Considerations When Employing Workers In A Country Where The Company Currently Has No Employees

• Published date: 26 March 2024
• Subject Matter: Employment and HR, Tax, Immigration, Employee Rights/ Labour Relations, Income Tax, Tax Authorities, General Immigration
• Law Firm: Ogletree, Deakins, Nash, Smoak & Stewart
• Author: Dr. Ulrike Conradi and Roger James

There can be a number of circumstances in which a company may want to engage someone in a country where the company currently has no employees. This could be a desire to expand the business into new markets, recruit a talented individual to work remotely and reside in the country, or, as is increasingly the case, accommodate an existing employee asking to relocate to a different country and work from there (perhaps to accompany a spouse whose job is relocating).

Quick Hits

• Employers interested in engaging individuals to work in a country where they currently have no employees may want to consider whether to employ them directly, engage them as contractors, or engage them via an employer of record (EOR).
• Each of the options has pros and cons, such as employment protection, payroll and corporate taxation issues, immigration issues, and employment-related benefits.
• EOR arrangements are legally questionable in some countries and unlawful in others, including Spain.

There are generally three options for an organization looking to engage someone in a country where it does not currently employ people:

1. Employ directly
2. Engage as a contractor
3. Engage via an employer of record (EOR) / third-party entity

There are pros and cons for each approach, which are presented below in the context of a checklist of factors to consider when taking on someone in a new country.

Setting Up a Local Entity

It is a common misconception that an organization must have a local entity in order to employ someone directly. While that is true in some countries, in the majority of countries, it is not a requirement and an overseas entity can employ someone directly. Nevertheless, there can be advantages to having such an entity, including tax advantages, a greater credibility with customers and business partners, and better risk management. On the downside, there can be a number of filings and other regulatory requirements when setting up a local entity.

An entity is not required to engage someone as a contractor or to contract with an EOR'indeed, the main reason for using an EOR is to avoid setting up a local entity.

Immigration

An employer has an obligation to ensure that its employees have a right to work in the country in question'with potentially serious penalties in the event of a breach. The obligation usually requires the employer to inspect a passport or other identity document to check that it is from a country approved for work. Where an individual does not have permission to...