Employing Foreign Workers Abroad
Managers can find it extremely attractive to ‘employ’ foreign staff resident abroad. The Internet makes striking up relationships with those seeking 'employment' easy. Many countries in Eastern Europe, South America and the Far East have highly skilled staff looking for jobs and these prospective ‘employees’ come at a fraction of the cost of someone in the UK. UK firms are highly interested in the idea of paying foreign workers to do work on their behalf from their homes in Kuala Lumpur or Belgrade or Bratislava. It’s particularly attractive for companies seeking workers with skills in data processing, IT support, telesales, product support, software and web technologies.
And the same situation occurs when wanting to gain the services of representatives, consultants and specialists for reasons other than cost.
The issue then, is how a British firm gains the services of workers in countries like Indonesia, China and Romania?
This article will now go on to discuss employing foreign workers abroad. If, however, you were seeking information on how to employ foreign workers in the UK (rather than abroad), follow this link to our associated paper.
Generally, issues about gaining the services of foreign workers abroad (and indeed of British workers who choose to live abroad) are outwith any direct benefits that the UK's membership of the EU might provide to firms. What's said here is independent of the sort of post-Brexit relationship the UK has with the EU - though we do comment on some speifics in the text.
Note that employment is a legal term. An employee comes under the direction of an employer in return for a wage. This paper discusses how firms can benefit from the services of workers - and hence it covers all mechanisms under which this benefit might be realised, including employment. We use parentheses to illustrate paradox in the use of terms.
As UK Employees
Fundamentally, UK firms can't employ foreign workers directly, without local registration and (in most cases) presence.
Nonetheless, conceptually, a UK firm could issue a UK employment contract to a worker in Bratislava and call them an employee - even though the concept would be meaningless.
Because such foreign ‘employees’ will never visit the UK, there is possibly no UK tax liability either for the company or the ‘employees’ despite the fact that their efforts will generate income for the British ‘employer’.
Under this arrangement it seems possible to run monthly payroll and pay these foreign workers as if they are employees on an NT (No Tax) code. They are then paid gross. We are aware of some UK firms doing this. The UK’s taxation authority, HMRC, may issue NT codes to enable this practice but guidance from HMRC is confusing and ambiguous. HMRC suggests that it would need to assess whether the worker was an employee – even though the status of employee is meaningless for a worker in another country. Any assessment about employment would be under the local laws. And one of the most basic tests of employee status is that they are under management control – difficult when the employee is 5,000km away with no local supervision. This suggests that they'd always likely be considered by local authorities as self employed.
The closing comment from HMRC in a recent call was that this is not something that it gets involved in.
If a foreign worker were to be ’employed’ in this way, they'd have no locally enforceable employment rights. And UK tribunals would likely be disinclined to hear the case unless there was some substantive connection between the foreign worker and the UK that suggested UK jurisdiction. The worker would neither be employed in the UK nor in their own country. They would effectively be self-employed in their own country and likely liable to pay tax for themselves and perhaps also for their distant ’employer’ (see below on taxation liability).
But the tax liabilities falling on the UK ‘employer’ remain unclear. Even if an NT code is issued, there may still be National Insurance liability with both employer and employee paying NI. HMRC suggests that the case would need to be put to an International Caseworker at HMRC to be determined.
This approach is legally unstable and will only lead to confusion. We don’t recommend that firms consider this option.
Many consulting firms operating globally engage consultants for contracts of varying duration in various locations. In such cases the parties (the ‘employer’ and the consultant) can sign an associate agreement. Since countries typically require a local employing entity before granting a work visa, the associate enters the country in which the work is to be done under a short-term visitor visa. He or she doesn't declare intention to work. Many countries operate visa waiver schemes with UK and many allow short-term business visits. The associate is self-employed and behaves as a sole-trader. The status of sole trader is well defined in the UK and in the EU but the definitions's not so clear in other countries.
This sole-trader status also covers workers intending long-term engagement with a foreign firm while resident in their own country. In this case, local laws may dictate the time period and other conditions before the worker is automatically considereed an employee. In Italy, for example, a worker becomes an employee if they gain over 80% of their income from one source and if this persists for more than eight months.
