Globalization followed by the COVID-19 pandemic has forced many changes to tech company workforce norms. The focus is now on the skillset and value-add that a prospective employee can bring to the business. This article discusses some issues resulting from this change in method of operation by many companies.
by Shan Nair
November 3, 2021
The COVID-19 pandemic has forced many companies to work virtually. This means an employee can live and work anywhere. As a result, hiring abroad has become no different to hiring locally, time zone and language differences excepted. Skill shortages had previously driven companies to go abroad where the cost/benefit arbitrage of a hire was higher. Now companies are even more inclined to do so as employees have become accustomed to working in a virtual environment.
Companies hiring employees abroad today generally do so in three ways. A small company looking to augment talent will hire employees where they can find them. This can result in a widely distributed workforce with one or two employees per country spread throughout many countries.
A larger company will use in-country contacts to establish and then grow a local operation. Often the founders may have originated from that country and therefore feel comfortable with this approach or there may be customers or sales prospects in that country requiring a local presence.
An even larger multi-national company will likely carry out initial market research, identify a target country and then employ local recruitment agents to rapidly expand the workforce by tens or hundreds of employees after using this as a lever to secure grants and subsidies from local authorities.
Whichever way a company goes, it is critical to understand how HR and data privacy laws apply to the hiring process. For example, HR leaders must understand the regulations relating to the questions one cannot ask at interview or time limits on the length of time an applicant’s personal details and resume can be retained without obtaining a waiver from the applicant. These regulations vary by country.
To retain talent, it is vital for a company to understand the cultural “drivers” that apply which are often radically different to what applies in the U.S. For example, “face” is important in the Far East. Thus, a prestigious job title and position in the organization may be more important than salary and benefits for both hiring and retaining an employee. In India, “learning” is a key factor. Thus, a career development plan for an employee followed by concrete evidence that an employer is serious about implementing it will go a long way to retaining the employee.
Employees abroad can also often feel isolated from the U.S. headquarters. It is therefore crucial for HR to stay in touch with them and give them regular feedback. Furthermore, when organizing meetings, care should be exercised to consider within reason time zone differences and local public holidays. This is particularly important post-COVID as the pandemic has noticeably increased the trend for employees to seek to fit their jobs into their lifestyles rather than the other way round. To illustrate this with a pre-COVID example, the UK CEO of a company visited his India office and insisted that a Team Brief be held on India’s Independence Day. He had several resignations within a week.
Clear communication about expectations and job performance is also vital to avoid that feeling of isolation and exposure.
The three general categories into which companies fall when they hire abroad need further examination when it comes to global compliance.
The small company with one or two employees per country in several countries may best start off by hiring the employees through an Employer of Record (EOR) or contracting with a Personal Services Company setup by the employee. This is a quick way to start but there are significant tax and “deemed employment” risks in maintaining this arrangement long term.
This is particularly the case with the EOR model in EEA and LATAM countries (also Australia) where the government and unions have established Collective Bargaining Agreements. Furthermore, courts will often go beyond the wording of the EOR contract to look at the facts and circumstances of a particular case, in which case the company cannot escape liabilities as it could be deemed to be a joint employer with the EOR.
The larger company establishing and then growing a foreign operation should strongly consider an outsourced solution provider. This provider will have in depth knowledge of local laws and can guide the choice of local entity (branch, representation office or subsidiary), thereafter set it up, get it ready to do business, help onboard the employees and then take care of all local country compliance. If there are multiple foreign country operations, costs and time can be significantly reduced by using a company operating in the International Expansion Services space.
The multi-national company with a large local headcount will operate best by internalizing HR and finance as soon as headcounts have crossed critical thresholds. This decision will be driven by economic considerations. However, care should be exercised when operating in countries which have poor corruption index scores. It is advisable to have regular and detailed head office internal audit scrutiny and make sure the general manager is not given a free rein on finance matters. This is essential to control these types of risks.
As with any activity one needs to work hard to hire, retain and grow a foreign workforce. Success in this activity can, however, lead to improved corporate performance and a higher valuation for the business.