What to Think About When Hiring Internationally

With special thanks to Julie Wicklund and Eileen Leman for their contributions.

Emerging companies often expand their candidate searches outside of their home country so as to benefit from the global talent pool. Below are some points we encourage emerging companies to think about when hiring abroad.

Understand local requirements

Generally, the laws where the worker lives and works will apply. Employment law regimes vary widely across countries, including on fundamental points. For example, US-based companies that are used to “at-will” employment may be surprised to learn that this arrangement is rare outside the US. Local labor laws typically require employment agreements covering mandatory terms and conditions, with employees entitled to statutory minimum notice periods or pay in lieu of notice at the time of termination. Companies hiring in Europe also may need to consider the General Data Protection Regulation (GDPR), as discussed in this Cooley GO article. Conversely, companies expanding into the US are often surprised to learn that they not only have to follow federal law, but also the laws of the individual states (and even cities) where the employees are located, creating a complex patchwork of compliance considerations.

Collective bargaining and employment standards

In some jurisdictions, collective bargaining between employers’ associations and labor unions creates collective agreements with mandatory provisions that apply to all workers within a particular industry or sector. These provisions would apply in addition to underlying labor laws and the employment agreement with the employee. Companies from countries without this “sectoral bargaining” may not be familiar with these kinds of unions or be aware of the relevant labor standards and how to comply with them. Similarly, some countries have laws setting minimum employment terms and conditions, which cannot be varied or reduced by the negotiated employment agreement.

Legal documentation

Employment agreements are typically designed to work in a specific jurisdiction, containing language or concepts required by local law or customary practice. It is essential to use a form of employment agreement that is compliant with local law. While we sometimes see companies try to repurpose their existing form of employment agreement for hires in a new country, this can create significant legal exposure and practical difficulties; it is typically far more efficient and much less risky to start with a form that was originally designed with the relevant jurisdiction in mind. Some employers may try to use contractor agreements as a workaround, but that’s not always possible. As mentioned above, the laws where the person lives and works will apply, and many jurisdictions have strict rules determining whether an individual is regarded locally as an employee or an independent contractor.

Equity compensation

If you are planning to use stock options or other equity to compensate employees in the new jurisdiction, you will need to consider local securities laws, as well as the taxation of such awards, to ensure you are incentivizing your new employees without creating any unexpected exposure. For example, US-based companies may be accustomed to issuing their employees “incentive stock options” that are eligible for favorable tax treatment, but those potential benefits will not be relevant for non-US taxpayers. Tax-efficient awards are only possible in a limited number of countries and typically require customized documents and procedures to be put in place.

Subs and EORs

In some cases, it may be necessary or efficient to form a local subsidiary to hire employees, giving the company control over the subsidiary operations, expanding its brand into a new territory and directly controlling intellectual property generated by subsidiary employees. Some companies also use employers of record (EORs), which hire the employees into the EOR’s locally incorporated subsidiary and then outsource the workers’ services to the company. The right approach will depend on a number of factors, but you will want to discuss the arrangement in advance with your lawyer to make sure that you understand key points, such as where the intellectual property generated by employees will reside, enforcement of post-termination restrictions such as noncompetes, and corporate or tax exposures of an outsourced workforce if utilizing EOR services. If you do form a subsidiary, you also will want to discuss with your tax and accounting advisors to make sure it is structured properly. Keep in mind that future investors and acquirers will often look closely at subsidiary, EOR and international independent contractor arrangements as part of diligence.

Business-level considerations

You will need to weigh the legal, practical and administrative considerations for international employees not only from a compliance perspective, but also from a business perspective. For example, some of our clients will hire employees in jurisdictions where the prevailing wages are lower than in their home country as a way of managing costs. However, the gains may be smaller than expected, or even nonexistent, once companies factor in not only the salaries, but benefits requirements, costs of compliance, administrative costs associated with maintaining employees in the new jurisdiction and management time overseeing a distributed workforce. On the other hand, if you have identified candidates abroad you believe can add value to your company, these factors may simply represent the cost of expanding your available talent pool.

One overarching point applies to the topics above: Before hiring employees or engaging contractors in a new country, make sure you discuss your plans with your lawyer, including local counsel in the country where you’re hiring. If you need recommendations for local counsel, your lawyers can often provide a referral.