If there is no local entity to employ the worker, the local tax authority may tax the worker personally to recover elements of the employer's tax liability. The local authorities may also consider that if they judge the workers to be employees, there is a 'permanent establishment', and this attracts the need to withold tax and submit returns.
If the contract is signed under the laws of England and Wales, the worker would have no simple right of redress locally - they could ask a local court or arbiter to hear the case and, in the event of that court or arbiter finding in their favour, ask an English court to enforce the judgement. Alternatively they would have to come to the UK to petition a UK court or arbitration service such as the LCIA . For arbitration to be effective, arbitration as a method of disputes resolution should be built into the contract from the outset.
Likewise, it would be costly for the UK firm to gain a decision and enforcement in a foreign court or arbitration tribunal. This pertains particualrly to enforcement of contract clauses covering confidentiality and intellectual property, where an injunction may be the desired remidy to stop infringement.
This ability to have a contract decided by a court in one country and enforced by a court in another is aided by a number of international conventions - though it's only in the EU/EFTA (through the Brussels and Logano Conventions) that the system works satisfactorily. The international Hague Convention is not widely accepted. The situation is better where arbitration is agreed on, with 160 countries ratifying the New York Convention.
Many firms engaging contractors rely on an associate contract. The parties build trust between them and the arrangement works – until there’s a dispute of course. It works well when associate and company have something the other wants and hence there is high mutual respect.
The associate agreement can point out to the associate that they are liable for tax wherever they are resident and it is for them to make whatever arrangements necessary to settle this liability.
Under this arrangement the ‘employer’ pays against the associate’s invoices.
There are four further (and more legitimate and robust) ways to engage foreign workers.
As Liaison/Branch Office Employees
The first of the formal methods of employing foreign workers is for the UK company to open a branch office. A branch office is a way of registering a presence without actually starting a local company. Some countries allow the the initial registration to be as a liaison or representative office. The lightest registrations are generally time limited since the intention is to formalise the arrangement once established. Not all countries allow light registration and branch offices.
Setting up a branch office typically requires lodging several documents with the local euquivalant of Companies House - Articles of Association of the UK company, a certificate of good standing of the UK company issued by the UK HMRC, a resolution of the Board of the company approving the establishment of the branch, a Power of Attorney appointing the branch’s local legal representative and a note of the person(s) authorised to receive correspondence. HMRC makes a small charge for the certificate of good standing.
Often a local accountant or local payroll agency provides the facilities for the branch office such as a local address. In some countries, particularly in the EU, the obligations on the UK firm for reporting (to local authorities) are low. In others, the obligations extend to filing accounts and money flows.
In this case, the branch office registers with the local tax authorities and pays the local workers from the accounts of that branch office. The UK company transfers enough funds monthly to the branch office and that branch office settles any local tax liabilities. The most common way this is done is to employ a local accountant or payroll agency which administers funds and settles tax liabilities.
The employees are employed with employment contracts under the employment laws of the country in which the branch office is registered. Managers employing foreign workers under the employment law of a foreign country should make themselves aware of the obligations on their firms. Sometimes obligations, particularly pertaining to dismissal, are onerous and costly.
See our blog entitled, Choice of Law in Employment Contracts for more on employment contracts and which law governs them.
It's typical to have all employment documents in both English and the local language, with the local language supreme in case of dispute.
Employment of locals should be something that is considered carefully and done only for good reason.
As Employees of a Subsidiary
The second way is for the UK company to set up a local subsidiary. The worker is then employed by and has an employment contract with that local company. The local company trades ‘at arms length’ invoicing the UK company as if it were its customer – its only customer.
The local company then employs the local workers. They enjoy employment protection under the laws of the local country.
This is a clean way of employing locals whist retaining operational control but it is possibly carries the biggest administration overhead since someone has to manage the firm. And tax authorities in both countries would want to know that the transfer pricing was realistic and not inteded to avoid payment of tax.
