EOR vs. Entity: When to Make the Switch for International Hiring

Logan Jackonis:
Hey everyone. Welcome to our webinar on international hiring with a special focus on how to decide between an ER and an entity. We're gonna wait a couple of minutes while people trickle in. Think we're gonna have a little bit of an intimate session today. So anybody who's joining, feel free to ask any questions. That are specific to you. As you join, feel free to drop in the chat where you're calling in from. Helps us tailor the content, especially if you let me know where are you, where are you looking to go. Nice, Tiffany. Glad to see your calling from Australia. It looks like we got a few people joining, so we may as well go ahead get started. Like I said, it's gonna be an intimate session today. So if you have any questions about your particular situation, feel free to drop them in the chat. It's pretty interactive. And I'll be happy to answer anything that I can. But let's jump in. First things first, hi everyone. Welcome to Hire Locally Globally, navigating the international hiring landscape. This is part of our do business series. So we help businesses and accounting firms figure out how to expand overseas, set up legal entities, manage employees, handle things like tax, transfer pricing, sales tax, and so on. It's part of a series of webinars that we do, so please feel free to check out our website and see what other content we have coming up. It's all pretty good. A little bit about me. Hi, I'm Logan. Nice to meet I'm a former management consultant. I spent my career across the Middle East and Southeast Asia before coming to Commenda to help businesses expand internationally. I primarily focus on new market entry strategy and workforce planning. So this is right up right up my alley. Figuring out how to hire internationally where to place people and how to build an organization is my primary skill set. I've got nine years now of experience. Helping international businesses expand further or set up internationally for the first time. I currently lead Commenda's global operations team. On a personal note, at Commenda, I have hired employees in five countries navigating how to set up the entity ourselves. I was in the early days of Commenda, our chief of staff. So I did all of the entity formation, the EOR picks, all of the above to figure out how to actually do this. So I am a great resource just on a personal level, as well as a professional level. What are we going to cover today? I'm going to talk through kind of a cursory overview of hiring internationally, what to know, what to do, how to think about it. And then right at the end, we'll talk about how to pick the different ways you can hire internationally, whether that's an EOR, an entity, or hiring contractors. We're not going to cover outside staffing agencies or third party, third party platforms like that today, though. If you have questions about how to evaluate a partner,

Logan Jackonis:
Feel free to drop me a chat. We've got plenty of partners around the world. We're vetted and we can refer if that's something you're interested in. All right, so before we jump in, love to ask the chat. And you can see the in the polls, how familiar are you with international hiring? Is this your first time hiring an international employee? Is this something that you've done before, but now you're really starting to trying to get a framework about how you can do this on a scalable, in a scalable way? Or you've done this a lot and you're here to grill me with tough questions, make me look bad. Drop an answer in the poll helps me tailor the content a little bit. Nice. It looks like we've got some first time international hire. Okay. Some a little bit of international, a little bit of first-timer, a little bit of doing it before. Drop in a chat where you've hired before, what countries you're you've hired before. Would love to know. I think most people dialing in today are coming from Australia, so we'd love to know where you're hiring staff. Again helps me helps me tailor this, give examples that are relevant as we go. Very cool.

Logan Jackonis:
All right, let's jump in. I'm gonna cover the basics. So for the people who were who have done this before, Tiffany hired in India before. Very cool. So if you have done this before, some of this will be a little repetitive, but I'm gonna cover the basics of how to think about hiring internationally. What are the things that you always have to think about? What are the things that change country to country? What are the things that are fairly consistent? And so hopefully we can get a sense of how you can build that framework. First things first, why hire internationally? If you've done it before, you know why. We have never lived in a world that is better to hire internationally than today. There are more infrastructure tools, there is more affordable talent, and there's more accessibility to that talent than ever before. If you've hired in India, the Philippines, Kenya, you know what that feeling is like when you find great team members in a faraway country. So I think I don't have to convince you if you're already here. What do all countries have in common? Everywhere in the world that you're gonna hire internationally, whether that's India, Australia, Philippines, Kenya, United States, you're gonna have these seven things to think about when you get ready to hire. Contracts, probation periods, employer taxes, local registrations, benefits, time off, and termination. What do you do when the employee leaves? If you cover these bases and you have a plan when you go into a new market to cover these seven things, you're gonna be in good shape.

