A lot of effort goes into building a great team, so when a member tells you they're moving to another country, it's a bit of a shock. Hopefully you've got a bit of time to consider your options. If you haven't deduced, one of our WonderFamily has recently moved 8 time zones, so we thought we'd share how we've tackled this.
1) The job is here.
This one's easy (in some ways): they can move or keep their job, not both. Your company is set up in $country not $otherCountry, so it's even a reasonable standpoint. They might quit and move overseas, or they might stay and resent you forever. Who knows!
2) You keep them on as an employee while they reside elsewhere.
This sounds easy: you just keep paying them and ignore their new country. There are a lot of problems here though: with multiple tax jurisdictions in play, any one of them may object to your 'keep paying them and ignore that they've moved' setup. While examining our options when an employee moved to Norway, we were told that if we attempted to keep paying them as usual, the Norwegian tax authorities might decide that WonderProxy was "sufficiently tied to Norway" to tax the entire company as if it resided there. We do not want to pay taxes to Norway.
3) You ask them to become a contractor: either independent or by setting up their own company
This option pushes the problem onto the person who is moving. When they get to whatever country, they're going to they start work as a contractor, doing their previous job. While this is a relatively common practice in the US and Canada, other countries regard these structures differently. For example, many countries apply various tests to see if the person is indeed a contractor or if they're actually a defacto employee. Some tests we've seen considered include:
- How many customers does the contractor have? Contractors generally have more than one customer. Employees do not.
- Is their work for a defined time or project, or ongoing? Ongoing work may mean they're a defacto employee.
- Can the worker can subcontract the work or hire assistants? If they can subcontract, they may be contractors. If not, they're probably defacto employees.
- Does the worker provide their tools and equipment? In our context, employees generally have their computers and peripherals provided, while contractors supply their own.
Failing some of these tests could subject your company to taxes, fines, and fees. Consult local tax professionals to get a good answer before you pick your option. This is good advice for all the options, really: consult local tax professionals to get advice about local taxes. The tax person in the US who does 'global taxes' is probably not a specialist about Norway's weird vacation pay policies.
4) You set up your own structure to hire them in their new country.
You create a new company in whatever country they're going to, set up a relationship between that company and your existing one, and hire them with the local subsidiary. This has the general advantage of being well regarded by all involved tax authorities: international companies setting up subsidiaries to hire and pay local taxes is a good thing (for governments). Under this system, you handle all the regular payroll deductions for the employee and they're protected by local employment law (which is likely ideal for the employee). Depending on the countries in play, you may be required to provide the local subsidiary a profit over and above what it's passing onto your employee (sad trombone).
Something to consider here is that local employment law may provide them different protections than you're used to. They may end up with fewer protections than an at-will employment state in the US, or they may end up very difficult to fire without extensive retraining. Their guaranteed vacation could jump to 25 days, or they might be entitled to disappear for a few hours around lunch time daily. It doesn't matter that your employee is accustomed to the rights of their previous jurisdiction: you need to meet the requirements in their new home.
Spinning up your subsidiary may take days to months depending on what country is involved. You'll need to engage the services of a local lawyer and/or accountant to help you set up the company, and probably someone to manage your payroll & deductions moving forward.
5) You engage the services of an Employer of Record
These companies agree to be a contractor for you and hire your employee to work for them using whatever their local firm is. They then put that employee on your contract exclusively. Hiring an Employer of Record avoids the problems and red tape of the other options but you can expect to pay a few thousand dollars in set-up fees and a 20% premium on their salary to cover their costs. This may make your employee rather expensive. The Employer of Record company will also want to hold a few months of the employee's salary in reserve to cover their liability if you go under and they're left holding the bag for severance pay.
These companies are often ready to move once your cheque clears, offering a much faster spin-up time than building your own structure but you will be left paying their fees in the long term. Local tax and employment authorities may regard this differently, but your contract with them should shield you from any liability.
I reached out to a few of these and often found their response times lacking. I gave up on them when I attempted to explain Norway's Holiday Pay scheme for the third time to someone who was supposedly going to handle our employees Norwegian holiday pay. It is admittedly kind of weird, but honestly… they should have understood it.
We ended up deciding to spin up a Norwegian subsidiary of WonderProxy: WonderNorway! It was ideal for our employee to be employed by a local company and have their payroll taxes and such taken care of, and we were confident that WonderProxy Inc. (a Canadian corporation) wasn't going to end up accidentally needing to pay Norwegian taxes. It was also relatively cost-effective when considering the 20% surcharge that Employer of Record companies charge. It has however consumed a considerable amount of my time over the past few months, on par with a major ongoing project.
A key take home, perhaps, is that we didn't pick our option loosie goosie: we hired a Norwegian law firm (Kluge) to assess our options and advise us on which option would best suit our goals (don't end up Norwegian, still employ our employee) and a Norwegian accounting firm (Econpartner) to help us understand how much the 'set up your own structure' options would cost. Between slow response times and high costs for the Employer of Record route, hiring the accounting firm to spin up the corporation and handle accounting and payroll going forward was the best choice for us.