Understanding the costs of a global, distributed workforce

As businesses are recovering from the pandemic, they are realizing the benefits of building globally distributed teams. Industry leaders understand that they can get the work done from anywhere and this is an eye-opener for them. Not only does it result in impressive cost savings, but it also expands the talent pool available for hire, exponentially. Companies can now hire candidates with specialized skills from anywhere in the world.

However, with the freedom of a global workforce come associated costs and risks. When you hire globally, it becomes imperative to know the laws and requirements of each country. HR has to address and deal with policies around international payroll, statutory benefits, and taxes.

This is why understanding the cost of the global workforce is important. You have two options to deal with the compliance associated with global expansion: either set up an entity in each country you want to hire workers from or partner with a global employer of record (EOR) that will act as a single point of contact to manage the local workforce. The second option is more appealing in terms of cost-effectiveness and time. Setting up local entities can be time-consuming and end up working out very expensive. With EORs you can start operating in any country quickly and compliantly.

Evaluating global expansion costs

The success of your global expansion for hiring talent will depend on how comprehensive your understanding of the cost that it entails is. Identify the areas that will require financial and personnel resources such as legal representation, awareness of banking policies, payroll costs and management, research about local tax law, and HR costs and considerations.

These are rarely one-time expenses and will continue to be part of the balance sheet as long as you retain global employees. Another factor to account for are additional costs such as tax filing and accounting support, IT support, statutory obligations, and more.

This is a general outline of what the cost of global hiring looks like when you are not establishing a local entity. If you choose to maintain a local entity, there are several other costs incurred for smooth functioning of your organization. This will include, and may not be restricted to, annual audit costs, property taxes, maintenance costs, HR consultancy fees, and more.

A partnership with an EOR is advisable for companies that can operate entirely online without requiring local physical setup such as IT companies.

Tax compliance costs 

Tax compliance costs will significantly affect your global expansion plans. As these costs vary depending on the country, you must take them into account when hiring local talent. For example, France has mandatory employer costs that are around 50% of the employee’s wages. Similarly, many Asian countries have a 20% tax for international employers. There are also cities with little or no tax for global hires such as Dubai.

Fortunately, the EOR you will partner with can take care of tax compliance and the associated costs but depending on the complexity of the local laws, you may end up paying 10% to 30% in additional fees.

It is important to note that some countries have strict severance requirements that can include hidden costs. Some EORs might not discuss severance upfront, this may make monthly costs appear lower but once you decide to terminate the partnership, there can be a costly surprise.

Are you ready to make the decision? 

Companies are benefiting from hiring globally. As the distributed workforce is slated to be the future of work, it’s time you weigh the costs of global expansion. It is important to consider tangible and intangible benefits along with the associated costs before you decide to expand internationally. Because setting up a local entity can be costly and time-consuming, a partnership with an EOR is a more viable option.

Familiarizing yourself with how and why employee costs are computed will ensure that you are aware of what costs are involved and can budget effectively. This is important to truly incentivize global talent-hiring benefits.

Talent500 can help you with building a global workforce and managing the associated costs and compliance requirements. We are a trusted partner of start-ups and Fortune 500 companies. Let’s discuss your global hiring plan, request a consultation today.