Logan Jackonis:
So I'm not going to cover contracts in too much detail today, but every country is unique in how it handles contracts. Some, like the United States, they can be quite vague. In many cases, a sticky note that says you're hired can suffice as a contract. And some places like India, they have to be very specific down to the most minute detail of employment. But first I want to cover probation periods, as I believe everybody's calling in from Australia. Australia, you should be familiar with the probation period. It's a fairly common thing in employment agreements, but it is universal to everywhere, basically but the United States, which has a unique at-will employment structure. But when you go to bring on your first employee, the very first thing you want to think about is what happens if this doesn't go well? And so in countries like India and Estonia, there is not a concept of at-will employee, so at-will employment, so you must Guarantee employment for a certain period of time once the person has served out of probation period, probation period. A probation period is that introductory phase of a new hire where they can leave without any notice to you, and you can fire them without any notice to try out whether or not they're gonna be suitable for your organization. They can last anywhere from three to six months. In India, a six-month probationary period is very standard. It's very aggressive against the employee. But that's because labor law in India is very favorable to an employee once you've exited your probation period. So it can be very hard to dismiss someone. In other countries like Estonia, it can be quite short. It is statutory. So you know, 90 days standard and statutory. But once that person has crossed 90 days, you're stuck with them. As I mentioned, they are really impactful for termination. So if you're gonna Part ways with an employee who has passed their probation period can be quite complicated, and there are usually pretty strict regulations in most countries on earth that govern that. A note on documentation. Even though a probation period is supposed to be a trial, a trial period for an employee, you do need to keep good documentation anywhere on earth where you're hiring, particularly places like India and the Philippines, where labor law can be quite strict.

Logan Jackonis:
Having good dec documentation about performance or the reason that you're looking to move on is important. It might not come up right when the termination happens, but it can come up sometime down the road, especially if you have a high tur turnover business like a KPO. Cost of company fundamentals. This is the next big thing that trips up every business that goes international and hires. If you've done it before, you'll recognize this. The salary is only the beginning. This is the true whether you're in Australia, the United States, or India. Salary is only the beginning and it's the only thing an employee will ask about to start. But you need to think about Social Security, pension, healthcare, unemployment insurance, workers' comp or risk funds, payroll taxes, and so on and so forth. In many countries, the cost to company can be 10%, 20%, 30% on top of salary. In places like most of Europe, it can go as high as 50% above salary. In Brazil, it can be as high as 60% above salary for reasons including the thirteen month salary the thirteen month payroll. So places like Brazil and Malaysia have a thirteen month and the Philippines have a thirteen month payroll system where you have to pay an extra month. Every year. So that is something to consider when you're getting ready to hire, understanding what your cost to company is before you set your budget for that first hire, and understanding that you're gonna be stuck with that person. Those two things. You have this very expensive person that you might be stuck with. So understand that before you make that first hire. Little bit about time off and leave entitlements. This again varies extremely highly from country to country, but it's one of those things that if you didn't know, for example, hiring in Sweden going in, that there are 480 days of parental leave as an entitlement, a job-protected entitlement, and most of that comes with pay, you could end up in a tough position. Pay time off, generally speaking, most countries have some statutory pay time off.

Logan Jackonis:
The United States, interestingly, again, is not one of them. So there is a cultural norm around pay time off, but pay time off, but no statutory requirement. Sick leave is usually broken out differently in whether that's in Australia or the Philippines. Sick leave is typically broken out as a statutory separate section of leave that comes with a schedule for how it's paid out and when it's paid out and how it's accrued. There's usually a mandatory minimum with Job protection that extends much beyond that mandatory minimum. Public holidays are another big thing to consider. If you're weighing India and the Philippines as two places that you might want to build a back office, for example, understanding that India has somewhere between thirty-five and forty public holidays. The reason it varies is because India's quite regional is very important. If close to 12% of your annual calendar is public holidays. When you make that up for working days, it's closer to 20% of working days in India are given off at the national level. If somebody takes every day. So it's something to be aware of before you start building a time off structure before you build your company calendar, understanding what days are normal, what days your employees take, especially if you're working in a diverse place like India. Maternity leave I already discussed with Sweden and most of the Nordics and a lot of Europe, where you have paid leave that's statutory and granted to a parent, usually mother, but oftentimes per paternal leave is mandated as well, particularly in the Nordics.

