Remote work, digitization, and globalization have shaped the world in a way that practically forces businesses to be open to expanding into new markets and hiring employees in different jurisdictions. If competitors tap into a global talent pool and conquer new markets, no business can afford to stay behind.
Global employment has long since entered the list of challenges organizations need to prepare for if they want to remain competitive in the current economic climate. But what does global employment really mean? What are the benefits of a global workforce? And what are the different challenges that organizations encounter in global employment and recruiting?
Global employment (sometimes also referred to as international employment or cross-border employment) simply means that a company works with a global workforce whose members are distributed across different countries all over the world. This implies extending the company’s hiring and recruiting practices beyond the borders of the jurisdiction where the headquarters are located.
There are many different ways for organizations to manage global employment. While some prefer handling international HR and recruiting processes in-house, others opt for employment outsourcing via a global employment solution.
But what might sound simple in theory can turn out to be quite complex in practice. That’s because global employment spans many different aspects, from international employment contracts to global payroll management to compliance with international tax laws.
Even for multinationals with large HR and legal teams and extensive experience in handling international employment matters, global employment is not a walk in the park. In fact, there are various challenges businesses should prepare for when hiring employees all over the world, including:
Permanent establishment: When hiring employees abroad without opening a local legal entity, businesses have to be careful not to trigger any unwanted corporate tax liabilities. Depending on the number of employees in the jurisdiction and the activities they engage in, local authorities could consider the foreign company to have an ongoing and taxable presence in the country—also known as permanent establishment. If a foreign legal entity is found to have a permanent establishment in a different jurisdiction, this can result in back taxes, financial penalties and an obligation to incorporate properly in the new jurisdiction.
Employee misclassification: Employee misclassification is a major risk in the context of global employment. Especially when they first start operating in new markets, organizations often rely on the services of independent contractors and freelancers. However, since the rules regarding the classification of employees and contractors differ from one jurisdiction to the next, businesses have to be careful before entering into any kind of contractual relationship.
International employment contracts: Every country has different formal requirements that apply to employment agreements. In order for an international employment contract to be valid, the agreement has to meet all the legal requirements, including contract language, mandatory elements, choice of law, and more. International guidelines such as the EU Directive on Transparent and Predictable Working Conditions (EU Directive 2019/1152) can help businesses get a first understanding of the basic requirements, but the country-specific laws still have to be observed.
International recruiting: Finding the right talent is never easy, especially not when hiring employees in foreign markets where recruiting practices are different and different outlets are used for reaching out to potential candidates. What’s more, successful talent acquisition requires a good understanding of customary employee benefits and expectations regarding salary, bonuses, and more.
Multi-country payroll set-up and management: The challenges linked to global employment don’t stop with the hiring and recruiting process, but also concern ongoing HR tasks such as benefits management and global payroll. Setting up and managing payroll across different geographies is an enormous task that requires knowledge, experience and dedication. Otherwise, the business risks compliance issues regarding compensation laws, tax rules, or pay frequency.
Cross-border communication: Another challenge linked to global employment is communication. Especially when following a remote-first approach that implies working with a globally distributed team, communication can be a real issue. When team members are based in different time zones, asynchronous communication is the key to making it work.
Especially for businesses that are only just starting to build their global teams, international employment can be a real challenge. But once they have overcome the different obstacles, businesses gain access to numerous benefits that come with working with a global workforce. Some of the major advantages of hiring an international team include:
Bigger talent pool to choose from: If an organization is open to hiring people in different locations all over the world, it gains access to a much wider talent pool. This increases the chances of finding the perfect candidate for a position, since there will be more applications to choose from.
Local knowledge to support expansion into new markets: Expanding into new markets requires in-depth knowledge of the local customer base, business etiquette, and more. To get access to this kind of knowledge, organizations have no choice but to hire local employees in the respective markets.
Better support for a global customer base: Global organizations have clients all over the world that speak different languages and have different expectations. In order to live up to customer expectations in every single market, businesses need a global team with a variety of language skills.
Considerable saving on global employment costs: Salary levels and expectations differ from one country to the next, depending on the respective cost of living. Global employment is therefore a real chance for multinationals to save money on employment costs. A global compensation strategy can help harmonize cost savings and fairness among team members.
Enhanced diversity to drive creativity: Global employment also means bringing together employees with different cultural backgrounds. Working with a diverse team not only creates a stimulating work environment that inspires new ideas but also enhances creativity.
The Lano Academy is for informational purposes only and should not be construed as legal advice. Lano Software GmbH disclaims any liability for any actions you take or refrain from taking based on the content contained in this article.
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