Understanding the costs of hiring international employees
Hiring is hard. Hiring someone on a budget is even harder. That’s why many U.S. small businesses are interested in expanding their talent search abroad to access new talent pools, often at lower cost. Research by Gusto’s economists has found that 86% of businesses surveyed hired internationally to manage costs. Another 58% say they’ve turned to global hiring due to talent shortages in the U.S.
In addition to accessing talent on a budget, international hiring can have many other benefits, including:
- Enabling expansion into new, global markets
- Enhancing productivity and customer support with employees located throughout different time zones
- Increased innovation from added workforce diversity.
While global employees can help your business–and help your business manage labor costs–quantifying how much can be a challenge. Aside from the base salary, there are costs like recruitment, travel, and compliance you may need to factor in. This article will help you understand these “soft costs” of hiring international employees, so you can make an informed budget decision about building a more geographically diverse team.
While soft costs are real, it may still be worth it for small businesses to hire abroad, especially if they partner with an Employer of Record service that helps quantify, manage, and track these costs, so you don’t have to.
What does it cost to hire an employee?
Before we dive into the added costs of global hiring, let’s start with the cost of hiring a standard full-time employee — regardless of whether they are local or international. These are the costs beyond their salary –the “soft costs” of adding someone new to your business, like managing job postings, human resources, background checks, equipment, and loss of productivity during training time.
Research from the Society for Human Research Management shows that it costs the average company nearly $4,700 just to hire a new standard employee and over $28,300 to replace someone at the manager or executive level.
What are the additional costs of hiring international employees?
When hiring international talent, the soft costs of hiring are typically higher than for U.S.-based workers.
Keep the following factors in mind while estimating the costs of hiring international employees:
Recruiting—Finding qualified candidates in other countries can take additional resources than are needed for recruiting domestically. Oftentimes, other service providers need to be involved—such as third-party recruiting agencies or in-country experts.
Travel costs—There may be times when international employers need to pay for travel to and from the employee’s home country—whether for on-site visits, company-wide meetings, or other in-person events. International travel can be much more costly than the expenses associated with traveling domestically.
Benefits—Because of differences in labor laws, the cost of employee benefits is likely to be different from country to country. For example, the United States is the only developed country that does not offer universal healthcare. While some governments have a social healthcare system, others may have a combination of government-provided healthcare and private insurance. Either option is likely to require employer contributions, along with potential contributions for pensions, unemployment compensation, paid time off, and other benefits.
Tax compliance—Mandated taxes and contributions can vary from country to country, and can differ based on whether your employee residing abroad is a U.S. citizen. U.S. companies are likely to find that the required costs for a remote employee residing in Canada will differ from those required for someone logging on from Germany. Understanding the tax landscape, or partnering with an expert who does, is critical for accurately determining the cost of a global workforce.
Terminations—Depending on the country in which your employee resides, a severance package might be required in the event of their termination. The specific financial details of any mandatory severance package will need to be determined when budgeting for international hires.
All told, our partners at Remote, a leader in global employment, estimate that total employee costs can increase anywhere from 1.25 to 1.4 times the employee’s salary once you include mandated employment taxes and contributions.
Should I consider supplemental benefits?
Even if certain benefits are not mandated in a particular country, it isn’t uncommon for highly skilled talent to expect them as part of their employee benefits package.
So many employers also offer supplemental benefits as part of their “total rewards system” for employees. A robust and diverse total rewards system not only shows your current employees how much they are valued, but also helps your company stand out in an aggressive global hiring market.
If your goal is to remain competitive and attract top international talent to your team, you might consider adding the following benefits to your total rewards system:
- Professional liability insurance plans
- Ongoing employee training
- Home office supplies
- Supplemental retirement savings plans
- Wellness and fitness perks
Gusto Global can help
The good news is that you don’t have to keep track of all these costs yourself. Our Employer of Record service, powered by Remote, helps you hire, pay, and manage your international team – which includes calculating and paying required taxes, benefits costs, and severance on your behalf. The best part: Remote’s International experts in law, tax, HR and benefits handle compliance for you.
With our help, don’t hesitate to take your business global. Learn more about our all-in-one platform for all-over-the-world teams.