Logan Jackonis:
That can last for quite a long time. It can be paid for quite a long time, and job protection usually carries for a significant period thereafter. So you may need to think about if you hire in Sweden, you may need to think about bringing in temporary work to support any parents who are taking time off. And it's something to consider before you enter Sweden in general. Last thing I'll cover in this section, ending employment legally and fairly. Understanding how to terminate someone is the last thing in your checklist before you decide where you're going to hire internationally. This can be true for contractors, it can be true on an EOR, and it can be true on an entity. These rules don't change necessarily because of how you hired someone. Most countries on earth require just cause. Except the United States. Again, it's kind of this oddball for hiring, which is one of the reasons it's a competitive talent market. But most countries on earth will require you to have a good reason to let somebody go. That can be they don't fit here anymore, they aren't performing their duties, or we're downsizing. But you do need to prov provide a reason and in the event of an audit or a response or a lawsuit from the employee or a government agency, you have to have that ready. It has to be well documented at the time of at the time of termination. Many countries also will have notice periods, so it's not sufficient just to have a good reason, but you have to give some kind of notice period or garden leave. So the UK has a concept of garden leave where you might have 30 days paid always, where post turning in the laptop you are still an employee for some number of days. Germany has a statutory tenure based Termination notice period, which could be four weeks to seven months, depending on how long the employee has been with you. And that's just the notice period, so they will still be legally employed, and you can still ask the employee to perform their basic tasks, which can be awkward but is important. And then Philippines, somebody mentioned that's 30 days standard. Severance pay is also required in most places around the world. If you come from a system that doesn't require severance, it's something that you should be prepared for.

Logan Jackonis:
After that probation period ends, you usually will owe some amount of severance. Australia has 16 weeks, for example, you may be familiar with that if you're calling in from there. Israel, 8.3% of annual salary per year of service, which can add up quite quickly. If you plan for a long-term engagement in a country, you plan a long-term office, understanding that four years of an employee will actually cost you. Close to a third of their annual salary when they leave, if they're not performing, will definitely impact how you structure that compensation, how you think about how you're gonna hire that person. So I'll pause here and see if there are any questions. And feel free to drop any in the chat as we go. Okay, so let's take a minute to talk about worker classification. If you've hired before, I think this is the number one thing that will trip up international business owners, international HR teams, finance teams, is worker classification. I've heard the story so many times. I've hired three people in the Philippines as contractors, you know, four years ago, and they've been working for me the whole time. I bought them their laptops. I pay for an office, I bought them all of their computer equipment, and I dictate their schedule. That's not a contractor. That's an employee. And in places like the Philippines and India and the UK, that can come with significant penalties in the event of an employee dispute or an audit. Most countries will not happen to catch you, but if you get caught, it can lead to back taxes, penalties, and fines. But let's get into it. So, what is worker classification? Worker classification is very simply how A business decides whether someone is an employee or a contractor based on local labor laws. So it is a business decision at the end of the day. But it is up to your business to interpret whichever jurisdictions laws apply in this situation. Worker classification is squishy. A contractor who you bought their laptop but you don't dictate where they work, for example, falls in a gray area. So it is up to you to decide how much risk you want to tolerate in your hiring. Now, why does it matter? In most markets, it will dictate employment rights, so how you get terminated, whether or not you get severance, what kind of health care you get. It may, if you get it wrong, impact your business quite negatively financially, as I mentioned. Penalties, back taxes with fees, and reputational harm. It can become harder to hire if you're misclassifying workers. Rules vary extremely high highly by country, and there are a lot of services out there that will tell you. Certain solutions work everywhere. That's not true. Particularly in the EOR space, you need to be careful. Some countries specifically say that EORs are contractor arrangements, even if you are deciding that they're a full-time arrangement, and that might be illegal in your context. So when does it matter? You should need to think about worker classification when you are deciding whether and how you're going to hire. If you're gonna do an entity, an EOR, or a contractor.

Logan Jackonis:
You need to think about worker classification risk. If you leave today's webinar with nothing else on your mind, it should be worker classification risk. Six tests that you can use to apply. So control, payment, tools, exclusivity, benefits, and termination. Basically, if you control how your employees get work done and where work is done, they're probably an employee. If you are paying them regularly on a cadence with salary and with benefits, whether that's hourly or whether that's on a monthly basis, but it's a consistent pay schedule, it's a good indicator that's an employee. If the tools they use, like their computer or their headset, are provided by you as the employer, it's a good sign they're an employee. If you're offering them statutory leave, like paid time off, sick leave, or public holidays. It's a good sign that they are an employee. And lastly, if they are protected by any kind of notice period in their country, you need to treat them like an employee. The inverse is true for contractors. Someone who shows up when they want to show up, who is paid per task or sets their own rates for certain work, uses their own computer, has multiple clients as opposed to working just for you, doesn't receive benefits from your company, and their employment agreement ends at the end of their contract, you're good to go. That's a contractor. Jocelyn, that's a great question. Can they still be a contractor and work for you full time? The answer is literally yes. Somebody can be a contractor and work for you full time. However, the structure of that agreement has to be done right. So if you have an agreement with a contractor that says, this individual cannot work for anybody else, they need to spend a full like you know, full 40 to 60 hours a week working for me.

