What Founders Need to Know About Liability When Hiring Across Borders

Every business today has the ability to hire the best possible talent for its business, no matter where that talent comes from. For ambitious founders, looking beyond domestic borders is a smart strategy for building a top professional team.

The Global Talent Prize: Why It’s Worth Navigating the Complexity

Hiring international talent injects new market perspectives into a company’s operations and allows a business to scale its workforce without the limitations of geography. According to last year’s global workforce report, over 70% of employers intend to expand their global workforce. Embracing a global mindset early on can transform a promising startup into a global industry leader. 

This incredible opportunity comes with a new set of challenges, though. While the digital world might seem like it’s getting smaller, the legal world seems to be getting larger and more complex. Navigating the complexities of international employment law can be daunting with the amount of information and nuances out there, but with the right knowledge and the right partners, the prize is well worth the effort.

Founders Should Consider These Liability Traps

For many founders, hiring domestically is a relatively straightforward process. But applying those same hiring habits on a global scale can potentially open the door to significant legal and financial trouble. The employment frameworks that seem standard in the United States are often the exception, not the rule, in the rest of the world. Understanding these differences is the first step in helping to protect the company from unnecessary liability. 

At-Will Employment is a Rarity, Not the Rule 

In the United States, the concept of “at-will” employment is deeply ingrained in the business culture. It generally means that an employer can terminate an employee for any reason, at any time, as long as the reason is not illegal. However, this is a uniquely American concept. According to a report by the International Labour Organization, most countries have laws that protect employees from unfair dismissal. This means that employers must have a “just cause” for termination, and they are often required to follow a strict process that may include written warnings and a performance improvement plan.

Additionally, many countries mandate statutory notice periods, which can range from a few weeks to several months, depending on the employee’s tenure. Failure to provide adequate notice can result in wrongful termination claims and significant financial penalties. Additionally, severance pay is often a legal requirement, not a discretionary bonus, and can amount to several months’ salary. For a startup founder accustomed to the flexibility of at-will employment, overlooking these international norms can lead to costly legal battles and damage to your company’s reputation.

Worker Misclassification Can Carry Heavy Penalties 

The distinction between an independent contractor and a full-time employee is another area that carries risk. In the U.S., the lines can sometimes be blurry, but abroad, the tests for determining employment status are often much stricter. Misclassifying an employee as a contractor, even unintentionally, can lead to severe consequences.

According to a 2022 report by the U.S. Department of Labor, misclassifying employees as independent contractors is a serious problem that denies workers’ rights and protections under federal labor standards, promotes wage theft, allows certain employers to gain an unfair advantage over law-abiding businesses, and hurts the economy at large. While this statement is from a U.S. perspective, the sentiment is shared by tax authorities and labor departments worldwide. If a foreign government determines that you have misclassified a worker, your company could be liable for back taxes or wages, unpaid social security contributions, and significant fines. You might also be required to provide retroactive benefits, such as paid time off and health insurance, which can be a substantial unplanned expense.

Statutory Benefits Are Not Optional Perks 

In the U.S., benefits like health insurance and retirement plans are often seen as perks to attract and retain talent. While many companies offer them, they are not always legally required. This is not the case in many other parts of the world. Statutory benefits are legally mandated contributions that employers must make on behalf of their employees.

These can include:

• Pensions: Many countries have mandatory government-run pension schemes that require contributions from both the employer and the employee.
• Health Insurance: It is common for employers to be legally required to provide health insurance or contribute to a national health system.
• Paid Leave: The amount of legally mandated paid time off, including vacation, sick leave, and parental leave, is often far more generous than what is common in the US.

Failing to provide these statutory benefits can lead to fines, legal action, and a damaged employer brand, making it harder to attract top talent in the future. Investigating each country’s statutory benefits and laws can take time. Most national government websites will have them publicly available. 

Choosing a Compliance Solution: AOR vs. EOR

How can a founder manage these risks without becoming an expert in international labor law? The answer lies in leveraging specialized services that are designed to manage these complexities for you. Two of the most effective solutions are an Agent of Record (AOR) for contractors and an Employer of Record (EOR) for employees.

Managing Contractors with an Agent of Record (AOR): 

When you’re working with independent contractors, an AOR can be a supporting tool for reducing liability. An AOR service offers compliance support with worker classification when your company engages international contractors. They also handle all payments, so that invoices are processed correctly and on time.

This creates a clear contractor relationship and assists in preventing misclassification. By using an AOR, you can confidently engage international contractors, knowing that the engagement and payment processes are being handled in a compliant manner.

