Staffing Global Business Operations: What you need to know before you go!
Dr. Janet L. Walsh
Maybe you want to serve a customer as they expand internationally. Maybe you have a contract to provide products in a foreign country. Or perhaps, you want to sell into a new global industry. Regardless of the situation, you’ll need “boots on the ground” in a foreign location. The first question is, do you hire locally or send someone in? The purpose of this article is to provide a framework for thinking through these decisions to maximize your financial return and minimize your organizational risk. Of course, there is much more to staffing global business operations, and we can help you answer these questions. You will need to think through the implications of your activities to achieve financial and operational success. Here are a few questions to ask yourself before you start hiring or sending expats abroad.
Step 1: What is the job that needs to be done?
Some questions to ask: What will be the responsibility of the person(s) in the foreign country, vs. people in the home office? Create a complete job description. Is this a full-time position or part time? Will this position last a few months, or a few years? Will this position eventually be not needed? To whom will this position report? Does the manager to whom this position report have experience working in the foreign country?
Rationale: Your options for foreign staffing depend on the nature of work to be done. The need for infrastructure will also affect the legal, financial, tax, and HR actions to be taken. The management of the overseas position will affect the legal, financial, tax, and HR decisions made in the foreign country. A clear understanding of the roles, responsibilities, and activities to be performed are crucial to avoid unnecessary risk and liability. It is essential to understand what activities create a taxable presence for the company so that everyone in management understands when this occurs.
Step 2: What country or countries will be served?
Some questions to ask: What is the definition of employer/employee in this country? What are the legal, financial, tax, and HR rules for market entry? Are there incentives for establishing business operations in the foreign country? What are the political, economic, cultural, safety, and supply chain risks? Does your management team have this market experience?
Rationale: The relationship between the employee and the employer is not the same from country to country. All countries define the responsibilities between employer and employee very differently. These differences encompass legal, financial, tax, and human resources decisions, management, and third party management actions. Termination costs can vary substantially from country to country. You must understand costs can vary, whether you hire or use a contract relationship until market risks have diminished.
Step 3: What are my options for staffing a global operations?
The choice of staffing options below will depend entirely decisions and choices made in Steps one and two above. In the case of staffing the foreign operation you should remember the choice of staffing option is the last decision to make, once you’ve completed your due diligence. Once you have completed your due diligence, here are some options courtesy of JP Gooch, Vice President of Channel Sales at iWorkGlobal.
EOR. Employer of Record. This is when a company becomes legally responsible for paying a workers wages, employment taxes, social insurance payments, and other expenses related to employment. Contractually, it places these employment burdens on the employing company’s shoulders. The employment rules of a country and the business need will determine if a company can make this choice. This solution is particularly useful in circumstances where a client does not have a registered entity, has a short-term contract or needs to manage resources separately from the rest of a population. Most EOR companies outsource global EOR services to a third-party provider. Make sure you know exactly what company in the foreign country will be your provider.
AOR. Agent of Record. Similar to EOR, but intended for independent contractors or sole traders. Contractually, the company takes on the responsibility of ensuring contractors are paid compliantly and on time anywhere in the world where this arrangement is legal and effective.
ICC. Independent Contractor Compliance. This is an increasingly complex area of law that concerns whether workers are considered employees or contractors. The United States Department of Labor (DOL) and each country’s labor laws specifically define worker types and employer responsibilities. However, the emergence of “gig economy” companies like Uber, TaskRabbit, Instacart, and others have blurred the lines between who is an employee and who is a contractor. These issues are being decided in courtrooms and legislatures around the world. As such it is particularly critical for companies thinking of this option to make sure they understand the legal, financial, tax, and HR implications of IC workers.
PEO. Professional Employer Organization. This is a US-centric service that allows small to mid-sized businesses to outsource most employer administrative obligations. In general the United States Internal Revenue Service (IRS) recognizes the PEO as the Employer of Record, for administrative purposes and employees of the client become employees of the PEO. All tax filings Federal Insurance Contributions Act (FICA), Federal and State Unemployment, are filed under the employers Federal Employer Identification Number (FEIN), thereby establishing co-employment with its client. PEOs exist only in the US. When we say for administrative purposes, it is crystal clear that the real employer is the one with hiring, wage setting, and firing authority and any labor legal proceedings would involve the primary employer
VMS. Vendor Management System. This is software or cloud applications that help companies manage third party staffing suppliers and contingent labor. The systems can provide order management, invoicing, headcount reporting, risk management and more. Larger companies often have hundreds of supplier relationships. A properly used VMS can help procurement and leadership to reduce administration burden, manage cost, and reduce risk.
MSP. Managed Service Provider. A company that takes over an entire contingent workforce program. The MSP typically becomes responsible for managing the VMS, supplier selection and management, reporting to the client, and billing.
RPO. Recruitment Process Outsourcing. These companies take over all or part of your recruiting function, supplying specialist aided by technology to manage recruitment for your company. RPOs can be used for both direct hire and contingent labor.
Even if you need a part time sales person for a few months, you’ll reduce your organizational risk and improve your financial performance by strategically thinking through the implications of your decisions. Birchtree Global supports clients with expert advice on market entry from business leaders who have worked on-the-ground, establishing and managing foreign operations. We can see things you may not and help you make an informed decision.
Thanks to Richard Gimbert, CPA, Brady Ware & Company our global tax partner and JP Gooch, Vice President Channel Sales at iWorkGlobal, for their contributions to this summary.