As Employees in Their Own Company
Alternatively, the local workers could form themselves into a local company and enter a business-to-business agreement with the UK company. This would apply too if there was only one worker - depending on the local law, they may be able to be a sole-trader. Trade would be at arms length but here the local company would be responsible for its own administration and accounting to local tax authorities.
In this case the UK company would lose operational control. The downside is that the owners of both companies would expect their firms to make profits - so profit would be taken twice.
This route has possibly the lowest administration costs, though taxes and other local costs incurred by the employees' firm would be incorporated in the price charged so the overall costs would likely be similar to other approaches.
As Employees of an Umbrella Organisation
The final option is to have them employed by a local firm with which the UK company has a relationship - or with which it will build a relationship for the purpose of engaging the workers. The employer in this case is sometimes called an Employer of Record or a Professional Employment Organisation. Since no entity (of the UK firm) is required in-country, this is also sometimes called 'employment without entity'. These are all just terms to disguise employment by a local intermediary - an umbrella company.
There are a host of firms offering such services.
'Umbrella' companies exist in most countries - for example FESCO in China and various portage salarial companies in France. These organisations facilitate the employment relationship. The umbrella company employs the worker. The umbrella company then assigns the employee to the UK company and invoices the UK company for their services. The umbrella company, of course, charges a percentage of the workers’ pay for its services. Those charges cover the umbrella company's costs, risks and profit. There are many issues in contracting with umbrella companies that should be investigated - most specifically the difficulties around building commitment and engagement with a worker when the UK company does not control the relationship. There are also legal issues with the intellectual property they generate and their confidentiality.
And in some countries, there are laws against 'passing off' - claiming to represent the UK company while being employed by the umbrella.
Our recent work suggests that there is a tendency for local tax authorities to close umbrella companies down - because they obscure the profits made by all parties, they are considered by many as a mechanism for tax avoidance. For example, the Ministry of Employment and Social Security in Spain has taken action to block the activities of one major umbrella, Fidelis Factu Sociedad Cooperativa, for breach of the Estatuto del trabajo autónomo or Self Employment Law of 2007.
UK firms should also consider how they will arrange visas, in the event that foreigners must emigrate to the country where they want to start operations. A good example is the UAE (where 85% of workers are immigrants). In many cases, the umbrella company can't make the arguments to the visa authorities - it must be the UK company as principal.
The alternative is to reach an arrangement with a friendly company, such as a dealer or agent, or even a client. Again the worker is an employee of the friendly company and the friendly company invoices the UK company for the servies and adds some fee for the facility.
Whether the umbrella or friendly company approach is in line with organisational strategy depends substantially on the relationship between UK company and umbrella/friend. There can be huge risks to the worker’s effort if that relationship is strained. And there may be little the UK company can do to solve problems - the employment contract is with the umbrella.
All these approaches have benefits and risks and need to be investigated in full considering the country involved. The attractiveness of the approach will depend on the terms and conditions agreed with the umbrella organisation and whether the UK company must employ to build its reputation.
By employing the foreign worker through an intermediary, the UK company has no direct control over their workers.
Before deciding which route to take, there are a number of issues to be considered and upon which a decision about the right approach depends.
One of the key reasons a firm forms in the first place and brings workers into the firm as employees is that their day to day work can then be controlled. Today, many employees seek to work from home. Managers are often disinclined to offer those employees the opportunity to work from home because this control is weakened. Work is done by home-workers but the quality and integrity of that work depends on the skills and knowledge of the worker and the tools they use and not on any management supervision or review. Similar issues apply when engaging foreign workers abroad.
Modern web-based systems do of course provide ideal control mechanisms for knowledge-workers such as translators, online tutors, and authors. Work assingments can be accessed online by the worker using a bespoke application. These can be worked on and uploaded once complete. That upload can trigger generation of an invoice for later issue by the worker on the UK firm. Whilst this sounds simple, it is not without problem, particularly in accounting for less clean-cut, packaged contribution.