Logan Jackonis:
That's an indicator that they're actually probably an employee. Now, if you say I have project work that is available for contractors, and I bid it out to a contractor, and that work is available in the amount of 40 hours per week, that might be a contractor if you have one person who's doing it all the time. But it really depends how that work is structured. If it if they look like an employee and you treat them like an employee, odds are they're an employee. There's not a lot of loopholes here, especially when you run into an actual audit or if you run into a complaint in that department. Let me know if you have any other questions. That was a great question. So, as I mentioned, misclassifying workers comes with pretty significant risk. Fines and back taxes. So, I know in the Philippines the way it works typically, let's say you have 10 contractors in the Philippines, you've been given you've given them their laptops, you've given them their daily schedule, and they're paid monthly. Well, that's really an employee. If they work for you for three years, and let's say your total payroll exposure is $100,000 Australian, three years Where you're not paying employee benefits, your cost to company is that contractor cost. You're not paying employee benefits, you're not paying employee taxes. That might be three years at times 20%. You may be looking at $60,000 Australian dollars in back taxes and back benefits when you consider that cost to company. If something happens. If an employee complains, if the tax authority comes a knock-in, you may owe quite a lot of money. To both your employees and to the tax authority. Now you might ask, when does this actually happen? It has happened many times in many countries, but the Philippines are a particular place where this where this occurs, where someone who works for you, someone on your team, gets wise to the fact that they could get pretty substantial payout and benefits if they realize that they have been misclassified. Our team of experts in the Philippines tell me this all the time when we bring Philippines clients into the Philippines. One of the most common things that they work on. An employee realizes that they can get a big payday and benefits if they report their employer usually happens during some kind of employment dispute. But 20% over the last few years or something like that maybe do. So keep that in mind. Another major thing to consider, and this is something that's often neglected by international businesses and especially businesses who use an EOR, loss of IP and contractor agreements. If you are not In full control over your IP because you're working with contractors where IP is not properly assigned, you can lose it in an employment dispute. This is something that's very true of EORs. If you have employees working for you for an EOR, their output is technically owned by the EOR or by the employee themselves. You, if you don't have a direct agreement with the employee that assigns intellectual property, you may lose it in time. If you are a private equity backed or a venture-backed company,

Logan Jackonis:
So especially true during a liquidity event. A later stage private equity or venture-backed company doing diligence for liquidity, this will come up, it does come up all the time, whether or not you own the IP produced by a foreign workforce. If you have Indian employees, for example, who are primarily engineers and they are building your software as contractors and you don't have IP assignment, There's a good chance that could jeopardize funding, and it's a good chance it could jeopardize your business. Last thing to note, I mentioned it before, government audits, they happen all the time. So it's something to be aware of. You can get audited for payroll violations. Looks like we got a note from Ivan. Looks like everybody knows about the Pascal fair work case as an example of what can happen if you hire direct and don't use a provider in the Philippines to ensure that it's done right. Ivan, that's a great call out. I should actually probably add a slide about that case. It was good case study. Thank you for that.

Logan Jackonis:
Global employment costs. This is the next big question that we ask. What are all the components to think about when you're budgeting for a role internationally? Four main buckets that I'll identify. Statutory contributions. So what does the government require you to contribute to whatever on behalf of the employee? This could be Social Security, it could be a pension scheme, it could be healthcare. Labor protections. Many companies are mandated. To have severance reserves, insurance, disability protections, things like that. So if you have an employee that gets injured on the job, or if you have layoffs in the future, you may have been required to put money aside to pay for those things to guarantee it. Particularly in places like India or like the United States, where there isn't necessarily a welfare system in place to catch this sort of thing, you may be required to put money aside for labor protection. Employee benefits, everybody knows about this one. You go to a new country and you don't know what the benefit expectation is. In the UK, for example, though there is national health care, private health care may be an cultural expectation in your industry or retirement plans, employee stock plans, whatever it may be, it's something to consider. And then last but not least, taxes. Most countries have specific payroll taxes that get levied on top of. Whatever corporate income taxes that you're paying. This is something to consider, especially when you're teeing up your transfer pricing agreements. This needs to factor into your ultimate profit margin in your subsidiary, in your foreign entities, and in your parent company's taxes, is what are you paying in payroll taxes? If you need help with any of that, do let me know. Employer obligations. So as I mentioned, Every country has some obligation above salary. We just talked through these buckets. But I just wanted to show it can range quite a lot. The United States costs to company can be an additional nine to twelve percent, can go higher depending on how generous you are with your benefits. But you look at Brazil and it can go as high as 35%, sometimes higher. If your benefit stack, and we're just talking about statutory here, if your benefit stack aggressively,

