Compliance challenges with hiring international remote workers | Alex Bouaziz
Thursday, August 05, 2021 @ 1:44 PM | By Alex Bouaziz
Hiring remotely has numerous benefits, but it comes with a set of unique challenges when it comes to legal and compliance matters.
Compliance challenges pop up in every stage of employment, from interviewing all the way to payroll and termination. It’s important as ever to keep counsel in the loop throughout the process.
The first set of compliance challenges starts with role structuring. Remote workers can be hired as independent contractors or as employees. Choosing the right classification will depend on the job responsibilities and expectations. As those working in employment law know, each classification has its own benefits and drawbacks, so ensure management understands the significance of each and its legal considerations. Non-compliance can lead to significant audits and legal liability. Note that classification is determined by the foreign country as well: an independent contractor under Canadian law may not be considered one under France’s classification, for example.
When a company hires a worker who lives in another country, it opens up risk for the company to be considered having permanent establishment in that country, which would result in additional tax and filing obligations. To avoid this, non-resident employees can be hired using two main strategies: direct hiring, using a foreign subsidiary, or indirect hiring, using an employer of record (EOR). The foreign subsidiary model requires establishing a local entity in the desired country. The paperwork involved with the legal and financial setup is substantial, so it’s generally only worth considering if a substantial number of foreign employees are to be hired. On the other hand, the EOR model, where the EOR partner takes on legal liability with hiring and termination on your behalf, tends to be more flexible and easier to work with.
Once a talented candidate has been settled on, it’s time to determine the employment contract. Businesses should avoid the temptation of going with a boilerplate contract, or worse, the exact same template they’ve been using for other workers. The employment contract should instead be tailored to the country and clearly lay out any country-specific provisions such as federal holidays, benefits and deductions. When it comes to independent contractors, be aware of the ownership of work, non-disclosure agreements, governance in case of dispute and any other clauses that will ensure both parties are protected. Finding a local legal partner to assist in this area could be an option, but be aware of the cost it entails.
Once the job offer is accepted, make sure to securely collect and store documents such as employment contracts, confidentiality agreements, tax identification and identity verification. It’s a good idea at this point for the remote worker to apply for a Social Insurance Number or ITN (individual taxpayer number) from the Canada Revenue Agency. A clear remote work policy outlining expectations of equipment usage, required availability, the kind of insurance or risk management protocols to follow, or any cybersecurity measures to adhere to is good to have on hand as well.
When it comes to paying your remote hire, while it can be appealing to leave it to the finance team to handle, they’ll need legal support to stay in compliance too. Payments need to account for the applicable benefits and deductions of the remote worker, as regulated by both the worker’s home country and Canadian tax law. Pay slips and other employee records need to contain mandated data fields, which vary by country and province. Navigating the international payments system can get fiendishly tricky too, but today there are many robust payment partners and automated solutions out there to choose from to avoid the headaches.
At the end of the tax year, companies should also understand their new tax responsibilities. Businesses with independent contractors are expected to file T4A-NR slips to the CRA, and businesses with employees should file T4 slips.
To better manage these compliance needs, companies can partner with services that have global experience with international hiring. They can share best practices, keep you updated on changing regulations and offload the hiring, onboarding and termination processes.
So, while remote work is all about flexibility, you can’t be too flexible with compliance. As businesses look to expand their talent pool internationally, an agile yet comprehensive compliance strategy will ensure you’re set up for success — wherever your workers may be.
Alex Bouaziz is the co-founder and CEO of Deel. Prior to founding Deel, Alex co-founded Lifeslice, a mobile app to create videos with friends, and Sarona Ventures, where he still serves as a founding partner. In 2020, Alex was named to the top spot of Forbes’ prestigious 30 Under 30 Enterprise Tech category.
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