Hiring Employees with an Employer of Record (EOR): 

For full-time employees, an EOR offers another level of liability protection. An EOR is a third-party organization that acts as the legal employer of these international hires. This means that the EOR helps manage all the legal and financial responsibilities of employment, including:

• Compliant Onboarding: Support with local employment contracts so that paperwork is in order.
• Payroll and Taxes: Managing all salary payments, tax withholdings, and social security contributions in accordance with local laws.
• Statutory Benefits: Guidance with administering all legally mandated benefits, such as health insurance, pensions, and paid leave.
• Compliant Offboarding: Assistance with handling all termination procedures, including notice periods and severance pay, in a way that complies with local labor laws.

The EOR model helps a company streamline the responsibilities of international employment. Businesses get to direct the day-to-day work of team members and build the team, while the EOR supports with the complexities of local compliance. This allows startups to hire globally, without having to establish a legal entity in their country.

The Payoneer Workforce Management Advantage: A Unified Platform for Global Compliance

Recognizing the growing need for flexible and compliant global workforce solutions, Payoneer Workforce Management has a solution. This powerful platform offers both AOR and EOR services under one roof, allowing recently funded startups to preserve their runway while hiring the right talent to scale. 

“Remote work is here to stay in a post-pandemic world. Companies are under increasing pressure to reduce labor costs. And we see a shift from individual freelancer models to companies who are looking for more scalable solutions.”

-John Caplan, CEO of Payoneer

This unified approach is a game-changer for founders. Instead of juggling multiple vendors for different types of workers, startups can manage an entire global team—both contractors and full-time employees—through a single, integrated platform. This allows you to:

• Choose the Right Structure for Each Hire: Whether you need the flexibility of a contractor or the long-term commitment of a full-time employee, there’s typically an ability to select the appropriate setup for each individual.
• Streamline Your Operations: With a single platform for onboarding, payments, and compliance, startups can reduce administrative overhead and focus on what matters most: building the core business.
• Scale with Confidence: As your company grows, you can easily add new team members in new countries, knowing that you have a reliable and compliant solution in place.

Building a Global Team with Confidence

Hiring across borders opens up a world of possibilities, but it also requires a thoughtful and informed approach to liability. The legal complexities of international employment should not be a barrier to building the best possible team for your startup. By understanding the key differences in global labor laws and leveraging powerful solutions like AOR and EOR, you can manage risk and unlock the full potential of a distributed workforce.

With the right partner and the right strategy, you can confidently and safely build a highly skilled team that will drive your company’s growth for years to come.

Don’t let legal complexity limit your business. Discover how Payoneer Workforce Management’s flexible workforce solutions can assist you in hiring globally.

FAQs

1. What are the legal liability traps U.S.-based founders face when applying domestic hiring practices abroad?

Applying domestic hiring habits on a global scale can potentially open the door to significant legal and financial trouble. The employment frameworks that seem standard in the United States are often the exception in the rest of the world. Major liability traps include:

• At-Will Employment: The U.S. concept of “at-will” employment is a rarity. Many countries require “just cause” for termination, mandatory notice periods, and often statutory severance pay.
• Worker Misclassification: The tests for determining a “contractor” versus an “employee” are often much stricter abroad. Getting it wrong can lead to liability for back taxes, unpaid contributions, and significant fines.
• Statutory Benefits: In many countries, contributions to pensions, health insurance, and specific types of paid leave are legally mandated for employees and are not optional perks.

2. How do the Agent of Record (AOR) and Employer of Record (EOR) models offer distinct solutions for managing international liability?

AOR and EOR are specialized services designed to manage the complexities of international workforce liability.

• Agent of Record (AOR) for Contractors: An AOR acts as a legal intermediary between the company and its international contractors. The AOR signs the contract and processes all payments, creating a clear administrative separation that reinforces the contractor relationship and assists in preventing misclassification.
• Employer of Record (EOR) for Employees: An EOR is a third-party organization that becomes the legal employer of international hires. The EOR helps manage all direct legal and financial responsibilities of employment, including payroll, taxes, statutory benefits, and compliant onboarding/offboarding.

3. What is the operational benefit of using a single platform that offers both AOR and EOR services for a growing startup?

Using a unified platform allows a founder to choose the right liability structure for each specific hire, whether it’s a contractor or a full-time employee. This single, integrated ecosystem simplifies operations for a growing global team.

• Choose the Right Structure for Each Hire: There’s typically an ability to select the appropriate setup for each individual, whether needing the flexibility of a contractor or the long-term commitment of a full-time employee.
• Streamline Operations: With one platform for onboarding, payments, and compliance, startups can reduce administrative overhead.
• Scale with Confidence: As the company grows and adds new team members in new countries, it can rely on a single, compliant solution.