Hiring an Expat: What are the Pros and Cons?

Growing businesses benefit by expanding across borders, and the best way to scale operations in different countries is by hiring employees in that region or jurisdiction. It allows companies to build a presence in different markets worldwide.

In some cases, the local talent pool may not have the required skills or expertise needed to support core operational processes or facilitate sustained growth. This is where hiring expatriate employees helps in new locations while increasing efficiency, maintaining the company’s standards, and utilizing important industry or company-specific knowledge.

There are numerous advantages of hiring these workers, such as global market expertise and cultural diversity. But it also comes with just as many potential challenges that expose companies to significant legal and financial risks.

In this guide, we explain what an expatriate is and examine the pros and cons of hiring such employees.

What is an Expatriate Employee?

An expatriate, commonly referred to as an expat, is an individual who resides or works in a different country than their native country. Additionally, someone who has relinquished citizenship in their home country for citizenship in another may also be considered an expatriate.

Expat status can either be earned by taking a position outside one’s original country of residence with a new company or if the worker’s current employer schedules a work assignment within an international branch or subsidiary of the business. These companies typically provide various forms of support, including a housing allowance, relocation assistance, and any other relevant supplementary benefits. 

Common countries for expats to relocate to are:

• Mexico: Mexico tops Internations’ Expat Insider survey in 2023, with continuously strong rankings throughout the years. The country shares a time zone with other major North American countries, allowing for more efficient collaboration across borders. Mexico also offers a significantly lower cost of living than many other developed nations.

• Portugal: Portugal is among the most expat-friendly nations because of its Golden Visa program, which is easy to obtain and makes it easier to apply for permanent residency or citizenship after a specific amount of time. In addition to the warm weather and welcoming culture, Portugal ranks as the 7th-safest country in the world.

• Spain: Spain ranks second on the Expat Insider survey, meaning existing expats are happy with living and working in the country. Spain offers an excellent quality of life, ranking tenth globally in the Quality of Life Index. The country is also significantly more affordable than many other Western European nations.

• Panama: Panama ranks third out of 53 destinations on the Expat Insider survey, specifically ranking fourth in terms of ease of settling in and first in finding friends, meaning expats have ample opportunity to develop personal support networks. Additionally, the process to obtain a residency visa is easy to navigate, and maintaining PR status only requires the holder to visit Panama every two years.

• Costa Rica: Costa Rica is a popular destination for expats because of its favorable tax environment, which only taxes income earned in the country, meaning foreign workers will not incur additional charges or tax requirements. The country also has a relaxed lifestyle, a sustainable culture, and universal healthcare for all citizens or legal residents.

Other countries, such as Canada and the United States are also common places for international workers to relocate. For example, Canada has an annual immigration rate of almost 500,000 new people. 

Expat vs. Immigrant

While both terms are similar and describe migrant workers living abroad, some key factors and connotations differentiate these categories.

Generally, an immigrant is described as an individual who has moved to another country to reside in the new country permanently or for an extended period. Immigrant is a broader, more inclusive term that considers various reasons for moving locations, such as family reasons, work, finding refuge or safety, and more.

In contrast, an expatriate relocates to another country usually for work-related purposes, and typically for a temporary period to return to their home country. This term is more specific and often only refers to professionals or lifestyle-driven reasons.

Factors to Consider Before Hiring in a Foreign Country

Companies should consider various factors before beginning the process of hiring expats. Making informed decisions and developing data-driven strategies when planning your expansion process enables companies to increase productivity, allocate resources effectively, and improve hiring practices and retention rates.

For example, companies looking to build an international workforce in Mexico will implement different practices and procedures than in the United States. This means companies must consider local laws and regulations.

Major factors you should consider are:

• Global payroll: Before hiring or relocating expats, familiarize yourself with the entire payroll process within that country. Different countries will have different pay cycles, minimum wage requirements, statutory benefits, and employer contribution requirements. Accurately performing payroll practices, such as paying employees in the correct currency and tracking hours ensure you remain compliant with regional legislation.

• Organizational needs: Understand the long-term business goals and staffing levels needed to produce positive results in new markets. This ensures you optimally allocate resources when scaling operations.

• Labor market demand: Consider emerging trends in the labor landscape and the demand for individuals with sought-after skill sets to stay competitive in the global market. For example, skills such as digital literacy, critical thinking, and expertise with new technologies are becoming increasingly sought-after by growing businesses. Identify the most important skills needed for sustained success to inform your recruitment practices and help you find the right candidate for each position.

• Key performance metrics: Define KPIs, clear expectations, and regular feedback to expat workers to monitor employee performance while maintaining a healthy company culture. Ensuring the expat understands your expectations improves employee engagement, which leads to higher retention rates and employee satisfaction levels.

Advantages of Hiring an Expat

Adding expatriate employees to your global workforce brings several significant benefits that support your company’s long-term goals and sustained success. For example, an expatriate helps you maintain consistency across global operations, as the worker has existing knowledge and expertise about the company’s core competencies, values, and cultural initiatives. This can reduce operational disruptions that arise from training an entirely new international staff and helps ease the transition process.

The major advantages for companies that hire an expat include:

Access to Specialized Skills

In many cases, expats offer specialized skills, expertise, or experiences that may be difficult to find in the international labor market. For example, certain industries or positions require specific technical knowledge to achieve long-term success. Recruiting expatriates allows you to navigate a limited local talent pool and hire an effective professional or skilled worker.

