It costs the typical company more than USD 4,600 to hire an average employee and over USD 28,000 to hire one at the executive level, according to the Society for Human Resource Management. However, the costs of hiring across borders can be more challenging for companies to calculate.
In fact, many businesses venturing into international hiring for the first time are caught off guard by the unexpected expenses that go far beyond salaries.
In this post, we’ll break down the core cost drivers of international hiring — from salaries and employment taxes to employee benefits and compliance — so you’ll understand what goes into employing people across the globe.
Key takeaways:
- Hiring an employee incurs significant additional expenses beyond salary, including statutory benefits and social contributions, as well as compliance and legal frameworks that vary by country and can also impact the overall cost.
- Businesses need to carefully choose their hiring process — whether that involves working with contractors, setting up a local entity, or partnering with an Employer of Record (EOR) — since each option carries its own unique mix of benefits and risks.
- Accurate budgeting for international hiring requires factoring in both fixed expenses, such as salaries and contributions, as well as variable ones, including bonuses and currency fluctuations.
The Core Cost Drivers in Global Employment
When businesses begin hiring internationally, salary is not the only factor to consider — there are also legal, financial, and cultural complexities that can impact the bottom line. Understanding these cost drivers upfront is essential for accurate budgeting.
Salaries
When most companies consider hiring costs, salary is typically the first thing that comes to mind. Salaries vary dramatically from country to country. After all, a role that warrants a six-figure salary in Switzerland might pay far less in Senegal.
Multiple factors, including cost of living, market demand, and inflation, shape these differences. Countries with higher living costs naturally require higher salaries. At the same time, regions facing skills shortages see wages increase as companies compete for top talent. Inflation also plays a role, particularly in emerging markets where frequent adjustments are necessary to keep compensation competitive.
On top of that, employers must comply with local wage laws, which may dictate minimum wage, overtime rates, and compensation for statutory holidays, all of which impact the actual cost of labor.
Taxes and Social Contributions
Every country requires employers to make certain payroll contributions that fund programs such as the social security system, healthcare, pensions, and unemployment insurance.
These additional costs can significantly increase costs beyond an employee’s base salary. In many European countries, for example, employer contributions can reach up to 40% of gross pay once all taxes and benefits are factored in.
While payroll taxes may be lower in regions like Latin America or Asia-Pacific, they’re still a key part of employer costs.
In Brazil, for instance, employers are responsible for contributing to social programs such as the FGTS (severance fund) and INSS (social security). In countries such as Japan and South Korea, healthcare and pension payments can also be substantial.
Even in places with lower income taxes, these required contributions can make a bigger impact on your budget than expected.
Benefits and Perks
International employers also need to consider benefits — both mandatory and voluntary.
Statutory benefits vary by country but typically cover essentials like health insurance, pension contributions, paid parental leave, and minimum vacation entitlements. For example, extensive parental benefits are mandated by law in the European Union.
In addition, many employers also offer competitive perks to attract global talent in competitive labor markets. Common supplemental benefits include private health insurance, equity or stock options, wellness stipends, or additional parental leave or vacation days.
While not required by law, these supplemental benefits are often expected in some countries, particularly in competitive industries, and can significantly increase the cost of employment.
Additionally, perks such as a company car or housing allowance may be taxed as benefits, increasing the compliance burden for employers.
Compliance and Legal Structures
Hiring an employee in another country isn’t as simple as sending a job offer — employers also need to ensure that they hire in compliance with local labor laws.
Failing to meet local employment standards, misclassifying a contractor as an employee, or neglecting local reporting requirements can result in substantial fines, legal disputes, and reputational damage that makes future hiring in the country difficult.
Companies typically have three primary options for legally hiring abroad: hiring contractors, establishing a local entity in the country where they wish to hire employees, or partnering with an Employer of Record (EOR). Each approach has its pros and cons, which we’ll explore in greater detail later in this article.
Visas and Work Permits
Keep in mind that some international hires may require visas or work permits to work in their country of employment legally. These requirements differ by country and often involve expenses such as government fees, healthcare surcharges, sponsorship costs, legal assistance, and potentially lengthy processing times.
For instance, in the United Kingdom, work visas typically take three weeks to process. However, in the United States, wait times for work permits can take from three to seven months, although due to evolving changes in 20025, wait times may be even longer.
Delays in obtaining the necessary documentation can also add indirect costs, such as lost productivity or the need to make temporary arrangements while waiting for visa approval.
Operational And Hidden Costs
Some costs of international hiring are familiar, such as job postings, background checks, and providing equipment like laptops to new hires.
However, companies are often caught off guard by the numerous operational and hidden costs associated with global hiring. Local labor laws can quickly add unexpected expenses — from severance pay and mandatory notice periods to region-specific benefits, such as 13th-month pay or paid leave requirements.
