By John Bostwick, Managing Editor, Radius
In an earlier post, I explained how colleges and universities can avoid risks when sending a faculty or staff member abroad. In this post, we’ll discuss hiring a host-country citizen to support international activities.
Hiring a local worker provides some advantages over sending a home-country employee (i.e. expat) or third country national abroad. For example, paying a local worker does not involve
That said, employing a local worker is not simply a matter of finding the right person for the job and sending monthly A/P checks from the home campus. When paying a local worker, your institution may be required to register as a legal employer and fulfill related obligations in the host country. This post lists some precautions you can take to protect your institution when hiring a local worker abroad.
Understand Your Options When Paying a Local Worker Abroad
Generally speaking, your institution can pay a local worker abroad to perform services either as an independent contractor (also called a consultant) or as an employee.
Hiring a local worker as an independent contractor in a host country is an attractive option, as doing so may eliminate the need to provide host-country employee benefits and pay employer taxes. However, institutions exploring this option must proceed with extreme caution and understand how to comply with host-country worker-classification laws before beginning an engagement. Misclassifying an employee as an independent contractor can lead to costly penalties and reputational damage, a fact that many colleges and universities have learned first-hand.
Depending on the nature and duration of your activities and other factors, hiring a local worker as a benefits-eligible employee may be your institution’s safest — and in the long run cheapest — option. Associated costs typically include registering as a legal employer, executing locally compliant employment agreements, providing locally acceptable employee benefits, paying social taxes on behalf of the employee and filing regular institutional returns to local authorities. These costs may be reduced or in some cases eliminated when partnering with another organization in the host country, such as a local university, though collaborating poses its own risks.
Your institution may also consider using the services of a Professional Employer Organization (PEO) to pay a local worker on your behalf. PEOs are similar to temp agencies in the U.S., and act as the worker’s employer of record for tax and insurance purposes. However, a PEO is often only suitable as a short-term solution, to be used during the legal-entity registration process. Once registration is complete, the individual can be transferred from working under the PEO to working as your institution’s employee under the new legal entity. Note, however, that a PEO is not a substitute for a registration required under host-country permanent establishment laws.
Understand Local Employer Obligations
If you hire a local worker as an employee, your institution will almost certainly be required to withhold income and social taxes and remit them to local authorities. In addition to these requirements, each country has its own unique slate of employment laws, covering such areas as mandatory health benefits, vacation and holiday time. These laws can favor the employee over the employer to a degree not seen in the U.S. For example, in many European countries, an employer must have a legally valid reason for terminating an employment relationship and in some cases must provide severance pay, often amounting to several months or more of compensation.
Whether your institution plans to pay a local worker as an employee or as an independent contractor, you should enter into a written contract with the individual before the engagement begins. The contract should be compliant not only with your institution’s internal