Logan Jackonis:
We've seen the United Kingdom go as high as 40% on top. When you consider something like an EOR as well, that has a substantial monthly fee, depending on the size of the of the wage of the employee, you could see that percentage grow tremendously. Something to consider. I'll touch on this somewhat quickly, but most countries around the world will also have some kind of local payroll registration. So unfortunately it's not as simple as walking into a new country. Like the United States or the Philippines, saying, You're hired, here's a contract, here are your benefits, I'm set up in payroll software, good to go, I'm gonna pay my taxes. You typically have to declare yourself to the to the local payroll authority and get certain types of IDs. These would be withholding tax IDs, Social Security enrollments, pension scheme enrollments to be able to contribute to employee pensions. Sometimes you have a national health insurance enrollment. Like EHIF and Phil Health, and any other kind of employer registrations, whether that's a labor bureau, some set sort of specific governing body for your industry, like construction, construction companies often have these obligations, healthcare companies often have these obligations. So it is never as simple as just go in and shake hands with an employee and consider it done. If you are actually hiring versus hiring a contractor, you will Not might, you will need to register with some local government agencies. How when to register? As a corporate service provider myself, this is the number one thing that we see that throws businesses off. You find the perfect candidate, you get ready to hire, and then you start to deal with the start to deal with the registrations. I recommend you start the process months in advance, and typically when you know you're going to hire in a country. Now I know that's not always possible. Sometimes you're looking around the world for a perfect talent.

Logan Jackonis:
Once you find them, you figure it out later. And if you can have an arrangement with your employee that says, work for me as a contractor while we sort this out, or work with work with me under an EOR while we sort this out, that's totally fine. It's fairly commonplace, but you want to keep that limited. Otherwise, if you are making a proper hire in places like the United States, Germany, or Singapore, you have to be registered before that first paycheck hits. Otherwise, you are non-compliant and we can come back to bite you in the form of penalties, fees. Back benefits, back taxes, et cetera. Know your channel. Places like the Philippines, you will likely have to hire someone to go manage this for you on the ground, business by business and city by city. If you are in Manila, there are different districts within Manila that have different business registrations and different payroll registrations. You will need to send someone on the ground to go sort this for you.

Logan Jackonis:
You should also have a document checklist to be prepared for what you're going to offer, how you're going to offer it, and so you can understand where you need to register. Any service provider will be able to help you with this. When you're getting ready to do local registrations, there's a handful of triggers that you should be aware of. So not everything in the payroll space is the second you hire your first employee, you have to do it. Sometimes there's a threshold, sometimes there's nature of employment. For example, in India, Provident Fund, you typically need 25 employees or more before you have a statutory requirement to register with and start contributing to Provident Fund, which is India's pension scheme. Some types of employment compliance, like sexual assault training in the United States, requires five or more employees in a given state. In some states, it's actually any company of any size. You also need to consider the nature of your employees. Contractors, for example, might not trigger the certain the same types of registrations that full-time employees do, but And this is really important. If you misclassify a worker as a contractor, a few years down the road, they get reclassified as having been an employee. I hire my contractor, I give them a laptop, I tell them what time to show up every day, I require them to be on these meetings, et cetera. I do not register for payroll because they're a contractor. I do not pay taxes for them. Your penalties for not registering and not filing those taxes won't just be you know. For not having classified them correctly, they will also be for not having been registered correctly. So it can add up pretty quickly. And it's just important to be aware of local nuance. So some places like the US and Brazil will have smaller jurisdictions, city level, county level, that require you to do some kind of registration. And others will have registrations for a really low threshold, like Singapore, where you may have to register short-term hires or even contractors. So just important to be aware that every country you're going into is not going to be the same as your home country, not going to be the same as the last country you went into.