In an effort to force quality and integrity into work done, firms often transfer technology and methods to sub-contractors and demand that these are used. But it still leaves the issue of control: a priority to the UK firm may not be a priority to a remote worker or their local employer. And a firm using remote workers abroad with no lawful contractual arrangement has no opportunity to close the activity and seize the resources and work done.
Workers with little or no interest in a firm are unlikely to be committed to it. They will stay and continue to perform for as long as they need the money from the firm. It's an economic arrangement.
Most firms need more than that. They need employees who will go the extra mile, who can be relied on to still be there in three, six or twelve months' time and who will develop with the firm. This needs mutual respect and that only really comes from granting the worker an employment contract. Employment contracts then extend to psychological contracts, with heightened commitment. For foreign workers, that must be with a foreign entity through its local subsidiary or branch office.
It may also be that any financial arrangement such as granting a shareholding in the UK parent firm may further cement that commitment. Various arrangements are available to limit the power of such shareholders whilst letting them participate in the firm's success.
Arguably also, commitment is independent of the economic contract between worker and UK company - ultimately commitment is built through trust. Trust is built through actions and is independent of the contractual arrangements.
Avoiding Local Responsibility
Clearly one of the aims of a UK firm entering a business-to-business agreement with a supplier/associate/contractor/sole-trader/umbrella/intermediary is to avoid local responsibilities. There are two additional areas where this might backfire - health and safety at work liability and responsibility for ensuring that the worker has the right to work in the country (having obtained the right visa, for example).
In either case, if a permanent establishment is considered by local authorities to exist, the firm may find itself liable in either case.
Under European law, enshrined in the UK's Copyright, Designs and Patents Act 1988, workers with the status of employee will automatically transfer rights in the work produced to the firm as employer. It's normal to put a 'transfer of inventions' clause in a UK employment contract, but this is just to inform the employee.
Elsewhere there is unlikely to be such clarity nor such automatic transfer of rights.
This is significant. It means that work done is not necessarily owned by the firm letting the contract for the work - despite the firm paying the worker for their efforts. Under local laws, such payment may only buy a licence to use the work. In some coutries, such as Bulgaria, patent and copyright acts exclude software and databases.
Where there is no automatic assingment, a worker could claim rights over the work at some later date, causing major risk and problem for the firm when it comes to sell the product within which the work is embedded. There have been many large payments made to buy rights in such instances.
A local 'transfer of inventions' agreement may be used and a lawyer in the country where the worker is resident will be able to advise.
The UK's Employment Rights Act 1996 grants employers the right to expect that all employees will regard their business affairs as confidential. Any leakage of information by an employee could be met in the UK with an injunction to prevent further disclosure.
This redress is not necessarily available to those employed in a local firm or in a branch office. And it's certainly not available to any firm casually asking a worker abroad to complete work. Any firm getting work done abroad will need to be sure that any information that it supplies to enable the work will not in turn be passed to a third party.
It's very common (and logical) for foreign workers to assemble capability in a particular market to help win future engagements. Firms should take care when passing information to foreign workers - it may appear in another firm's products!
One of the biggest worries that UK firms have when having work done abroad is that somehow the firm will be liable for some unknown taxation. There will be a liability in the UK for Corporation Tax and this may of course be as a result of profits earned on the foreign workers' efforts. But there may likely also be a tax liability in the foreign country in which the workers are resident, though the local tax authorities may have trouble getting paid since they can't pursue a UK firm from India or the like.
Some countries operate a withholding tax. Withholding taxes are proxies for corporation tax. Because the foreign tax authorities know that the UK enterprise will make profits from effort in the foreign country, and because they know they are unable to tax a firm in the UK, they will tax monies flowing in to the foreign workers at a lower flat rate, like 10%. This simulates or aims to recognise revenue and calculate a tax on the effective net profit of a local enterprise, even if this local enterprise makes no sales.
If one assumes a similar arrangement in all countries, various tax liabilities associated with employment will exist. The local tax authorities will want to have the worker pay national insurance. If the worker earns income (from whatever source) the local tax authority will want to have the worker pay income tax. And if a firm is formed, the local tax authority will likely want to receive a tax on its value added and profits.
