Finance plays a critical role in global expansion, guiding startups through various hiring practices and strategies. The CFO playbook a finance team adopts when hiring globally educates the startup on the right path to pursue. This article provides an overview of the four primary paths to hiring overseas, helping businesses make informed decisions as they expand.
Hire individuals as contractors
Hiring individuals as contractors is the fastest and simplest path for global hiring. This approach shifts many responsibilities onto the individual contractor, such as setting up their own company/sole trader and handling their own taxes. As a result, the contractor receive no benefits like healthcare, which they must manage themselves. If you have recently joined as the first finance hire, this is an important area to review in the first 90 days in case your startup has any exposure.
- Best for short-term projects.
- Businesses must check local laws to ensure they are compliant with the rules surrounding contractor relationships.
- Consider the risk of creating a permanent establishment (which can happen even if you don't have sales in the region). You could be liable for local taxes and penalties if you are not compliant.
- Allows businesses to test the waters before fully committing.
Use an employer of record (EOR)
An EOR is a third party that creates entities globally and handles all employment obligations on your behalf. This means that the EOR takes care of payroll, taxes, and other HR responsibilities, allowing your business to focus on its core operations. Similar to EORs, Business Processing Outsource (BPO) companies and Professional Employer Organizations (PEO) also provide services to help businesses manage global employees.
- This approach provides a flexible and streamlined way to hire overseas employees while minimizing potential risks.
- If you choose this path, you pay a monthly fee per employee or a % of the individual's salary as a commission.
- EOR helps you get the cultural benefits of hiring "full-time employees" versus contractors that naturally lean towards short-term engagements
- EOR can be great if you're hiring globally in several regions and want one provider to handle everything.
- If you're looking at one region, find a specialist (e.g. localized legal staff). It will save you money if things go bad.
Setup a subsidiary
Setting up a subsidiary is the most expensive and involved path for global hiring. This approach requires your business to establish a legal entity in the foreign country, which comes with the responsibilities of managing insurance, legal, and accounting aspects. As a result, this option demands a significant amount of time, resources, and expertise.
- Subsidiary is the best choice for companies with a strong commitment to a specific market.
- Unwinding a subsidiary can be expensive if the expansion does not go as planned.
- Although more expensive, it can also make operating in a new region much easier e.g. setting up local bank accounts.
- If you're testing a new market, use EOR or hire contractors with the view to move to an EOR.
How a startup CFO can reduce spending
In conclusion, businesses need to keep their global expansion strategies as simple as possible. This involves carefully evaluating the various hiring paths, such as contractors, EORs, and subsidiaries, to determine the best fit for their needs. Finance must leverage the CFO playbook, ensuring the risks and challenges are managed correctly.
SaaS management is another component of the CFO playbook that causes finance teams problems. Luckily, Hudled can do this for you without the overhead. Get started for free with Hudled and request a SaaS audit.