Written by: Jenna Meyerson
As a result of the pandemic, many businesses are realizing that they can hire teams that work from anywhere and still get the job done. This is a game-changer, as it greatly expands the talent pool when companies need to fill core positions with candidates who have specialized skill sets. Understanding the costs associated with a global workforce can be overwhelming. When each country has its own unique laws and requirements regarding international payroll, statutory benefits, and taxes, the costs are going to vary across the board.
The total cost of hiring an employee depends on a lot of factors, but one of the most impactful aspects is location. Statutory benefits in each country (such as holiday or vacation pay, minimum wage laws, applicable visa fees, employer taxes, and competitive local wages) are all going to weigh into what each hire costs in that location.
Companies have two main options for leveraging a global workforce: set up entities in each country in which they have workers, or partner with a global employer of record that will act as a single point of contact for their entire international workforce.
Setting up entities in each location you have workers at can be costly and time-consuming. If a company only has a handful of workers in each location, setting up the entities and ensuring each local office is run smoothly and compliantly is not cost-effective, and it greatly increases employer risk. On the other hand, partnering with a global EOR allows companies to operate all over the world quickly and compliantly.
Although an EOR takes care of many of the nuances of global hiring, it’s still important that you understand the total costs of hiring an employee in a different country.
What is the cost of hiring an employee through a global employer of record?
The costs associated with hiring new employees include employer costs, taxes, and administrative and management fees. Costs that should be relatively static within each country are mandatory government pensions, workers’ compensation, Social Security, payroll taxes, and value-added tax, to name a few.
The total cost of hiring an employee depends greatly on these mandatory employer costs. In France, for example, you can expect to pay around 50% of the employee’s wages. If the candidate has been selected already, the costs you see when using an EOR are workers’ gross wages (i.e., pay rate) plus all mandatory employer costs in that region plus any local taxes and EOR management fees.
Once again, these amounts vary by location. Some countries have little to no tax for hires, whereas some have a 20% tax. EOR management fees fluctuate depending on the partner and other complexities from the particular country you hire in, and they can be anywhere from 10% to 30% (or more).
In addition, certain countries have strict severance requirements. Severance can be included in costs upfront and accrued monthly, thereby reducing your hidden costs and helping you avoid a large lump sum in the event of termination. Some EORs might not charge severance upfront, which makes monthly costs appear lower, but can actually result in a costly surprise down the road.
Why should you calculate the total cost of hiring an employee?
It is important that you familiarize yourself with how and why employee costs are computed to ensure you are budgeting effectively when hiring talent in other countries and using a Global EOR. Get to know the mandatory employment-related costs in your hiring locations and balance these costs with the projected overall cost per hire. You might find that you are facing a figure you did not budget for, and you will need to explore the source of that higher margin.
As mentioned, partnering with an EOR can make this process easier by providing in-depth international knowledge. This ensures full compliance with local laws and that all statutory costs are being accounted for to help you plan your budget with transparency. You want an EOR solution with a wide global reach and an excellent response time so that your hiring process can adapt to the current work environment and take advantage of a wider talent pool.
This article is originally posted in Innovative Employee Solutions.