Hiring overseas workers directly versus using an employer of record: When I explained to people that Talent Outreach has gone all the way out to help its clients identify a suitable employer of record for each country that we source job seekers from, I was often asked why.
The short answer:
It will help our clients.
The long answer:
Through providing a recommendation of an employer of record, we wish to provide an end-to-end service where the client feels reassured each step along the process of hiring a remote worker from overseas. We want the process to be streamlined and easy so our clients can focus on growing their businesses.
What’s an employer of record?
An employer of record is quite literally, an employer, on record. An employer of record is a third-party entity that acts as an intermediary between an employer and its staff, where it hires the staff on behalf of the employer and appears as the staff’s legal employer on the record. Along with the legality, the employer of record will also take on many administrative tasks relating to the staff including payroll management, tax and certain HR functions. Meanwhile, the employer continues to retain the majority of the working relationship as the staff works to its instructions and develop under the employer’s HR programs.
When do you use an employer of record?
An employer of record is engaged when the employer does not wish to assume the legal employment status of a staff. This is often the case when the staff is from a foreign country unfamiliar to the employer. Managing the staff directly means the employer needs to spend time to form a very strong understanding of the foreign regulations and set up corresponding systems to avoid breaches. Alternatively, using an employer of record with expertise in the foreign regulations is a very efficient way for the employer to remain compliant.
What’s the difference of hiring foreign remote worker directly versus using an employer of record?
We can look at this from three different angles separately: economically, operationally and legally.
An employer of record offers its services for fees, which may include one-off setup fee, down payment and monthly management fee…etc. The monthly management fee is typically the largest component of the fees, starting from 10% of the staff’s total monthly salary. The general fees charged by our partners can be found here. For a Vietnamese staff earning a gross salary of A$2000/month, the management fee could be about A$267 per month, or A$3,212 per year.
In comparison, hiring the staff directly means the employer is not required to pay any intermediaries. However, it also means the employer doesn’t benefit from intermediaries’ knowledge of foreign regulation, their expertise in navigating through government agencies, their payroll management system, or having someone local to deal with the overseas staff. It is safe to say that the cost of seeking independent legal advice or the cost of breaching labour regulations and resulting in disruption to the employer’s business would be more than A$3,212 per year.
Having someone working in another jurisdiction is slightly different to having someone working out of the office. The workload added to your back office could be more than simply adding one resource as the back office will need to cater for providing employee benefits, contributing to government taxes, enrolling in staff insurances in a completely different system and environment. Using an employer of record could help you navigate through these hurdles very efficiently and avoid taking on the operational risk of not doing things correctly.
Additionally, although technologies nowadays could sufficiently allow teleworking to be carried out effectively and efficiently cross border, a job seeker may sometimes appreciate some form of local presence of the employer for a psychological reason. An employer of record residing in the same country as the job seeker could offer such psychological reassurance and even provide actual support and interaction in real person.
Lastly, and probably most importantly, hiring a foreign staff directly is not a recommended practice in Australia. Any Australian entity going down that path must be prepared to pay its foreign staff at least the Australian minimum wage and offer the same benefits a typical Australian employee would be entitled to, because any staff, whether offshore or onshore, that is hired by an Australian entity, is covered by the Australian National Employment Scheme of Fair Work Act 2009. You can read more about this here. A breach of the labour law could result in court cases, which are not only costly to the company but also disruptive to the operations.
Hiring overseas workers directly versus using an employer of record