This helps companies address skills gaps or talent shortages before they can impact operations. Skills gaps pose a significant challenge for growing organizations, resulting in decreased productivity, higher employee turnover rates, and decreased competitiveness. In fact, roughly 87% of companies worldwide currently have skill gaps or anticipate one within the coming years. This is particularly true in certain sectors, such as technology, healthcare, manufacturing, and more.

Diverse Perspectives

Expatriates add unique and innovative perspectives to your global workforce. In contrast to local employees, expats generally offer comprehensive international experience, meaning they can provide insights regarding best employment or operational practices in various regions. This provides companies with fresh or creative methods to solve important issues and challenges.

Innovation is important because it involves generating solutions that facilitate growth and improve efficiency. This is an increasing focus for leaders, with around 84% of executives agreeing that innovation is a key component of growth.

Cultural Diversity

In addition to accessing diverse perspectives, hiring expatriates also enables organizations to build a more diverse and inclusive workplace culture. In this case, expatriates may be able to help organizations handle issues such as language barriers or cultural differences, facilitating smoother communication across teams. Prioritizing company culture also ensures that employees or expatriates of all demographics, including race and gender, feel valued.

A diverse, inclusive, and equitable (DEI) workplace is a major asset that brings several important benefits, including improved collaboration, better decision-making, and improved all-around organizational performance. In fact, DEI is a significant driver for growth, with companies identified as diverse and inclusive being 35% more likely to outperform competing companies in the industry.

Global Market Knowledge

You can also tap into an expat’s global market knowledge to refine growth strategies. For example, expatriates may have valuable connections or networks that can lead to new business opportunities or key insights into markets that wouldn’t otherwise be available to growing organizations. Additionally, expatriates are able to provide in-person support for your business’s global expansion plans. 

Challenges of Hiring Expats

While engaging expatriate employees brings several notable advantages to employers of all sizes, there are also major challenges and hurdles associated with hiring these workers.

The most significant challenges are:

Higher Recruitment and Relocation Costs

Hiring expatriates can be a resource-intensive process. Companies that opt to relocate employees rather than hire local employees take on a higher financial burden, as companies usually must pay for migration-related fees, travel expenses, and potential language classes or cultural training to prepare the employee for an international work assignment. Additionally, expatriate employees tend to earn significantly higher wages than non-relocated employees.

In fact, according to the latest research, expatriate employees make up to 900% higher wages than local employees in some cases. This is particularly important because financial problems are one of the most common reasons that cause smaller or startup businesses to fail.

Visa and Global Payroll Compliance Complications

Expatriates require visas or work permits to legally work abroad. This poses several legal risks for employers, as each country has different rules and requirements regarding the application process. Failure to follow all relevant laws may lead to harsh penalties, such as fines or potential criminal charges.

Other legal responsibilities, such as global payroll requirements and each country’s local laws for tax compliance, also present significant risks. Companies must pay income taxes, keep detailed records, monitor exchange rate fluctuations, meet all reporting deadlines, pay expatriates in the local currency, and provide benefits.  

Integration Challenges

Companies that hire an expat benefit from increased cultural diversity, but organizations often face issues integrating international workers. Expatriates must adapt to a new culture or geographic location, being away from family or loved ones, and the norms or employment practices in the new country. Language barriers and other factors impact how easily an expat assimilates into the new workplace and can significantly impact performance.

This may lead to increased feelings of isolation, which is important because decreased employee morale leads to a lower quality of work. To combat this, provide ongoing support to these employees, though allocating resources for supplemental benefits further increases the financial burden of hiring expatriate workers.

Turnover Risks

Expatriate employees have a much higher risk of experiencing burnout due to stress and cultural difficulties, which is one of the most common reasons for existing employees to quit their current jobs.  

This is significant because many expatriate assignments fail to drive the desired results, with roughly 30-45% of all work assignments ending prematurely. Expatriates who return home also tend to leave their companies once they return, with an estimated 20 to 50% of expats resigning within two years post-repatriation. 

Should You Hire an Expat?

Hiring an expat can be a strategic move that pays off significantly, but it’s not a decision to be taken lightly. When done right, bringing in an expat can inject your company with much-needed expertise and global insight that may not be available locally. Expats can bridge skills gaps, bring diverse perspectives, and help establish a presence in new markets. This can be particularly valuable in industries where specialized knowledge is crucial and hard to find domestically.

Consider hiring an expat if your company is entering a new market where local talent doesn't have the necessary experience or if you need to instill company culture and standards in an international branch. An expat who already understands your company’s values and operations can ensure smooth transitions and consistent quality, reducing the risk of operational hiccups.

On the other hand, the decision to hire expats should also consider potential challenges like higher costs, legal complexities, and the risk of cultural integration issues. Be prepared to invest in comprehensive support systems, including relocation assistance, cultural training, and ongoing support to help expats adapt and thrive in their new environment.

The decision to hire an expat should align with your company’s strategic goals and long-term vision. If your organization is poised to support expats with robust onboarding and integration processes, the investment can lead to significant returns in terms of growth, innovation, and market expansion. Hiring an expat is a powerful strategy for companies looking to leverage global talent and gain a competitive edge, but it requires careful planning and a commitment to supporting the expatriate’s success.

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Contact us today to see how we can help you hire expatriate employees, from drafting a compliant employment contract to providing support with the associated documentation and immigration processes.