We recommend that any firm considering seeking to gain the services of foreign workers makes appropriate local enquiries to understand the local tax liabilities on each party.
It seems that the safest approach to gaining effort from foreign workers from a tax perspective is to trade at arms' length and to buy and sell goods and services through a business-to-business agreement. In this case there may be VAT and tariffs due but at least such trade is well understood and the tax liabilities are known by many accountants.
Typically a country’s taxation authorities want to take tax ‘at source’ – rather than chase individual taxpayers after monies have been paid through invoices or payroll. This means that employment and social taxes are typically collected though a local employer. The local employer has 'tax witholding' responsibility. Anyone wanting to work in a country will therefore need to be employed by a registered local entity.
This potentially means that someone working for a UK firm and being paid from the UK, then posted to a foreign country, and working in a branch office in that country, could find themselves being taxed twice. UK HMRC would expect their tax revenues and so would the local tax authority.
There are double taxation agreements between countries to overcome this circumstance. For someone employed in the UK but working remotely, it would be unfair if they found that they were taxed in the UK and in the local country too. A double taxation agreement between governments allows tax to be taken once.
It is for the employee and their employer to make contact with the tax authorities in each country and to invoke the facilities of the treaty to ensure that they pay tax in one country only. Not all countries have entered double-taxation agreements with the UK.
Double taxation may also act to stop corporation tax being levied on profits in the UK and a witholding tax being levied aboroad in lieu of profits there.
Typically social taxes have two components – a part paid by the employee and a part paid by the employer.
Any registered entity – such as a subsidiary or a branch office of a UK firm – will be expected to pay social security taxes in the local country for each employee. There is some suggestion that where there is no locally registered entity, some countries expect to collect the employer’s part from any locally engaged workers.
Social taxes can be very high when compared to the 13.8% employer's National Insurance levied in the UK. In France, very roughly, considering only social taxes, for every €1,000 paid gross to the employee, the employer will pay €750 to the social security organisations for basic and national contributions, pension and health insurance. The employee would then have 22% deducted, leaving them with around €800 net take-home pay and the employer bearing a total cost of €1,800 comprising pay and tax.
This reinforces the need to legitimise the legal position of anyone working locally – determining that they are either employee or self-employed. Workers employed under a UK contract and given an NT code to enable payroll will likely find themselves subject to social tax liability in the country in which they are employed.
When a worker is an employee, he or she comes under a 'contract of service'. This is made under the laws of the country in which he or she works.
When a worker is self-employed (and hence is a sole trader), a 'contract for services' is needed. The difference between this and a business-to-business agreement typically struck between companies is subtle, focussing on defining the worker's status. Companies registered with the local Chamber of Commerce and tax authorities have special status. In the UK, such companies would be granted limited liability and would be registered at Companies House. Sole traders have a lesser status.
The key clauses that any contract with a foreign sole-trader should include are a choice of law clause, an arbitration clause, a clause covering liabilities and indemnities for tax and a schedule covering the deliverables and invoicing arrangements.
Many contracts between UK firms and their clients and customers forbid sub-contracting, and specifically sub-contracting to foreign entities, without the client or customer’s expressed permission. Firms should discuss any intended use of foreign branch offices, subsidiaries, intermediaries and suppliers with their clients and customers.
Liabilities and Insurance
Usually, agreements entered into between UK firms and their clients and customers will be made under English law and the parties will agree to the jurisdiction of the UK courts or of the LCIA. Firms then take out insurance to cover their residual liability for things like their negligence, breach of copyright and product operation. Such insurance covers the actions of their employees.
Usually, firms expect to flow down a share of this liability to their suppliers and they will expect those suppliers to purchase their own insurance. In the case where suppliers will be foreign branch offices, subsidiaries, intermediaries or suppliers, the insurance situation needs to be understood and agreed with the firm’s UK insurer.
Many countries require that employees pay pension contributions as they earn. Some have mandatory schemes that seek payment from both employer and employee, rather like the UK scheme of Workplace Pensions. Foreign workers as associates or sole traders would look after their own arrangements and pay in to pensions from their own accounts. Those in intermediaries, subsidiaries and branch offices would pay via their local employers and would benefit from the employers' contribution too.
