How companies can manage HR risk during global expansion

Companies have a few options for enabling overseas hiring, but here are the two main options: creating a foreign entity or relying on independent contractors. Each requires varying investment and risk tolerance.

Traditionally, to tap global markets, companies had to create a foreign entity, which requires significant investment in time and money, ongoing maintenance and long-term commitments. For some, this solution is the right answer. Typically, a company is well-served with a full-fledged entity if it is committed to a country for at least five years, is planning to employ dozens of workers or acquire physical assets in-country, and can wait through the months-long approval process. Recently, many countries have halted foreign entity approvals as they focus on COVID-19 relief programs.

Some companies forgo investment in a foreign entity by classifying their overseas employees as independent contractors. However, doing so could put companies at risk of incurring severe penalties for misclassifying workers. On average, 95% of independent contractor relationships that we see are misclassified. Just one misclassified contractor can cost a company up to $350,000 in fines.