Logan Jackonis:
All right, so I'm gonna spend the last few minutes of the presentation here talking through how to actually do it, how to think through hiring internationally. So, three main buckets for most businesses outside of using a staffing agency where you are renting hires that are legally employed by another company. The first is a local entity. It's best for a long-term presence, maximal compliance, and full control over your employees. It's a high commitment, it's a medium cost that we're gonna get into that in a minute. And one of the great myths of hiring internationally is that an entity is expensive, is not as expensive as you think. An employer of record is very fast. It is semi-compliant, and I'll touch on this in a minute. Hiring with partial control. So it's a medium commitment level. There's usually some kind of deposit, and that can be as high as three months. And you are still going to be bound to the statutory hiring and firing periods. So it's not this magic wand you can wave over hiring and make your problem go away. You are still bringing on an employee in many respects. You will still have to go through with notice periods. You will still have to pay salaries the way that you would, although it doesn't force you to register with local payroll agencies because the ELR is going to take care of that for you. It is also a very expensive option. Usually best for short-term small engagements where the cost of it outweighs the inconvenience of setting up an entity. International contractor, best for short-term flexible arrangements. This is the closest to handshake deal you're hired that you're going to get in the international hiring world. It's a low commitment. Most places don't have worker protections for contractors, and it's a low cost. But the risk is high here. Again, if you're misclassifying contractors, you should probably look at an entity or at least an eel.

Logan Jackonis:
Hiring through a legal entity, some things to know. You are going to be the legal employer. That is very important and often asked. There's no way around it. Your business owns the legal relationship with the employee. You will have a full legal presence with payroll, benefits, and tax compliance. You have all you have a full set of obligations. Local labor laws will always apply if you have your own entity. That said, you have full control over your workforce. You can dictate when you hire and fire. You can dictate b benefits packages and comp fully. And there's no cost to you for simply having the employee. Typically, this is a high upfront cost in both time and effort. There's a lot of effort that goes into payroll registrations. There's some effort that goes into setting up the entity in the first place. But low ongoing maintenance costs. For a legal entity that houses a few employees, you shouldn't expect to spend a few more than a few thousand dollars a year. To pay your taxes, run payroll, et cetera. It can be quite affordable. Best to use a legal entity when you're planning a long-term market expansion. And when I say long-term, I'm talking about one year or longer. If you're doing under a year, in most contexts, it doesn't really make sense to set up a legal entity. If you need full control over staff and intellectual property, that's a point other than worker misclassification. Intellectual property is a point that I would not want anybody to walk away without remembering. If you have employees who are meaningfully touching intellectual property, that would be engineers, that would be senior leadership, you need to have them legally employed by an entity, legally employed by an entity within your corporate structure, not as a contractor, not under an EOR. This happens all the time that businesses will have intellectual property in jeopardy at the time of the liquidity event.

Logan Jackonis:
Whether that's a sale of a business, an acquisition, or an IPO. You will also use a legal entity when you need to offer some kind of benefit. An EOR can be a great option, and a contractor can be a great option if you need something sort of generic, but if you have employees that have specific needs, an entity is a strong option. Some of the risks that you want to consider when you're setting up an entity. It is complex and it is there is a lot of upfront costs if you're using the wrong provider. We'll talk about Commenda's offering in a bit. You will need to manage ongoing compliance. Again, if you're using the right solution, this isn't too onerous. And there is some administrative overhead, so you do have cost that you should be aware of: cost to company, cost of payroll registrations, taxes, transfer pricing. But again, when you compare that with an with an EOR, it really isn't that bad. You do also have high exposure to employment disputes. So you don't have anybody between you and your employees the way you would with an EOR. So something to consider that if there's an employment dispute, you are on the hook for it. It can also be overkill for short-term need. Looks like we've got a couple questions come in. So what if I use an Australian-based agency that I pay a monthly retainer to provide my business regular consulting services? Contractor reports to our internal managers, but the agency arranges payment to the independent contractors. Is that type of arrangement compliant? So this is this is what I talk about when I'm referencing a KPO. So if you have a knowledge processing organization or a placement agency where you are paying a contractor that is a staffing agency for their services, which is sort of rent an employee, totally compliant option. Those employees don't work for you. They work for a company that company is taking your direction of how as to how to how to direct those employees. So any kind of management consulting firm, any kind of temporary staffing agency would work this way. Or technically there's a an engagement lead that's directing the employees, even though it practically it's you or your team who's managing the staff, they have a manager back at head office, somebody that they report to keep that relationship clean. So that can be a very compliant option.

