Four Ways To Work Or Hire From Anywhere

20 years ago, there were two ways to hire somebody who is working abroad; hire them directly by setting up an entity or else hiring them as a contractor.??

However, in recent years, there has been an explosion in the amount of hiring done via Employers of Record.? Just look at the growth of companies such as Deel that has grown exponentially in the last year alone.? As for digital nomad visas, these have seen an explosion in the number of countries offering them and are now seen as tools to help companies win the war for talent .??

So how should companies benchmark these different options against each other?

The Cost Benchmark

1. Hire Globally by Setting up a Legal Entity

The first option is to set up a legal entity (or branch) in that country.?This can take time to arrange, depending on the bureaucratic nature and?business friendliness ?of the target country.?In the UK, Ireland and Singapore for example, it can literally take minutes to set up a business online.?However, in other countries, it could take months or even longer. The ongoing administrative burden in managing a legal entity should not be dismissed either.

2. Hire Globally via an Employer of Record (EOR)

This is one of the reasons why the second option of Employers of Record are seen as so attractive.?Within a few minutes, you can avoid the up front costs (and delay) of setting up a legal entity, and instead almost immediately onboard an employee at the touch of a few buttons.?Especially when you are hiring a limited number of employees in a country, the margins Employers of Record charge would be less than the opportunity cost (and delay) of setting up a legal entity.?This shifts somewhat depending on how many employees you’re looking to hire as the initial high costs of using your own legal entity become shared over a larger employee base.??

3. Hire Globally as Independent Contractors

Hiring people as contractors can also be seen as relatively straightforward.?They often seem like they are, but the truth is somewhat different. Many jurisdictions around the world are clamping down on?contractor misclassification , such as in the UK where?IR35 legislation ?has significantly reduced the attractiveness of hiring as a contractor. This can lead to significant fines including an obligation to pay out leave allowances and pension contributions which would otherwise have been deemed wrapped up in the contractors’ charge rate. This effectively leads to a double hit in charges, with a hefty fine thrown on top for the misclassification.??

4. Take Advantage of Digital Nomad Visas

The last route is to allow employees to temporarily remote work abroad using digital nomad visas.?In a lot of cases, while these have some common criteria (such as income thresholds), these are reasonably easy to access, partly because the destinations in question are trying to make the process as pain-free as possible.?However not all digital nomad visas are the same.?Some do not levy income tax in the destination country, others do, to name just one element to consider.?With that all being said, many digital nomad visas remain an attractive option and are not excessively expensive to obtain.

In conclusion, if you’re hiring just one person from a country, a contractor structure may be the most attractive.?If you’re hiring a small number of people (e.g. 2-10), Employers of Record are likely to be the lowest cost route.?If you’re hiring a large number of people (e.g. >10), then opening an entity is probably the most cost effective option, at least in terms of administering payroll.?

The Risk Benchmark

When it comes to benchmarking the different routes by risk threshold, a lot of this will depend on the specific tax and employment laws of the destination country, however, there are some general approaches that are worth bearing in mind.??

Firstly, setting up as an entity will likely be high risk from a compliance perspective. That being said, this can be mitigated provided you obtain the right advice and set up the right structure from the get-go.?Even if you set up an entity, it is still possible to potentially avoid triggering permanent establishment if, amongst other considerations, the entity is set up on an arms-length basis and the roles based from the entity are not high PE-risk roles (e.g. sales-generating roles). In some cases, the solution may not necessarily be to set up a full entity, instead, a branch may be the optimal setup (to then set up inter-branch assignments), however, it will take some time to get the right set up regardless of whether a legal entity or branch is chosen.

Corporation Tax: The Blind Spot of Employers of Record

Secondly, Employers of Record are also very attractive, provided the?blind spot ?of?Permanent Establishment ?(PE) risks (i.e. corporation tax) are addressed.?Why are permanent establishment risks worth assessing??Just ask Koering, the French-owned conglomerate whose brands include amongst others Gucci and Saint Laurent, which in 2019 was fined?$1.25bn in taxes and penalties ?as they had been judged to have had a “silent” or undeclared permanent establishment in Italy over a number of years.

Thirdly, hiring as a contractor can be quite tricky as it depends on the contractor misclassification and permanent establishment rules of the destination country.?If either of those are strict, then that country’s risk level will automatically be elevated to red.??

Lastly, digital nomad visas are also broadly speaking very attractive from a compliance perspective.?However do not ignore the permanent establishment risks, here too they can come back to bite you if you’re not careful, just look at?the case of Greece ?for example.

When it comes to work from anywhere, it’s critical to differentiate between two different segments:

• Hire from anywhere: Where a company is looking to structurally hire talent from abroad.
• Temporary international remote work: Where a company is looking to allow talent in one country work temporarily in another country for a specific period of time (e.g. typically more than 7 days and less than 365 days).? See our white paper which delves into this segment more deeply.

The two segments above naturally require radically different approaches.??

If you’re looking to hire from anywhere, only digital nomad visas would be a poor fit, partly because many digital nomad visas require the employee to be employed by an entity outside the destination country (i.e. the employee must have a home entity they’re employed by which is not in the country offering the digital nomad visa).??

If you are looking at temporary international remote work, only Employers of Record would be typically seen as a poor fit, as their business model is built around companies hiring an employee for at least 6 months or more.??

Which Option Is The Best Overall?

Unfortunately, there is no black and white answer to which option is the best overall.? It really does depend on the circumstances, in particular, which country you’re dealing with.? If you’re dealing with a country such as the UK that is strict on contractors, then contractor misclassification is a major risk.? If you’re dealing with a country that has a digital nomad visa, then this may be the best option if it is for temporary international remote work.? If you’re expecting to see more than 10 people being hired from a country, then establishing a legal entity would likely be the most sensible one.? If you’re looking to hire between 2 and 10 people, Employers of Record are very attractive.? If it’s just one employee, then hiring as a contractor will be the easiest option.

What Are The Common Traps?

The most common traps that many can fall into would be:

• Individual tax residency: Individuals can accidentally trigger individual tax residency in a particular country if they stay above a certain day threshold (which can vary significantly from country to country). Are you tracking your days by employee in each country?
• Contractor misclassification: Some countries are extremely strict on this, do you have exposure here?
• Employment law: Especially when it comes to making someone redundant, does your chosen model give you the flexibility to do so?
• Corporation Tax / Permanent Establishment: If you suddenly trigger a corporation tax presence in a country, this can be extremely expensive.? Whether you want to avoid permanent establishment risks, or prefer to walk towards these risks , all 4 of the models suggested above incorporate permanent establishment (i.e. corporation tax) risks.? Have you considered this as part of your hire from anywhere or work from anywhere strategy?

Avoiding The Common Pitfalls

Whichever route you choose, it is vital to narrow down the countries you’re exposing the company to, and for each of these countries, to understand the key risks.? You can read more tips on avoiding the common pitfalls here .