Audio streaming and media services provider Spotify was founded in Stockholm, Sweden in the spring of 2006 and launched in the United States in 2011 after already solidifying a presence in the United Kingdom, Germany, France, Italy, Spain, Finland, and Norway. The company’s expansion continued rapidly with a global reach to 65 countries by March 2018 and further expansion to more than 80 markets in 2021, including locations across Africa, Asia, and the Caribbean.
Spotify is hardly an outlier when it comes to companies across multiple industries, and there can be a number of upsides when a business is determining whether or not to make the leap into international markets. For one, there are brand new markets to help generate additional revenue streams and more business growth opportunities. Unfortunately, there are downsides as well. For example, there may be high start-up costs for opening up shop in new countries.
Many considerations when going global. On the payroll and human resources end, important considerations involve understanding the potential labor costs, making sure the company’s culture and employee experience are in sync to avoid high rates of turnover, ensuring the business is in compliance with many new tax and labor laws in the country(ies) where the employer wishes to expand, and applying new and emerging technology in ways that will aid the scope of the payroll and human resource expansion.
Global workforce strategy
“The biggest thing in hiring and trying to attract the talent of a global workforce is ensuring you have an equitable strategy,” said Mariah Hantis, Director of Total Rewards at Deel, a payroll and compliance provider based in San Francisco, California. She explained that a U.S. company expanding its footprint to a global scale should keep in mind the differences in the tax code when looking to hire employees abroad, as well as accommodate for the many cultural or labor norms in different countries.
“This is a work in progress,” Hantis said regarding finding a successful global strategy for an expanding workforce.”It’s not an easy thing to accomplish, but something to be mindful of as you are looking to hire across the world.”
Countries also involved in attracting global talent
A global workforce strategy is one that countries are also thinking about, in addition to businesses. An April 2023 article from the World Economic Forum asked how countries can attract the global workforce of the future and highlighted collaborations such as Portugal and India’s 2021 bilateral labor mobility agreement establishing a standardized process for Portuguese employers to hire Indian workers.
Finding international talent and labor costs
Although global growth is projected to fall in 2023 and 2024, according to a July 2023 World Economic Outlook Update from the International Monetary Fund (IMO), and a number of global businesses made notable cuts to their workforce at the end of 2022 and into 2023, some companies are expanding and looking for smart ways to find the right talent around the world. Other employers may not be expanding, but instead seeking strategies for finding where the best talent is located globally and forming a plan to hire in those countries for specific types of jobs to save on wage and labor costs.
“Once you are able to do that as a business and expand into those global horizons, the opportunities are really endless and [it] gives you so much more flexibility from a budgeting and forecasting perspective,” Hantis said. “You can hire three times the talent in one location versus in a high-cost location,” she noted.
For example, Hantis said that Deel research showed there are a large number of engineers in Brazil. So, a better wage and labor cost strategy for a global business may be to hire two engineers in Brazil “at a good rate for the worker and an affordable, competitive rate from a budget perspective for the business.” She added that businesses should consider “collaborating with different organizations around the world to see the hot spots of talent.”
Additional compliance factors
Regardless of the reasons for entertaining a global workforce strategy, a business must consider additional compliance factors when operating and/or hiring in another country. “The more you go into new territory, the more you have exposure of new revenue departments and most countries collect taxes and other things,” Hantis said.
For example, there are several European Union member states with a required minimum wage rate. In France and Germany, the minimum wage rate is 11.52 Euros and 12.00 Euros per hour, respectively. Luxembourg has one of the highest rates at 14.50 Euros per hour. This differs significantly from countries like Portugal, which has a minimum wage rate of 5.54 Euros per hour. In the U.S. the federal minimum wage rate is $7.25 per hour, however, many states and localities throughout the nation have differing and greater rate requirements. To Hantis’s point, as an employer expands into more jurisdictions, the compliance exposure increases.
Employee retention when expanding
Since the Great Resignation began during the COVID-19 pandemic, many businesses have struggled with how to retain talent. The U.S. Bureau of Labor and Statistics’ Job Openings and Labor Turnover research shows that 38.6 million resignations occurred from January to September 2022. Also, a 2019 article from market researcher Gallup said that U.S. businesses are losing $1 trillion every year due to voluntary turnover.
High rates of turnover can be devastating for an employer from a financial standpoint but also with regard to productivity, engagement, and overall morale. “Retaining talent is the number one priority because, if we don’t retain our talent, we have to find new talent,” Hantis said. The continuation of the Big Quit is a factor for businesses looking to expand into additional countries. Hantis touched on a few things that organizations with a global outlook should consider to retain talent.
One idea, also discussed in Deel’s International Hiring Guide, is a remote and hybrid work option since workers seeking more opportunities from global employers have become easier due to remote/global work solutions. Gallup’s State of the Workplace 2023 Report showed that engagement or culture, pay and benefits, and wellbeing-work/life balance were of the greatest importance to the 85% of respondents who were considered to be “quiet quitting” their current employment. Hantis also mentioned the importance of these and other things for retaining talent on a global level.
Juggling compliance and retention
In closing, Hantis explained that when it comes to expanding globally “it’s really a juggling act of how we can be compliant and how we can give our employees what they want.” She added the importance of having local teams with specific payroll and other business knowledge of a country an employer is looking to have a presence in. “It’s definitely not something to take lightly,” Hantis said. ” You have to make sure that you know everything and that you’re retaining the right teams to work for you to ensure that you have that piece and to always be compassionate.”
“Any decision that you make is affecting someone personally when it comes to HR and payroll,” Hantis noted.
Stay up to date with changing regulations in the tax and accounting industry with Thomson Reuters accounting solutions.
