Why More SMBs Are Going Global: The Opportunities and Challenges of Hiring Internationally

By Tom Bowen and Liz Wilke

Intro

Large corporations are no strangers to hiring employees around the world. But with the rise of remote and hybrid work and an increasingly globalized workforce, we’re beginning to see more small and mid-sized businesses (SMBs) start hiring beyond U.S. borders.

To better understand how and why SMBs in the U.S. are turning to international talent, Gusto recently surveyed nearly 500 business owners and decision-makers about the opportunities and challenges they face when hiring internationally.

With the rise of entrepreneurship, the need for SMBs to manage their costs, and a talent shortage in the U.S., international hiring will continue growing at an accelerated pace. Access to international talent will become increasingly important for U.S. SMBs’ success – and so will their need for tools and processes that make it easier for their global teams to collaborate.

Key Findings

• SMBs that have embraced remote work are more likely to hire internationally. Two-thirds (67%) of SMBs with international employees had a remote employee within the U.S. before they made their first international hire. Out of these companies, 72% reported their prior experience managing remote U.S. employees had a positive influence on their decision to hire international employees. 

• More SMBs are building global workforces. Three-quarters (75%) of SMBs said they plan to increase their international employee headcount – with 54% saying they plan to increase both international and U.S. headcount over the next 1 to 3 years. 

• Access to global talent helps SMBs manage their costs while filling the gaps of a talent shortage. As of July 2023, there were 1.4 job openings for every unemployed person in the U.S. With a continued talent shortage pushing many employers to raise wages, SMBs are turning to international employees for the help they need – 86% reported they’re hiring internationally to manage costs. Another 58% said they’re turning to global talent because they’re facing a shortage of available U.S. employees.

• Hiring international employees helps SMBs accelerate their expansion plans. Just over half (51%) of SMBs said they’re seeking international employees to help them serve new markets, which is easier to do with on-the-ground employees with local expertise.  

• More SMBs are hiring international contractors – and are interested in converting them to full-time employees. Forty-nine percent (49%) of SMBs said they want to convert their international contractors into full-time employees, enabling them to boost retention while also ensuring they stay compliant with international regulations and avoid penalties.

• Understanding compliance is still the biggest blocker for SMBs seeking to hire internationally. Nearly 3 in 4 (71%) companies say understanding and complying with foreign employment and tax laws is one of the most important issues they face when hiring and working with international employees. However, it’s critical they get it right – penalties can range from hefty fines of tens to hundreds of thousands of dollars, depending on the country.

The top reasons SMBs hire internationally? Managing their costs, and responding to a labor shortage in the U.S.

In the past few years, U.S. SMBs have gotten more comfortable with hiring internationally, in part thanks to the rise of remote work during the pandemic. In fact, 67% of SMBs with international employees had a remote employee within the U.S. before they made their first international hire. Out of these companies, 72% reported their prior experience managing remote U.S. employees had a positive influence on their decision to hire international employees. 

The majority (86%) of companies cited cost management as a factor in their decision to hire international workers. Fifty-eight percent of companies reported this as a very important factor in their decision to hire international employees. Companies with fewer than 10 employees are 1.3 times more likely to emphasize cost management as a primary consideration in their decision to bring international talent on board, compared to companies with 10 to 24 employees. Workers in the United States have seen significant pay increases over the last two years, and smaller companies are looking for ways to attract needed talent on budgets that are smaller than larger companies.

Additionally, SMBs faced with labor shortages in the U.S. are looking abroad to fill talent gaps. Fifty-eight percent of companies said they’re turning to international talent because they’re facing a shortage of available U.S. employees, or because they need additional skills they can’t find in the U.S.

SMBs are also leveraging the expertise and cultural insights of international workers to expand their business operations globally. About half of SMBs (51%) report they’re hiring international employees to expand their ability to serve non-U.S. markets or customers. 

Half of companies (49%) said converting international contractors into employees is an important reason for hiring international employees. The top reasons companies convert contractors into employees include: 

• The ability to better retain the skills and expertise of existing contractors (60%), as businesses can become more attractive employers by offering full compensation and benefits packages
• The ability to protect intellectual property (45%) – as companies can create stronger intellectual property agreements with full-time employees, compared to contractors or freelancers
• Avoiding misclassification of contractors, opening up potential compliance violations and potential penalties (39%)

SMBs are hiring well-educated international workers who seek out learning opportunities

In a recent survey conducted of international contractors paid through Gusto’s platform last year, we found:

• 84% of international contractors have a university degree or higher. 
• 40% have a master’s or above;
• 44% have a university (undergrad equivalent) degree

International contractors are also highly motivated lifelong learners, with 90% taking advantage of skill development or training opportunities when their clients offer. 

In addition to being a highly educated group, many international workers use online resources to sharpen existing skills and learn new skills. 39% percent of international contractors with a university degree said they learned the skills for their last job through informal or self-taught means like online courses or publicly accessible resources like YouTube videos. 

SMBs hire from Western countries to expand their markets, and from Asia to manage costs 

The top country where U.S. companies are hiring is the Philippines by a wide margin, followed by Canada and India. 

