Limited-term employment: What to consider as you expand internationally

April 1, 2020

limited-term employment

According to the U.S. Small Business Association, 96% of consumers live outside of the United States. Expanding globally can give your company a strong competitive edge and respite from crowded domestic markets, so it makes sense to cultivate growth overseas. Even as international markets enter a phase of economic uncertainty, access to a more diverse consumer base or talent pool can open your business to many more opportunities. But you may be wondering what options are available as you build a new team overseas.

Building a new team for your business can be difficult even if you aren’t expanding into a new market, and when you consider that business in another country is likely to be very different from your home country, the challenges can seem overwhelming. One possible solution for building a team in another country is to work with limited-term employees.

What is limited-term employment?

Limited-term employment, also known as fixed-term employment, means hiring an employee who works for a specific, pre-defined period. The period could be the duration of a project or it could be to a specific calendar date. A limited-term employee is someone hired under a contract that will expire, as opposed to a regular employee that signed an indefinite contract, whose employment will continue for the foreseeable future. 

There’s also a distinction between a limited-term employee and an independent contractor. A limited-term employee works for you only for the defined period of time, while a contractor would work on your projects, as well as those of their other clients. 

Limited-term positions can have a lot of appeal to employees. It gives them the chance to work on interesting projects that they might not have as full-time employees and provide valuable experience that will look great on a resume. When you look at it from the employee’s point of view, it’s easy to understand why someone would choose this type of employment.

When should you use limited-term employees?

Limited-term employees are great for projects and staffing needs that have a defined end. This not only prevents the dreaded “scope creep” that most projects seem to suffer from, but it also prevents any misunderstanding as to the nature of the work. 

However, it’s important to remember that a limited-term employee may leave before the project is finished, putting your company in the position of hiring someone else to complete the work.  

In some countries, limited-term employees who work past the stated end date of their contracts may be regarded as permanent employees by the government, giving them more rights (and employers more responsibilities) than were originally intended. By having employees under a limited-term contract, you can make sure that everyone is clear on the nature and duration of the work.

Using limited-term employees for global expansion

When you’re expanding globally, it’s vital to have firsthand knowledge and experience of the market(s) you’re moving into. Using a limited-term employee gives you access to in-country market knowledge without the commitment of a permanent employment relationship. It also allows you greater flexibility when staffing your business as it grows and your needs change.

With a limited-term employee, your company isn’t obliged to continue the contract or the employment relationship, and you’ll have the option of renewing the contract or hiring the employee on a permanent basis, if it meets your needs.

However, there are potential pitfalls when using limited-term employees for global expansion. Unlike in the United States, companies can’t terminate a limited-term employee’s contract without paying compensation and facing potential legal action. You may also open your company to legal risks by using limited-term employees in a noncompliant manner.

Risk management and limited-duration contracts

Expanding overseas makes compliance absolutely vital. It can be easy to fall out of compliance, even when using limited-duration contracts. For example, Peru restricts limited-term employees to only 20% of an employer’s workforce. Other countries, like Chile, only allow limited-term employees under certain circumstances, such as starting a new business. 

The labor laws of most countries are designed to encourage employers to hire employees permanently rather than working with limited-term contracts. When you consider the fact that labor laws, compensation and taxes are also complicated and highly variable, it’s easy to see why global expansion can be intimidating.

Fortunately, the risks of hiring in new overseas markets can be mitigated by partnering with an employer of record. An employer of record, like GEO, takes on the responsibility of complying with all local employment regulations, so you no longer have to worry about the risk your company will face.

If you’re considering limited-term employees for your global expansion, contact us today. We can help you understand the risks and benefits of short-term employment around the world.

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