Logan Jackonis:
Totally depends on what country they're hired in, though. So if this Australian-based agency is giving you contractors in India and you are supplying those contractors to laptops, and you're supplying those contractors with any kind of benefit or like if they if they get access to your employee benefits, which sometimes consultants will, right? They're accessing the snack fridge or they get the company Netflix subscription as a benefit. And then you start to enter into a gray area. But typically a consulting firm or staffing agency, you're gonna be in the clear. Another thing to consider with local when setting up a local entity is requirements which can add costs, stat reporting costs, annual audit. Yeah, that is a great, great point. And this is where Commenda comes into this a little bit. Spoiler alert, we do have a slide at the end to self-promote, all about getting the info out there, but Commenda has built an AI solution to man set up and manage legal entities. I'm always gonna be pro-entity. But you're right. An entity can come with a lot of additional costs. And understanding exactly what you're getting yourself in for, not just the payroll costs, but also the entity costs is quite important. In India, you do have a statutory audit, for example, where you need to report every year. In India, you have required transfer pricing. You can't be non-compliant, there's no way to avoid it. Those costs can add up. However, they are a lot cheaper than an EOR, which we'll talk about now. So EORs are fantastic. We work with a lot of EORs and we refer EORs a lot of business. They are what is it in the first place? An employer of record is a third-party organization that legally employs workers on your behalf. It is different from a staffing agency because the contract that you sign with an EOR says that those employees receive their day-to-day direction from you, not from their managers back at head office, from you, the employer. This is what puts an EOR in a gray area. They technically work for someone else. But you're providing their con their computer, you're providing their schedule, you're providing them their daily tasks, they're getting access to your benefits. Kind of sounds like a worker misclassification adjacent because they don't actually work for you. That's a very important point. So this varies country by country, and this is where that IP question comes in. If the employee doesn't actually work for you,

Logan Jackonis:
Then you have an IP issue. And if that employee feels that they should own the IP, I have a much stronger case if they were under an EOR. But I digress. Main features, they handle everything for you in the background. You don't have to think about the payroll registrations or the entity or the compliance. They're going to do all of that. It's a fast onboarding. Typically one to four business days, some providers claim same day, but it's not really same day. You can hire without setting a legal entity as I mentioned. You don't have to deal with anything in terms of a legal dispute with the employee because there is that layer between you and the employee. You know, they never worked for you if it doesn't go right, and they also never worked for you if it goes wrong. So two sides of that coin. Best to use it when you're testing a new market. You want to bring on one to five employees and try things out. You can avo or if you just want to avoid the bureaucracy. If you're hiring in India and you're loaded with cash and you don't want to think about it, your R can be a good solution. Risks. Some countries like the UK and Australia are very strict with EORs. You're at a high audit risk, you're at a high worker misclassification risk. Some places like Spain, an EOR is outright illegal, however, unenforced. If the legislature in Spain ever decides to enforce that law, no, you're in trouble. The other thing is that it does add a layer between you and your team. Again, this separation comes not just with IP and work risks, but also company culture. They're one step outside of the company. They're not receiving that paycheck in your name. You have a you have a little less control over company culture and payroll and things like that. So it's something to consider with bringing your employees actually into the company and making them part of your organization. Hiring international contractors, last one we'll run through and then we'll talk kind of c the cost and how to think about that. Beautiful thing. Low, low overhead, no local entity required. It's your workers will invoice you for services, and that's an important part of contractors. They will invoice you for services, they'll manage their own taxes, so you're not paying any employer taxes, they will remit those on their own when they file their personal taxes. Fast onboarding, you can sign a contract with a contractor, get them onboarded to whatever systems you need and get running with it. It's great for feature or for freelance work or project work.

Logan Jackonis:
And there's no obligation to pay benefits or have job security. You use it when you need to move fast or test a market, like an EOR. The work is short-term, project-based. Or if you need something specialized, skill, and temporary. So if you are hiring, say, a certain type of engineer, like a security engineer, because you need to set up a new cybersecurity protocol within your company. It's a great case for a contractor. Typically they would bring their own laptop. Maybe you're dictating the hours that they work while they're doing this project, but there's a turn there's an end date to the contract. And at the end of the day, they have dictated their rate in your agreement as opposed to you having full control over their salary. Also great if you want to minimize admin burden. I mean, there's something to be said for a business decision around when to use a contractor and when to move to a full-time employee. It's again, it depends on your risk tolerance. Many businesses will use a contractor far too long because they have a high risk tolerance. Hey businesses will set up an entity right away because they have a low risk tolerance. And it generally, if you're unsure about a long-term commitment, hire a contractor. It can work out great. Biggest risk is worker misclassification. And of course, this is a big one. Covered it in spades, back pay, legal exposure, et cetera. You also are gonna have limited control over work schedules. If you ever want to see what goes wrong with hiring contractors, go to the Reddit page R slash contractors and read through all the stories of contractors who stiff their employers, don't show up for meetings, really take advantage of the fact that they have to set their own work schedule. You do run into that kind of problem. You don't have full control of a contractor. You can't make them show up at the office every day. You can always end the engagement, but obviously not an ideal way to work. IP ownership, again, if you remember nothing. Working risk classification and IP ownership. Contractors, you can have an IP risk. You need to make sure your contract is written such that you own the output of whatever project. Keep that in mind. You cannot hire senior leadership as contractors. I mean you can in some legal sense, but it's highly inadvisable, in part for the IP reason.

