It’s not surprising that more and more companies are choosing to go remote.
Intense competition for talent, improving collaboration tools, and an ongoing cultural shift are all contributing to a rapid rise in companies looking to attract a global talent pool.
Companies are rapidly embracing this new way of working, however, international employment and tax law unfortunately moves at a different speed. When setting up and managing an international team, it is important that remote companies understand how to operate compliantly and the huge risks they could be facing if they aren’t careful.
Employment and tax law varies hugely from country to country and compliance can be a mammoth task for remote companies who want to hire internationally and are unable to bear huge legal costs and delays.
Let’s look at the options that you have as a remote company:
A Freelancer/Contractor relationship
Engaging an international team member as a contractor, either directly or through a personal service company appears to be a convenient, cheap and quick solution. However, this is often not legal in most jurisdictions unless you are extremely careful.
If you are entering a relationship that looks like employment, you are probably not compliant with tax/employment law. Most governments look at what the relationship actually is, not only at what is written in a contract.
Of course, if the employee is a bone fide contractor, then this setup can work well, but most governments look at the actual practical working relationship, not just what’s written in the contract. Typical things that will be looked at when determining the employment status of an individual are:
- Are they given paid time off?
- Are they working for multiple clients at the same time?
- Are they fully autonomous or do they have a manager who can control how they work?
- Are they given benefits?
- Do they pay for their own materials and equipment?
- Do they receive the same pay every month?
- Are they able to subcontract the work to another person or company?
A good rule of thumb is that if you were to hire this person locally, would they be an employee? If the answer is yes, then you may be taking a huge risk by engaging with them as a contractor and can face some serious consequences.
“Some companies treat employees like contractors … if the local government discovers the situation, which it often does when the employee files his or her taxes or tax returns, the government will come after the company for the employer’s match to the social security taxes and often impose extreme penalties. In addition, the company may lose business permits in that country, which will completely stop all commercial trade until the matter is resolved.“ Deborah Ellis Timberlake, Payroll Answers 2019
Setting up a local entity
If you decide that you want to employ your team members directly, you will find that in most countries, you have to set up a local legal presence, either a subsidiary or a branch.
Setting up a subsidiary or branch:
- Can cost from £10–50k in upfront professional fees and initial share capital requirements.
- Can cost £5–20k/year in ongoing professional fees for filings and resident director costs.
- Can also take anywhere from a few weeks to over 6 months to get set up.
On top of setting up the company and getting the appropriate filings, you then need to find a local employment lawyer to advise on the contract, an accountant to manage the ongoing needs of the company and a payroll provider.
The complexity, upfront cost and the ongoing maintenance make this unwieldy for companies without a large presence (>20) in a given jurisdiction.
“We spent over 5 months and ~$20K to establish a Swedish entity and hire a full-time employee. The process was horrendously painful for both us and the employee concerned; regulation required us to complete countless hard documents, many of which needed to be notarised and physically posted, and responses from the various in-country organisations that became involved were intermittent and often difficult to interpret. And that was despite us using a local consultancy firm to expedite everything.”
Patrick Stobbs, COO, Jukedeck
The Omnipresent Way
This problem is exactly why we have built Omnipresent.
We exist to help growing technology companies employ and pay their globally distributed teams in a quick, cost effective and compliant way!
At Omnipresent, we specialise in providing local employment solutions to global businesses.
Using our Employer of Record model, you can have all of the benefits of having a full-time employee while minimising complexity and cost:
Legal Framework: Our local entity enters into a compliant employment arrangement with your international team member(s).
Flow of Payments: Omnipresent invoices you monthly for your international team members salaries, social costs and benefits. We then handle foreign currency exchange, payroll calculations, remittances to the employee(s), payroll taxes, social costs, and benefits providers.
Working relationship: You retain control of your team members on a day to day basis as if they were your direct employee.
On top of this legal and financial framework, our technology platform automates repetitive manual tasks, such as the drafting of local employment contracts, local payroll calculations and local filings.
“As a fast growing remote company we simply didn’t have the time or the in-depth knowledge to hire full time personnel internationally. The regulations, tax laws and myriad of changing ‘unknown unknowns’ were overwhelming. Omnipresent was quick to provide great advice, starting with the basics, the pros and cons of freelance arrangements versus local employment options and then helping us all the way down to the minute detail to find an ideal solution for us. They were extremely helpful and working with them meant us avoiding the pitfalls of the European clamp down on freelance contracting. We highly recommend Omnipresent to anyone with the same issues as us.”
Joe McMahon, COO, SAME Solutions
Remote companies need to understand how to operate compliantly and the huge risks they could be facing if they aren’t careful. If you’re a remote organisation, or have a global team and would like to find out more about how we can help, please contact us today.