The aim of this paper has been to cover the general case of employing workers abroad.
While the UK was in the EU, there was a belief amongst European lawyers that it was permissible for nationals in another EU country to be employed in that country by a UK company that had no local presence. This has all changed. By leaving the EU, the situation has been clarified. With the exception of Ireland, no country has a treaty with the UK that allows direct employment.
Put simply, employers must register a branch or a company and are then subject to local employment laws. They are obliged to pay/withold social and other taxes and pensions due in the EU country in which the work is 'habitually carried out'.
Some countries do permit 'employment without entity'. Where the employer does not have a place of business in the country in which the employee is employed, the employee may agree that they will (personally) fulfil the employer’s social tax obligations. The employer's statutory obligations transfer to the employee. As a reference, this is permitted in the UK, where the roles are reversed - the employee works for a foreign firm without a branch. The complications and issues that this may bring are obvious. And it only covers taxation. All other issues remain.
In line with that required beyond the EU, it is the responsibility of the employer to register with the authorities in the country in which the work is done.
The contract between a UK firm and one operating from an EU country could, pre-Brexit, been done as if between two UK firms. Both firms could rely on statute and the whole arrangement was managed by offer, acceptance, supply and invoice. Issues like intellectual property and confidentiality were enshrined in EU law. And deliveries could be made, metaphorically, by a van turning up at the customer's door.
Now, firms will need to trade with customers in the EU at arms' length, perhaps under Incoterms 2010 (shortly to be revised to Incoterms 2020) or the like - see https://iccwbo.org/resources-for-business/incoterms-rules/incoterms-2020/.
Contracts post-Brexit will need to be much more expresseive.
Firms often free issue tools to workers. This might include laptops and software so that all workers (whether employees in the UK, employees abroad or sole-traders abroad) use common systems.
Pre-Brexit, a firm with employees and workers in an EU Member State would simply send them the tools needed for the job.
Post-Brexit, those tools will be subject to import control with all the complexity (of standards compliance, tariffs etc.) that this brings. Firms may find it useful post-Brexit to make use of ATA Carnets to avoid having to import tools. Carnets allow temporary export for 364 days so tools can be supplied to workers for a year (minus a day), then changed out for new tools on a new carnet. See https://www.gov.uk/taking-goods-out-uk-temporarily/get-an-ata-carnet for more.
Putting workers into country
One of the great advantages of the UK being a member of the EU was the ability of a firm to put people into country at will - to post workers for weeks and months without the need to have a local entity or to involve the firm's customer or other sponsor. This meant that UK firms could compete with other EU firms on a 'level playing field'. In this case, once the buinsess was won, the workers would simply book a flight and a hotel for the months ahead and start work.
Post-Brexit, this will not be possible. It's what's referred to as a 'non-tariff barrier'. All UK workers will need work permits or visas that allow work in the country they are visiting. Coming from a 'third' country, all UK business people and workers will need some sort of visa - even those just popping to Paris to sign a contract.
Once the General Data Protection Regulation (GDPR) came into force and the UK enshrined this in the Data Protection Act 2018, personal data could circulate between firms in the EU. The Act (and its equivalent in other countries under GDPR) controlled how this was to be done and the UK's Information Commissioner's Office regulated the activity.
Now that the UK has left the EU, it is a 'third' country and all EU firms will be obliged to view data going to and coming from UK as suspicious. Additional controls will be needed. Exact constraints will depend on the nature of the future EU-UK relationship. Many firms are relocating tehir bubsiesses and servers from the UK to the EU to avoid potential problems.
Some solutions to employment abroad are appropriate early in the timeline and others are more appropriate later. Take for example, starting a company in which the workers might be employed. That's a big commitment and managers might want to build confidence in the venture by kicking off the activity with a liaison office.
Possible timelines are shown adjacent.
There are two general threads - the first (upper) where the firm wants to have a presence in the country and the second (lower) where the firm is happy to gain access to the workers as self-employed suppliers or employed in their own suplier company.