Logan Jackonis:
But also in part because of something called permanent establishment that we're not going talk about. But if you are hiring someone who's making decisions on behalf of the company, you have permanent establishment, permanent establishment implies you have a full-time employee, which implies worker misclassification. So you just don't want to mess with it. Now there are some times where you might want to hire an executive under their own LLC as a contractor, but that's a different context of what we're talking about here. And of course, it may affect team cohesion. Being a contractor, you're always gonna be a little bit of an outsider, so again you don't have that full control over Legal entity can be a very cost effective option. I'm hoping our producer will drop the I'm hoping our producer will drop the our entity versus EOR calculator in the chat here. Here we go. A local entity I is often advertised as something that's quite expensive. You think about the cost of setting it up, plus the annual taxes, plus the payroll, et cetera, et cetera. But the thing you should consider is that an EOR has baked that cost in for you as well. And when you do it on your own, especially with a provider like Commenda that's automated the lion's share of it, it can become quite inexpensive. Setting up an entity in the US, for example, can cost as little as $500 a year. The annual costs can be if you're running payroll, you probably expect to spend three to eight thousand dollars a year on accounting tax compliance. So you might only be looking at five, six, seven thousand dollars to get the whole thing done in USD. Where an employer of record, yeah, there might be no initial setup fee other than the employees' salary down payments, which I'll cover in a second. But you have to pay six hundred dollars a month, five hundred dollars a month per employee, which adds up very quickly. So if you get five employees in the United States, you're paying for the entity and the shared infrastructure, the payroll registration, whatever.

Logan Jackonis:
But you're paying per employee with an EOR. So it can become extremely expensive extremely quickly. Not to mention the fact that anytime you onboard an employee to an EOR, you have to pay a deposit. This is industry standard. You have to pay a deposit of usually two months salary. So if you hire an employee who's making $120,000 a year, you are putting down $20,000 on day negative one before they start to cover first and last month's salary. And then you start paying from there. So if you hire five employees, you're out $100,000 cash up front before you even touched an employee, which can be quite expensive. So it's something to remember when you go to hire an EOR or when you hire internationally in general. Whereas with the entity, first month salary is due with the first month. It's a beautiful thing. A little bit about Commenda. So feel free to drop any questions in the chat. This is the end of the end of the webinar portion here. Thank you for joining. Thank you for the questions. A little bit about Commenda. We are an all-in-one platform for global compliance. We will help you set up an entity, get compliant with tax accounting, transfer pricing, indirect access of sales tax and VAT, as well as a handful of not a handful, quite a few ad hoc services. If you need a board resolution drafted, we can handle that. If you need to add or remove a director, we can handle that. Any kind of corporate services. And it's all handled through an AI-first platform that makes this experience different from anything you've seen before. No more emails with lawyers, no more back and forth with multiple accountants around the world. We put it all in one place and automate most of it so that you don't have to think about it. If you're interested in learning more about what we do and how we make legal entities one of the easiest solutions for hiring internationally, feel free to book a time with our team. You can visit our website at commenda.io, c O-M-M-E-N-D-A.io. And click book a demo, or you can click that link right there. We will be sharing out this presentation as well as the deck for all of you to reference. And if you or somebody on your team wants to get on a session and talk through any specific questions you have, our sales team is available. And if you request me specifically, I'm happy to jump on the call. I'll be here if you have all have any other questions. Otherwise, thank you so much for attending. Take a look at our other webinars.

Logan Jackonis:
Around the world. Actually, I think we have a really great one tomorrow on transfer pricing. So if you've if you are thinking about international business, take a look at our transfer pricing webinar. I can't remember if it's at a good time for Australia, but it might be. And if it is, you should attend. Thanks everybody.