses of all sizes are looking beyond their own borders – both to sell their services and to hire new people. While previously, a business would be constrained by the local talent in their area, now anyone can work with any professional anywhere in the world. Doing so opens up a world of new opportunities such as new markets, fresh talent and lower labor costs.
So, can a UK company employ someone overseas?
The short answer to that is yes. If you’re based in the UK, there’s nothing to stop you from hiring staff anywhere in the world. You might be employing people in a different country to reduce your labor costs or access a wider talent pool than is currently available in your immediate surroundings. Alternatively, you might be looking to kickstart an overseas expansion in a new country. Whatever your goals there is a growing range of options to help you do so in the most cost-effective way possible.
How can I employ someone overseas?
Employing people comes with costs and a host of legal and regulatory responsibilities. As soon as you start hiring people overseas, you’ll have to find a way to meet all those obligations.
Three of the most common options for employing people overseas include:
1. Establish a legal entity in that country: The traditional route is also the most expensive. Companies expanding overseas and hiring foreign employees can establish legal entities in the form of a foreign subsidiary to handle all locally-based employees. This can be an enormous logistical and financial undertaking and is often only open to those companies with sizeable budgets. Each overseas expansion comes with risk. For small and medium-sized businesses the upfront cost of an overseas subsidiary is simply unsustainable. Furthermore, setting up a legal entity can be an expensive way to manage a small number of employees.
2. Partner with EOR services: An employer of record (EOR) is a low-cost and convenient way to handle your overseas workforce. An EOR will become the legal employer for your overseas workers. That means they handle all the administrative and legal requirements such as managing payroll, paying taxes, and employee benefits. They also have legal liability for those workers, so if there is a compliance issue you won’t be legally accountable. The EOR will pay workers directly and you will pay them – either through a proportion of your payroll or on a per worker basis.
3. Hire contractors: Contractors are often the first port of call for companies in the UK. Working with freelancers has never been easier, with instant messaging and video conferencing meaning you can collaborate with professionals wherever they are in the world. The great thing about contractors is you only pay for what you use, and they handle their tax. If you’re just using people for ad-hoc projects this can be a low-cost and convenient option. However, if you’re working with them regularly it can be more cost-effective to pay salaried employees.
How do I pay employees overseas?
You can pay overseas employees in many different ways.
• Bank transfer: An international bank transfer direct to their account can be straightforward, but it can take a few working days and include transaction fees.
• Online payment services: Companies such as PayPal or Wise offer instant payment with lower fees and the chance to access mid-market exchange rates (the rate that banks charge each other).
• International money orders: The traditional way to send money overseas would be to use a service such as Western Union which allows you to send money physically overseas. However, this can be expensive and take time.
• Setting up a foreign bank account: If you set up a subsidiary you’ll have a business account in that country. You can send money to that account and on to the employee. This can be expensive and requires setting up a legal entity in the country.
Alternative options such as establishing an EOR can reduce the costs of paying employees and avoid exposure to risks such as exchange rate volatility. An EOR will pay your employees directly and take care of payroll and withholding tax obligations. All you have to do is to pay the EOR. It’s fast, efficient and means your costs are stable and predictable.
What are the risks of hiring overseas?
1. Misclassification: Each country will have its own rules about worker classifications. One of the most common issues foreign companies face is the transition from freelance contractors to paid employees. As your work progresses you may find yourself working with contractors more regularly. However, if that work becomes so regular that it starts to look like full-time employment, authorities may consider them to be disguised employees. Authorities in countries such as South Africa have strict classifications with high penalties for any company found to be breaking the laws.
2. Incorrect payroll contributions: As you’ll know from working in the UK employers have to meet a complex network of payroll contributions. Rules can
change at any time. Keeping up with developments in your home country can be a full-time occupation, let alone a separate country you’re not familiar with. When countries seek to handle all payroll contributions themselves, without the help of local legal experts, it can be all too easy to get payroll contributions wrong, causing additional expense and friction with the authorities.
3. Permanent establishment risk: The traditional route of setting up a foreign subsidiary to handle any overseas workers is expensive and comes with a host of risks. Even the biggest companies in the world have run into trouble when expanding into new markets. Every market is new and unfamiliar. No matter how well you’ve done at home, your product may not be suited to a new market. When setting up a foreign legal entity you’re spending a great deal of money up front without any guarantee of success. Alternative options such as EORs offer a low-cost way to test market conditions before committing to further expansion.
4. Intellectual property: IP rules vary from country to country. When creating or launching a new product in a new country you need to protect your intellectual property. However, if you don’t understand the rules, you can make critical mistakes which may leave you exposed. Local experts such as EORs can make sure you register all IPs correctly and in accordance with the laws.
Why start employing in South Africa
If you’re a UK company, therefore, you can pay and manage employees in any location. South Africa is a particularly attractive option for UK-based companies for several reasons including:
• Low labor costs compared to Western countries.
• A diverse and highly skilled workforce with professionals available in all industries.
• No language barrier.
• A convenient time zone with South Africa only being a couple of hours away from Europe.
• A favorable regulatory environment with the government offering lucrative incentives for any company generating employment within South Africa.
Whatever your goals when working with South African employees it’s important to find the right partner for handling their employment. Whether hiring a few employees or building a large team to support a growing presence in South Africa, an EOR can reduce the cost and administrative burden of handling foreign employees, freeing you up to concentrate on working towards your strategic objectives.
So, to answer the question can a UK company employ someone overseas, download our full guide to find the best way forward.
