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Why lose employees just because they’ve moved overseas?

Dee Coakley, CEO - Boundless

It’s a perennial headache for all companies and their HR departments – an employee will announce their intention to leave, taking with them all the training, experience and contacts they’ve accumulated during their time on the job. Often, this is just a painful fact of business life – people receive an offer they can’t refuse, or simply want to change careers.

But what if the employee in question is perfectly happy in their job and ideally would like to stay with their current company, but their decision to leave is driven by a desire or need to relocate? It might be to a different part of the country, or it might be a move overseas.

In the 21st century, people are more mobile than ever, and don’t necessarily want to be pinned down to one location or country. Young employees might want to travel around the world, or families might decide to bring their children up in a different culture. Or as we’ve seen during the confusion and uncertainty of Covid-19, employees may want to return to their homeland for peace of mind.

This is often a difficult and frustrating situation for both employer and employee. But rather than reach an impasse that inevitably leads to a separation, what if there was a way for people to continue to work for your company regardless of international location, and for you to retain their knowledge and expertise rather than begin the long and arduous process of replacing them?

Remote working technology is obviously part of the solution, which of necessity has come of age in the past 18 months, with the likes of Zoom, Teams and Google Workspace now being standard components of the home office experience. And if there’s a silver lining to the Covid pandemic, it’s the way it’s created the conditions for a mass trial of remote working, with just about every company obliged to embrace the home office model. It’s shown once and for all that it’s possible for a business to operate with a geographically dispersed workforce. It’s the proof of concept that remote working experts have talked about for years.

However, solving the physical problems of working over distance doesn’t address the other issues that arise when employing staff overseas. For many companies, the notion of an internationally located workforce breaks down when they consider the financial and legal implications of employing people in a different jurisdiction. If the company doesn’t have a registered office in the relevant country, all kinds of administrative and regulatory complications arise. It’s the main reason that companies haven’t already adopted a more flexible, border-agnostic approach.

Local employment is complex enough already, yet when you factor in all the laws, regulations and taxes specific to other territories, plus the administrative overhead, the challenge of directly employing people in overseas jurisdictions starts to look insurmountable, particularly for small to medium sized companies. It becomes difficult to justify the ongoing time and resources needed to jump through all the necessary hoops for just a couple of remote employees, however valued they may be.

Some companies have tried to side-step overseas employment issues by using an independent contractor model, where an employee essentially works abroad as a freelancer. However, not only does this put the onus and burden on the individual worker to sort out their own tax and employment status, it may also put the company at risk.

In fact, right now, thousands of companies are breaching local employment laws. Even if independently contracting an overseas worker has been agreed by both parties, local authorities could still classify that relationship as essentially being an employer/employee one, and penalise the business accordingly. Company directors can also be held personally responsible for compliance breaches and face significant fines, and even jail time.

Given the risks of failing to comply with every piece of local legislation or incorrectly employing contractors to perform full-time roles, it’s understandable that companies might be reticent to let employees continue to work for them overseas, regardless of advances in remote technologies. However, there is a way of navigating these treacherous straits that makes cross-border employment much more feasible.

The solution is to use an Employer of Record (EOR) model. First originating in the US in the 1960s to address the challenge of employing people across state lines, the EOR model allows a third party company based in a different territory to effectively look after all local HR compliance & payroll functions on behalf of the original employer. Companies that specialise in providing this service are known as Professional Employer Organisations (PEOs).

When using the EOR model, a company usually enters into a co-employment contract, signed by the company, the employee and the PEO. The company maintains a direct relationship with the employee, allocating them work tasks, and managing their performance. The PEO takes care of the operational side of things such as payroll, taxes, benefits etc, ensuring the employee and the client are compliant with all local legal regulations for the lifetime of the employment.

Deploying an EOR model, and using the type of collaborative technologies we’ve all become accustomed to these past 18 months, means that it’s now easier than ever to retain employees when they move to a different country. However, when entering into such an arrangement, it’s important to ensure you’re using a partner you can trust, because not all PEOs are created equal.

In the face of tightening regulations worldwide, it is vital that the PEO you work with is both fit for purpose in a fast-moving global economy and fully compliant with the law. Due diligence is necessary to ensure that you get exactly what you need, and there are important questions you need to ask. What responsibilities will the PEO take on and will there be a third party involved? Will the agreement involve those third-party entities and, if so, what oversight do you have of them? Will your payroll payments be transferred through third-parties, or only through accounts owned and run by the PEO themselves?

Ultimately, you need an experienced global PEO that owns its own infrastructure and has acquired all necessary local knowledge to make certain that everyone is legally and compliantly employed, and you are safe as an employer.

It sometimes feels that Covid-19 has forced a series of dramatic changes on the world, with businesses now operating in ways they had never previously imagined possible. As the pandemic is brought under control, old practices will inevitably reassert themselves, but it is essential we build on the possibilities for a geographically dispersed workforce if organisations are to retain talented and experienced employees wherever they are based. The Employer of Record model is a key part to making this happen.

 

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