Currently, remote work is becoming more mainstream than ever, especially for software engineers who actually only need a computer and a stable internet connection to perform their duties, the fact that companies restrict jobs to geographic areas might seem weird.
Why would it matter where you are if your work and contributions are happening over the internet? This question is often discussed by software engineers looking for remote positions with mostly eye-rolling 🙄 and ridicule. However, there are very valid reasons for this from the company's point of view.
Navigating the maze of taxation and legalities
The primary hurdle for companies employing internationally is the legal complexity. Different countries have unique employment laws, tax regulations, and social security requirements. For a company based in one country, ensuring compliance across all these different jurisdictions can be a logistical nightmare. This complexity isn't just about following the law; it's also about the significant administrative burden involved in managing these requirements for employees in multiple countries. For software engineers, this means that despite the borderless nature of their work, the legal borders significantly impact where they can be employed even if they are remote.
Most globally remote companies that hire regardless of location solve this issue by legally treating everyone as a contractor. The responsibility then falls on the engineer who needs to handle taxes and the administration work by themselves in the country they reside in.
We are making a focused post on this topic alone soon, but in short, this also means that if a software engineer is not prepared for this they might lose out on an opportunity because they do not understand the legal foundation on which they operate. Candidates must also understand that as contractors the contract to the hiring company is just that, a contract. Subsequently, that also means less employment security compared to if you were employed locally since contracts are often renewed on a fixed time basis and the terms might be unfavorable.
We can make the assumption that companies who only hire in their own legal region, want to operate their business more predictably, and they also want to provide the same standard to all their employees. For example, health insurance, pension, vacation days, sick leave, and so forth works differently in almost all countries. Further, equity schemes which are a great way for companies to invest in their employees most likely do not work over international borders easily.
Tax Implications
If the company has the intention of hiring a real employee, taxation is a critical concern for them when hiring internationally. Employing someone in a different country can introduce tax obligations not only for the employee but also for the employer in the employee's country of residence. This can include corporate taxes, payroll taxes, and other contributions that vary widely across jurisdictions. For companies, managing this tax landscape is challenging and often leads them to restrict job postings to regions where they are fully equipped to handle these obligations.
Practically if the candidate is in a different country and they are not going to be treated as a contractor, the company will need to register their company in that jurisdiction, officially employ them, set up bank accounts, and submit tax reports to that government regularly. This is not likely something a small to medium company has the capacity to do.
Offering Equitable Benefits
Beyond legal and tax issues, there's the challenge of providing fair employee benefits. Health insurance, retirement savings plans, and other benefits are deeply tied to local laws and market standards.
A benefits package that's competitive in one country might be lacking in another due to different expectations or requirements. Companies strive to offer fair and attractive benefits to all employees, but the variance in what that means across different countries can lead to geographic restrictions on job postings.
Some companies offer services in this capacity helping hiring companies to bridge the gap but that comes at the cost of having another entity to deal with and obviously, they are not doing it for free.
Collaboration and Time Zones
Software engineering is a collaborative field. While asynchronous work is possible, real-time communication is sometimes crucial for team cohesion, brainstorming, and problem-solving.
Time zone differences can make these interactions difficult, if not almost impossible, to coordinate when team members are spread too thinly across the globe. By restricting jobs to certain areas, companies aim to cluster their workforce within time zones that allow for efficient collaboration.
There can be benefits of having the workforce spread over the world, for instance when it comes to server monitoring. The on-call schedule will be natural as people go on and off work as the world rotates. That is most a benefit for a larger company but most likely impossible for a smaller one.
Conclusion
For software engineers looking for remote work, these restrictions might initially seem like unnecessary. However, they are rooted in legitimate challenges related to legal compliance, taxation, and the practicalities of managing a distributed team. If you understand these reasons it can help you navigate the remote job market more effectively.
If asked during interviews it also shows that you have a fundamental grasp of what it means to work remotely. Not only in a worker capacity but also what responsibility you have towards the company. If you cannot handle your own taxes as a small business you will struggle in your role.
As the remote work landscape continues to evolve, we might see more companies developing strategies to overcome these barriers, expanding the opportunities for software engineers to be "employed" across borders. But until then, if you are looking at global job postings, you will need to be prepared to also handle the extra administration that comes with that, together with the understanding that a substantial part of the money coming in will go to taxes and social fees.
P.S.
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Top comments (10)
Ideally, what the company is prepared to pay for an employee should be the same regardless of where they live. If someone lives in an expensive part of the world, gets a job, then moves somewhere cheaper, how much cheaper does it have to be before the company gives them a pay cut? Just outside the city limits? Across the country? Another continent?
Capitalism gonna capitalise.
My real complaint comes from companies who say things like, "fully remote in London". Believe me, they say this. I can literally never have to go into an office but if I live 40 miles away in the same country then I need not apply. That's not a tax issue, it's a company being the kind of place I don't want to touch.
That would be a red flag for me as well 🤓
City restrictions are ridiculous. I've never come across them personally, but I have seen people getting rejected by not living close enough to HQ, which obviously deserves all our eye rolls 🙄
All companies I've worked with have given the same to all their remote devs. However, I do not think it's unreasonable to have some type of normalization based on the country. They will be supplying the same standard of living so to speak.
I think pay should be based on how much value the company is getting from the work rather than some pseudo-moral decision the company makes about the employee's home life. I know it's not that straightforward, but maybe if it was there'd be a better world.
I agree with that 🙂
On the other side let's say a company finds a great engineer from Nigeria (there are many) where the yearly seems to top out at 17M NGN (Lagos salaries) that's 11k USD/year. That engineer is not going to be unhappy with 30k 🤷♂️ But 30k is way too little for any other country in the west. Effectively, raising salaries for all in the cheaper country while raising competition.
most issues that you after described are solved by having an umbrella company as the middle man
The dev is an employee of the umbrella company in her local country.
The company sends the invoice to the umbrella company
The umbrella company takes care of all the local administrative stuff for a cut like 5%
That's precisely my point. The question is, who owns the local company?
Being able to work from another country is almost always wort it to get to know you local tax regulation and get it sorted out. As a developer (my assumption based on this post being on this content plattform) you have to understand complex things and deal with them -> it's you main value proposition in being a problem solver.
Health package & Benefits - is pure marketing BS. If the pay is good it covers everything. Living in in a cheaper country doubly so.
The biggest reason I see why company are hesitant hiring oversees is because of trust and prosecution - because you can't get the law of your country imposed if your candidate/freelancer is residing in another. It's a huge risk for company to expose internal access to people you barely know and you and they know you can't prosecute them if any sort of conflict/dispute happens.
That's a good point! it's hard to run IP theft battles in other countries 👍
I would not say that Health and Benefits are useless unless the candidate lives in a country where that is paid for by taxes. They are also a tax-efficient way of paying more but at the same time not adding more tax pressure on the candidate. In my experience, none of my colleagues looked for remote jobs because they wanted to move to a different country with lower costs. Some moved out of the cities, but it's a big deal to move eg. children who still have to go to school.
To your point though, the most interesting areas for candidates to look at are the hiring company's policies and how much they pay. How many vacation days, public holidays, sick days, and maternal/paternal days are available.
👏 Great insights into the often-overlooked complexities of remote work for software engineers! The detailed breakdown of legal, tax, and benefits challenges provides a clear understanding of why some companies restrict job postings to specific regions. It's refreshing to see a comprehensive explanation that goes beyond the surface-level eye-rolling discussions. As someone exploring remote opportunities, this information is invaluable for navigating the job market effectively.
Thanks!