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When companies hire employees abroad, they are looking for talent expansion and cost-efficiency. However, there are plenty of aspects regarding foreign employees one must consider, such as documentation.
Employment laws vary significantly from country to country, making compliance a top priority. Proper documentation ensures that the employer and the employee are legally protected, tax obligations are met, and benefits are correctly allocated.
Without the necessary paperwork, companies risk fines, legal disputes, and operational setbacks.
Employees vs. Independent contractors
In today’s dynamic job market, many businesses rely on independent contractors to complete important projects or meet short- to medium-term labor needs.
The difference between hiring a full-time employee and an independent contractor for a global company comes down to legal, financial, and operational factors.
A full-time employee is hired under a local employment contract, following the labor laws of the country where they work. The employer must handle payroll taxes, insurance, and statutory benefits.
On the other side, an independent contractor provides services under a business-to-business agreement or a freelance contract. So, they are no necessarily subject to local employment laws but must comply with tax and business regulations.
Key documents required to hire employees abroad
Whether you are hiring full-time employees directly or through an employer of record (EOR), having the right paperwork in place is crucial for compliance and smooth onboarding.
1) Employment contract
A well-structured employment contract is the foundation of any international hire. It should outline key details, such as job roles and responsibilities, salary and benefits, working hours and conditions, and local labor law provisions.
2) Work permits and visas
For foreign hires, obtaining a valid work permit or visa is essential. The type of permit depends on the employee’s role, nationality, and the country’s immigration laws. In some cases, remote workers can also present a digital nomad visa. Failure to secure the right visa can result in penalties and employment restrictions.
3) Tax identification numbers
Most countries require employees to have a tax identification number (TIN) to process payroll and comply with local tax regulations. Employers may need a local tax registration to remit income tax and social security contributions.
4) Social security and insurance registration
Many countries mandate that employees be enrolled in local social security systems or private insurance schemes. Employers must ensure compliance by registering their workforce and making the necessary contributions.
5) Payroll and banking information
To process salary payments, employees typically need a bank account or a digital wallet type of profile, such as PayPal. Some countries require payroll records to be maintained for auditing purposes. Using a third-party compliance assistant can help streamline payroll management.
6) Employee handbooks and policies
Providing employees with a handbook detailing company policies, workplace conduct, and legal rights helps set expectations and fosters a positive work culture. In some jurisdictions, specific policies, such as health and safety guidelines, are legally required.
Specific regional documents
Medical exam: In many cases, a pre-employment medical exam can be mandatory to ensure the employee meets health and safety standards.
Offer letter: An offer letter formally extends a job offer and outlines basic employment terms before signing a full contract. It often includes salary, start date, and job expectations. In some countries, the offer letter is considered a customary courtesy, but, in others, it can be mandatory.
Civil certificates: Some countries also request specific documents such as marriage or birth certificates, electoral clearance, and a reservist certificate.
Outsourcing your compliance management
A provider of employer of record solutions will guarantee compliance with all local employment regulations and corporate laws, including the likes of employment contracts, taxes and contributions, and other documents.
An employer of record will handle the payroll of all professionals hired on your behalf, meaning they will calculate and deduct both employee and employer contributions, including the likes of VAT, pension, health, and any other statutory contributions.
