Talent acquisition in the context of remote work

Finding the right talent

This article explores remote hiring strategies to acquire the necessary talent, be it due to local talent shortages, growth plans in foreign markets, or simply identifying necessary skills in other markets.

Hiring remotely has its benefits, such as giving organizations access to a wider talent pool and thus providing greater access to top talent, but it also has its challenges. From a talent acquisition perspective, it can be a challenge finding the right talent pool due to the increased competition and complexity of sourcing candidates, as well as integrating remote talent into the organization and the company culture.

In addition, remote hiring comes with a myriad of obligations that need to be considered; tax, social security, reporting obligations, permanent establishment risks, employment law and immigration (right to work) are all consideration factors. This can also come with considerable costs to the employer.

Depending on the organization’s business needs and strategy, there may be different structures to hire remote talent which may lessen the administration and compliance burden that falls on the employer. However, there is no one solution that suits all company objectives, and all models come with their own benefits and disadvantages.

1. Hiring in an existing entity in the remote work location or setting up an entity in the remote work location

If you already have an entity set up in the remote work location (country B), you may consider hiring the individual through the entity in that country. The benefit of this set-up is that everything is already in place. However, it doesn’t come without risk; there is a risk of creating a reverse PE, meaning that the entity in country B creates a Permanent Establishment in Country A where the actual employer is located (the entity whose benefit the individual is working for). In addition, it may create messy reporting lines and compliance (tax and not uncommonly immigration) to manage in Country A in case of business travels.

Alternatively, setting up an entity in the remote work location has many of the same pros and cons as employing through an existing entity, however, with the added administration of setting up the entity and the associated costs.
This set-up may be relevant when hiring a large population of remote workers in the same country, to justify the administration and costs.

2. Global and Regional Employment Company (GEC & REC)

A Global Employment Company (GEC) is an entity established by a multinational company to employ its internationally mobile employees, although it can also be used to hire remote workers. In effect, the GEC serves as a leasing company which usually houses mobility professionals (Center of Excellence), and is responsible for the employment, compensation and benefits, immigration and tax matters for an international employee/remote worker. A Regional Employment Company (REC) functions in the same way but is typically set up regionally to manage different regions.

This solution is again applicable to companies with a high volume of remote workers all over the world and ensures that these cases are handled centrally and are consistently in line with policy and thus reduce overall group administration and costs.

3. Professional Employment Organization (PEO)

A Professional Employment Organization (PEO). A PEO is an entity that has the capability to provide employee management services, administrative assistance, and compliance strategies for multinational organization operating outside of their domestic jurisdictions. It differs from an EOR in that the PEO is a co-employer. This means that your organization is still responsible for complying with, for example, local labor laws but the PEO, as a co-employer, can be responsible for the administrative tasks such as payroll reporting.

This solution may be applicable when testing a market, before setting up an entity or taking on the related administration. It can also be used as a long-term solution, but it is advised to be familiar with local employment laws.

4. Employer of Record (EOR)

An Employer of Record (EOR), is often used interchangeably with the term PEO. However, there is an important difference between these two from a legal perspective. An EOR is essentially the employer of record, as the name indicates, and is the entity that enters an employment agreement with the employee. A service agreement for provision of personnel is then entered between the EOR and the organization (receiving party) to hire out the employee.

It is important to consider local labor laws, and whether the labor authorities would consider the receiving party the actual employer, as this could give the employee rights to claim employment rights and could make the receiving entity responsible for compliance.