The timescales and route chosen depends on the firm and the environment.
Whilst this blog has focussed on gaining effort from workers abroad, the discussion would be incomplete without a note about what are termed 'posted workers'. A posted worker is someone who is under an employment contract in the UK and who, for some time prior to posting, lived and worked in the UK. By mutual arrangement between employee and employer, the employee agrees to be 'posted' or 'seconded' abroad to work in a local firm or branch office of their UK employer. The time period and the conditions under which this posting occurs is for discussion but the essence is that, since the time period of the posting is expected to be short, the employee would remain under their existing (if modified) UK employment contract. Posting in this way is intended to be temporary. The terms of the posting are usually set out in a letter amending the UK employment contract.
Local legislation covers workers posted to work in country. And there must be an entity to which the worker is posted.
Since the cost of living varies across the world, any worker being posted will need to discuss salary and benefit changes with his or her employer such that their standard of living is maintained in the host country.
Workers who are subject to (for example) a Tier 2 visa enabling them to work in the UK often elect to return to their home country. The conditions of the visa would then likely then be breached after a period of absence from the UK. If they were interested in striking up a relationship with the firm that sponsored their Tier 2 visa, they would need to do that in one of the ways discussed above. It would be wrong to use the posted worker approach.
Many countries require foreign workers to have a visa or work permit. In this case, they must be employed by a local entity. Some companies cause further complexity by having the employee sign an employment contract under the host country laws whilst maintaining their UK contract of employment - this is a poor arrangement.
Engaging Workers Abroad
To gain the benefit of the efforts of foreign workers abroad, managers need to launch a series of projects, each with a number of stages.
The scenarios are complex so it's not just a case of 'doing it'. Research is needed. The diagram below shows our suggested four initial stages.
Stage 1 involves building a comprehensive model of the business encompassing the foreign workers and the jobs they will do. There are a variety of modelling methods that might be used.
TimelessTime has built a comprehensive modelling method based on systems dynamics. Our model highlights the issues early in the process. We then build a generic supplier agreement showing how the firm might work with the workers, giving them work, controlling them and paying them.
After Stage 1, many TimelessTime cleints elect to proceed to engage some workers, particularly in low-risk tasks and environments. It represents the firm taking its first steps from which it will learn about its workers, countries of interest and contexts.
At Stage 2, we would complete reports on the worker-situation country by country. At this point, Stage 1 may have indicated that some unique arrangement is needed and study is needed to future-proof the approach. This gives the criteria for making future decisions about this country and worker situation.
Depending on what Stage 2 reveals, the manager progresses to Stage 3 to make changes to the arrangement with workers - perhaps opening a branch office or other registration, contracting with an umbrella company or electing to retain present sole-trader supplier arrangements.
That leads to Stage 4 - where necessary, going to country and setting up more complex arrangements such as opening subsidiaries or partnerships. And then the process begins again with new workers and new countries.
Overall, we advise step-wise risk-assessing approach, learning and consolidating as progress is made.
And we will be delighted to discuss with you how we can support managers to complete the necessary project work. This approach has worked well for the many clients that we have supported over recent years.
Securing the effort of workers in countries like China can be very attractive. But it is not as simple as putting them on payroll and paying them monthly as if employed in the UK.
Our advice is clear – if intent on ‘employing’ workers abroad, get specialist advice. What’s best in one country may not be best in another and the money flows involved can be very complicated.
TimelessTime can advise on what's needed country by country. Call us and we’ll discuss an approach and the next actions you'll likely need to take.
- In the UK it is simple to trade as a sole-trader or to form a company. This is not the case in many developing countries. Often it is impossible to form a company without significant capital, professional qualifications relevant to the business or involvement of a benefactor from an upper caste or class in local society.
- LCIA - The London Court of International Arbitration.
- FESCO - Beijing Foreign Enterprise Human Resources Service Co.
- Abroad, often the local Chamber of Commerce accredits and approves the setting up of a company, branch office or sole-trader. Foreign Chambers of Commerce are quasi-governmental and often take the role of the UK's Companies House.
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