Global employment also carries regulatory risks. Data privacy laws, such as the European Union’s GDPR, impose strict requirements for handling employee information. Compliance may require new data systems, updated contracts, and ongoing training, all of which increase operational overhead. Noncompliance can result in substantial fines.
Additionally, managing a geographically dispersed team can introduce challenges in communication, collaboration, and cultural alignment. Time zone differences, language barriers, and varying workplace norms can significantly impact productivity and employee satisfaction, often necessitating additional investments in tools, training, and processes.
Hiring Compliantly: Contractor vs. Entity vs. EOR
As mentioned above, there are three main models for hiring globally: working with contractors, setting up a local entity, or partnering with an EOR. Each model comes with distinct advantages, risks, and costs.
Contractor
Hiring contractors typically costs less upfront because there’s no need to establish a legal entity, set up payroll, or provide statutory benefits. It’s also easy to scale up or down as business needs change. However, a major disadvantage of working with contractors is the risk of misclassification.
If local authorities determine that your contractors actually qualify as employees, your company may be responsible for paying back taxes and unpaid benefits, as well as legal fees. Misclassification can also lead to reputational damage, strained relationships with workers, and restrictions on future hiring in that country.
Beyond compliance risks, managing a large contractor workforce can create operational challenges, making it harder to maintain consistency, engagement, and quality across teams. For companies building long-term international operations, these issues can outweigh the initial cost savings.
Entity
Establishing a local entity in the country where you’re hiring has clear advantages. It gives your business the highest level of control over employees, operations, and branding, allowing you to build a direct, long-term presence in that market.
However, this approach comes with significant financial and administrative burdens, including licensing requirements, infrastructure needs, and professional service fees, which can add up quickly.
Once established, maintaining an entity involves ongoing expenses such as annual audits, payroll administration, statutory benefits, tax filings, and compliance with evolving local labor laws.
You’ll also need HR, accounting, and legal advisors to navigate complex reporting obligations. Global payroll costs alone can rise quickly, since most companies require specialized software to manage multi-country compliance, local tax rules, and multi-currency payments.
For companies testing a new market or hiring just a few employees, the return on this investment may be limited, making entity setup best suited for businesses with long-term growth plans in a specific country.
Employer of Record (EOR)
When you partner with an Employer of Record, the EOR becomes the legal employer in the countries where you hire.
The EOR handles payroll, tax withholding, statutory benefits, employment contracts, labor law compliance, and other local HR requirements, while your company maintains complete control over the employee’s day-to-day work and performance.
For many businesses, using an EOR is significantly more cost-effective than establishing a local entity, as it eliminates the potential legal and compliance risks associated with hiring contractors.
However, EOR pricing structures can vary widely. While most advertise a flat monthly fee per employee, some add hidden or variable costs that can quickly add up.
Common additional charges may include:
- Currency conversion and international wire transfer fees
- Onboarding and offboarding costs
- Contract drafting or amendment fees
- Compliance audits and background checks
- Year-end tax reporting or benefits administration fees
Before choosing an EOR provider, it’s essential to request a detailed cost breakdown to understand precisely what’s included and what’s not.
How to Plan and Forecast Global Employment Budgets
Start with salary benchmarks for each of the markets where you’re hiring, so you understand base pay bands, bonus structures, and what local competitors actually offer.
Once you have a base salary, add in mandatory employer contributions — social security, pension contributions, payroll taxes, etc. — as well as statutory contributions and other costs, including paid leave and mandatory bonuses. This will give you a clearer picture of the “true cost” of hiring.
Be sure to factor in both fixed and variable costs. Fixed costs include base salary, employer social contributions, and predictable recurring benefits, which are costs you’ll pay regularly. Variable costs include exchange-rate fluctuations, bonuses, commissions, and expenses associated with hiring and termination.
There are many formulas, tools, and services available to help you plan and forecast employee costs. For example, some experts advise multiplying an employee’s base salary by 1.25 or 1.4 to determine their minimum and maximum costs.
For more accurate forecasting, companies can utilize salary survey subscriptions and benchmarking tools that provide up-to-date compensation data across various roles, industries, and countries.
Simplify Global Hiring Costs With RemoFirst
The cost of global employment isn’t about salary alone — it’s about understanding the total cost of employment, from statutory contributions and benefits to compliance with local labor laws and payroll taxes. And for many companies, the challenges of international hiring don’t only involve finances, but also operational complexity.
That’s why many businesses partner with an EOR like RemoFirst to take the guesswork out of international hiring and help them scale globally without unexpected costs.
With RemoFirst, you can hire, manage, and pay employees in 185+ countries, while we handle everything from compliance and payroll to benefits administration and equipment shipping.
Plus, we enable companies to manage and pay contractors in 150+ countries compliantly, so you’ll never have to worry about potential misclassification. And we have no hidden costs, so you’ll always know exactly what you’re paying for.
Ready to simplify global hiring costs? Schedule a demo.