In general, SMBs are more likely to hire international employees in Europe or Canada to expand their business to the region. They’re more likely to hire employees in the Philippines and India to manage costs while accessing high-quality talent. 

Specifically, companies that report most of their international employees are located in Europe or Canada are twice as likely to report that expanding the company’s ability to serve non-U.S. markets or customers was a very important factor in their decision to hire international employees compared to companies that have most of their international employees located in Europe or Canada. And, companies that report most of their international employees are located in the Philippines or India are nearly four times as likely to report that managing costs was a very important factor in their decision to hire international employees compared to companies that have most of their international employees located in Europe or Canada.

There are also notable differences in geographic hiring trends between industries:  

• Companies in the Technology sector are twice as likely to have most of their international employees located in Europe or Canada compared to the Philippines or India. 

• Companies in the Healthcare industry are three times more likely to have most of their international employees in the Philippines or India compared to Europe or Canada. 

The challenges of hiring international employees

While hiring internationally is on the rise, there are still a number of barriers holding SMBs back. 

One major challenge is understanding how to maintain compliance, as well as paying the associated costs. 

• Nearly 3 in 4 (71%) companies report that understanding and complying with foreign employment and tax laws is one of the most important issues they face when hiring and working with international employees. 

• 51% said the costs associated with maintaining compliance is another major issue – for example, setting up a local entity, paying an employer of record or professional employer organization, filing paperwork, or paying local advisors. 

Another is ensuring they’re offering international employees the right compensation and benefits packages – so they can be competitive employers in the market. 

• 52% said it’s challenging to know whether they’re offering the right pay and benefits to be competitive in the local talent market.

Once SMBs onboard international employees, there can still be other obstacles to overcome around assigning day-to-day work.

• About half (47%) report managing work across time zones is a major issue for the company. Another 24% of companies report that language or cultural differences are a major challenge. 

• Most companies (80%) require that international employees speak English; however, for those that hire international employees who are not fluent in English, using text-based communication is a common workaround. About 25% of companies with non-English speakers report using text-based communication tools that allow employees to translate English into their native language. 

How SMBs can set up their international hires for success

There are a number of tactics that have helped SMBs report greater success when hiring international employees. 

The data shows SMBs that treat international employees equally to U.S. employees are generally better at attracting and retaining top talent, while boosting productivity and preventing burnout. 

• Compensation – Of companies that report they typically pay different rates depending on the location of employees, 84% report they pay the market rate for talent in that area, no matter what the company would pay a U.S.-based employee. Additionally, companies that pay international employees the same as what they would pay in the U.S. – but adjusted for the cost-of-living in the employee’s location – are 1.4 times more likely to report being far above average at attracting high-quality international talent.

• Benefits – As the chart below shows, companies that report offering the same benefits to both their international and U.S. employees are more likely to report being far above average at attracting high-quality international talent – compared to those offering fewer benefits to their international employees. 

Type of benefit offered	Increased likelihood of reporting being far above average at attracting high-quality international talent compared to not offering the benefit.
Retirement benefits	1.2x
Health benefits	1.3x
Company equity or profit-sharing	1.4x

• Learning and development – Most companies (76%) provide the same amount of learning and development resources to their international employees that they do to their U.S. employees. These companies also report being better able to manage burnout and maintain productivity among their staff.

• Vacation time – Two-thirds (67%) of SMBs provide the same amount of PTO to their international employees that they do to their domestic employees – and when they do, they report a better ability to manage burnout and maintain productivity among their staff. 

When possible, holding in-person gatherings is one of the most effective ways to increase retention and manage burnout among international employees.  

While only 33% of companies bring international employees to the U.S. to collaborate with their U.S. counterparts, these organizations are reaping the benefits, as they are twice as likely to be far above average at retaining international employees and 1.3 times more likely to be far above average at managing employee burnout compared to being average in these areas. 

Similarly, just 28% of companies send their U.S. employees abroad to engage with international colleagues. Yet, these companies are 1.5 times more likely to be far above average at retaining international talent and 1.3 times more likely to be far above average at mitigating burnout risk compared to being average in these areas.

Additionally, building personal connections during the onboarding phase can lead to long-term benefits. 

Companies that bring international employees to the U.S. to meet their team members during onboarding are 1.2 times more likely to report being far above average at retaining international employees and twice as likely to be far above average at managing burnout compared to being average in these areas. 

Conclusion 

Global workforces are no longer the domain of large enterprise companies. With a continuing labor shortage in the U.S. and tech platforms like Gusto that make it easier for SMBs to manage an international workforce, we will see more SMBs expand hiring beyond U.S. borders over the next few years. 

In response to this changing landscape, employees, managers, and owners of SMBs must embrace new cultural skills and management practices to ensure they’re successfully integrating their global workforces. As companies gain more experience and understanding of how to navigate international hiring effectively, we can anticipate this trend continuing to grow at an accelerated pace.

Methodology

Gusto surveyed 485 owners and key decision-makers at small and medium-sized businesses that identified themselves as having international employees between July and August 2023. The results are weighted to match the industry composition of SMBs in the United States using data from the U.S. Census.

The survey asked respondents about their company’s experience with international employees, and the behaviors and practices at the company related to recruiting, managing, and building culture within their organization.