The low cost of hiring and time zone compatibility with Asian countries make Mongolia a great option for foreign employers looking to expand their global footprint. Mongolian Standard Time is ahead of Universal Coordinated Time by seven to eight hours, North America by 12 to 15 hours, and Europe by five to eight hours. There are a higher number of non-working days due to some spanning multiple days of the 9 public holidays in Mongolia, some of which are shared with other Asian countries.
Why Should You Hire Employees Using an Employer of Record?
A company cannot hire international talent in Mongolia without having permanent establishment (PE) status there. One option is to get on the ground and set up a local entity. However, you can also opt for a more cost-effective and simpler way by using the services of an employer of record (EOR).
An EOR manages international hiring, payroll, tax withholding, and other matters related to employment such as compensation and benefits. An EOR is also an incredible resource for understanding and navigating the work culture and processes abroad.
The Benefits of Hiring Remote Workers in Mongolia
Lower Hiring Costs
As of January 2023, Mongolia’s monthly minimum wage is 420,000 Mongolian Tugriks (MNT). At about USD 120, this is much lower than anywhere in North America or Europe. Corporate income tax is progressive and starts relatively low at only 1% and goes up to 25%. Meanwhile, payroll taxes amount to about 20% of the employee’s gross salary.
The cost of hiring an employee in Mongolia, in terms of payroll costs, is about 1.2 times base salary. The combination of a corporate tax that begins at a very low rate and tremendously affordable level of salary makes Mongolia an attractive outsourcing destination.
However, not needing permanent establishment status to hire in Mongolia, a foreign employer would typically only be subject to taxes on payments such as service or commission fees to an EOR. For this reason, among many others, EOR is one of the most cost-effective ways of global hiring.
Talent Pool
Ulaanbaatar, the capital of Mongolia, has been touted as the city of IT talents leading startup businesses. For the first time ever in 2020, the city entered StartupBlink’s Global Rankings Report, ranking 690 out of 1,000 cities and 93 out of the top 100 places. StartupBlink is a global startup ecosystem map and research center and the evaluation was based on the quality and quantity of startups, its sponsors, and business environment.
Mongolia is also seen as a bridge to Russia and China and has become much more well known for its digital capabilities since becoming one of the first countries in the world to fully reopen since Covid-19. Of its 3.28 million population, 50,000 students graduate in IT each year and a number of coding and software development programs are available for young people. For foreign employers, this makes Mongolia a hidden gem of affordable tech talent.
Work Culture
Mongolian is the official language, but English is one of the primary second languages for the local population and is a close second to Russian. Over the past two decades, Mongolia has embraced international business. Foreign employers should note that relationships, formalities in meetings, and seniority in business are also highly valued.
Manage Employees Through a Global Employer of Record
Here are some of the key employment areas that a foreign employer must comply with when hiring in Mongolia.
Employment Contracts
Foreign employers should take note that there are two distinct employment documents: an employment agreement and employment contract. Both must be concluded in writing. To include a probation period of up to three months (renewable once), it must be included in the contract. Temporary and seasonal workers cannot be put on probation.
An employment agreement establishes a general employment relationship for an indefinite or specified period. An employment contract, on the other hand, is used to hire an employee with unique or specialized skills including those in leadership positions. Fixed-term contracts are limited to a duration of five years but can be extended based on performance.
With increasing seniority, employees of both fixed-term and indefinite contracts gain greater benefits and entitlements, such as annual paid time off and severance pay. The implication for foreign employers is to conclude lengths of contracts appropriate to the requirements of work, and be aware that in doing so, employees’ benefits and entitlements are protected. Understanding these distinctions can also aid in estimating headcounts, budget forecasting, and document preparation for global expansion.
An EOR like Borderless is here to support you in navigating the requirements of employment, ensuring your compliance with evolving local regulations.
Paid Leaves
In Mongolia, employees are entitled to a base allowance of 15 days of paid vacation leave after seven months of employment. Those under the age of 18 receive 20 paid days off. After six years of employment, workers are entitled to three more days of leave and this gradually reaches 14 extra days with tenure. If employees work during public holidays, they are entitled to double their base salary.
Maternity leave totalling 120 days is paid at 70% of the base salary and 60 days must be taken immediately before delivery with the remaining 60 taken right after. There is no paternity leave and the partial compensation for sick leave varies based on tenure.
An EOR like Borderless is your resource for receiving the most up to date employment requirements. This allows you to provide statutory leaves aligned with the mandated levels of pay and required lengths of time off.
Overtime
In Mongolia, the standard full-time working week comprises 40 hours divided into eight hours per day, with two consecutive rest days usually on Saturday and Sunday. As per the New Labor Law, overtime cannot exceed 4 hours per day and 56 hours per week and is compensated at 1.5 times of base salary.
Social Security Benefits
The Social Insurance Fund collects contributions to social security by both employers and employees in Mongolia. The benefits are: pension, benefit, health, and unemployment insurance at respectively 8.5%, 1%, 2%, and 0.2% for both employers and employees.
- Pension insurance funds old age, survivor and disability
- Benefit insurance goes toward sickness, maternity leaves and funeral costs
- Unemployment tax is used to financially support job loss as well as skills training.
- Industrial and occupational disease insurance is only mandatory for employers, who contribute 0.8 to 2.8%.
These contributions bring the employer-paid portion of payroll costs to 12.5 to 14.5% and the employee’s to 11.5%.
While public healthcare is available, larger companies may additionally offer employer-sponsored health insurance. All of these percentages are calculated as a percentage of the base salary and are collected by the State Social Insurance General Office. An EOR like Borderless will provide the revised contributions to social security that both you, the foreign employer, and your employees, will need to make.
Other Employer Responsibilities
The New Labor Law also stipulates additional pay at 1.2 times base salary for night work performed between the hours of 22:00 to 6:00 in absence of pay in lieu. Additionally, the rates of severance pay have been updated and amounts payable differ by length of service, beginning with 1 month of base salary for an employee who has worked for six months to two years. An EOR like Borderless can ensure that you fulfill your employer responsibilities in accordance with the most up to date regulations and in the event of separation in employment.
Choosing the Right EOR for Your Business
There are several key considerations for employers to make the most informed decisions in choosing the best EOR for their businesses.
- Geographic coverage: Make sure that your EOR of choice can legally operate in Mongolia.
- Employment services: The suite of employment services offered by a competitive EOR should cover hiring, onboarding, payroll, benefits, and HR management.
- Reputation: When selecting an EOR, get a sense of its past work and experience. Make sure that it has a great track record and the local know-how to bring you value add.
- Cost: A high-value EOR’s pricing should be transparent and reasonable.
- Flexibility: An EOR should offer customized employment solutions to meet your specific needs and requirements.
Overall, foreign employers should choose an EOR that can provide cost-effective, reliable, and compliance-first employment solutions. This will enable you to navigate and expand into foreign waters with confidence, ease, and trust.
Simplify Global Hiring With the Borderless EOR
In over 170 countries, we are ready to help you hire, onboard, manage, and pay remote employees, wherever you are. Our experienced team of legal experts provides guidance on compliance and assists employers all over the world in navigating the cultural and professional environment in the country they choose to do business in. Book a demo today.
Disclaimer
Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
