Here is how to hire offshore staff – only two steps but there is a lot in there.
Hire Offshore Staff
Last week we covered how you find your offshore staff. We covered country, skills, where to search, how to advertise, screening questions, who can see your ad, agencies, how to shortlist and how to interview. So now you have found the person you want to hire. So how do you go from here? How to hire offshore staff?
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Hire Offshore Staff
There are only two steps since the rest is not really that different from remote teams working in Australia. Only two steps – but there is a lot in there. For Step # 1 to # 9 please see episode 363 Part 1.
Step # 10 – How to hire?
You have three options. You hire your staff on Upwork, you hire them outside of Upwork, or you start on Upwork but then transfer them out of Upwork at some stage.
ON UPWORK
Hiring on Upwork has five advantages and six disadvantages.
Advantage # 1 – All automated
When you hire on Upwork, you just enter your credit card details and then start working. You don’t have to sign up to screen recording software. You don’t have to work out how to pay them and how much. That is all done by Upwork.
Advantage # 2 – Upwork as Mediator
You have Upwork as a mediator. If there is a conflict between you and the contractor, you can appeal to Upwork. And they can see all the communication you had via the Upwork messenger app – assuming you managed the work via the Upwork messenger app which is not really practical if your team is on a different app like Teams or Zoom or Skype chat, but that is a different topic.
So, in theory, they are there to mediate and help when you need them. And they protect you if you are the victim of outright fraud and only spoke via Upwork. But if the disagreement is about excessive hours or shoddy work or similar, then Upwork is no help. So – in theory – they are there to mediate.
Advantage # 3 – Rating
On Upwork, everybody gets rated by the other side. You rate the person you hire. And that person rates you. And for the person you hire getting a good rating and review from you is really important. That is their livelihood. And so that possibly makes them try harder.
Advantage # 4 – Terms and Conditions
When you sign up on the Upwork platform, you agree to Upwork’s terms and conditions and your staff member agrees to the terms and conditions. So you don’t need to worry about a contract or similar. Upwork has already covered that. But of course, those terms and conditions are beneficial to Upwork, not necessarily to you. But it’s still an advantage that you don’t have to worry about the paperwork if you are the kind of person who would do paperwork with an overseas staff member.
Advantage # 5 – Your Profile
Accounting staff on Upwork can see how much money you have spent on Upwork. The more you have spent, the more trustworthy you look, especially if the high dollar amount comes with a very good rating. Not a strong plus, but still a plus.
So these are five arguments to hire on Upwork. And now six arguments against hiring on Upwork.
Disadvantage # 1 – High Fees
When you hire via Upwork, the person you hire pays a freelancer service fee of 5% to 20%. The percentage depends on how much they have already worked for you. For the first USD 500, they earn with you, the freelancer service fee is 20%. Up to USD 10,000, it is 10% and then over that, it is 5%. And then you also pay a 5 % transaction fee. So all up the two of you together pay 10% to 25% of the hourly rate in fees to Upwork, so it is a loss to you both.
You might think that the freelancer service fee doesn’t affect you, but in the end, you pay both fees. Because the freelancer will charge you a higher rate on Upwork to cover his or her fees.
Disadvantage # 2 – Bad FX Rates
Upwork gives both of you a pretty bad exchange rate.
For example, on the 14th of March 2022, you would have paid AUD 4,258 to settle a USD 2,917 bill on Upwork. But the official exchange rate according to Google was only 1.3894 on that day. So instead of AUD 4,258, you should have only paid AUD 4,052. A difference of AUD 206. That is an additional 5% on top of the fees you pay.
If you pay your staff directly via an international payment app, the FX rate is not great either but nowhere is it as bad as on Upwork.
Disadvantage # 3 – Two FX Translations
When you pay directly, you have one FX transaction. You pay in AUD and the person receives PHP for example or Sri Lankan rupee or whatever the local currency is. You have one FX transaction from AUD to local currency.
But when you hire via Upwork, you have two FX transactions. You pay in AUD to settle a USD bill. And then Upwork pays your staff member’s USD earnings out in local currency, so another 5% lost in translation.
So now it doesn’t just cost you 10% to 25% in fees. The total cost to go via Upwork increases from 20% to 35% when you take crooked FX rates into account.
Disadvantage # 4 – Automatic Charges
When you hire via Upwork, you can set maximum hours and also block or accept manual entry of hours, so hours are not recorded via the screen recording app but manually entered. But after that things are no longer under your control. You get automatically billed and charged for whatever hours your staff charges.
And that is an issue when you have somebody charging excessive time for dubious work. Once you hand over your credit card details, your card gets charged for hours charged. And once the money is gone, you are on a much weaker footing. So automatic charges with little chance to dispute is a minus.
Disadvantage # 5 – 10 min slots
Upwork records in 10 min slots, so if there is any activity in a 10 min slot, Upwork will count the full 10 min. So if your staff member worked for one minute, then left and worked for another minute 10 minutes later and then once more, you would pay for 30 minutes while there were only 3 minutes of work.
So a freelancer can easily play this game with two laptops and have an Upwork timer running on each for two different clients. And as a side note, time tracking software can be hacked. So activity statistics are not necessarily correct.
Disadvantage # 6 – Money held in escrow
And then the last point is the delayed payment. When you hire via Upwork, Upwork charges you at the end of each week for hours charged but only passes the money on after 10 days. So for 10 days Upwork basically gets free financing, while Your staff member is probably desperate to get the money.
So that’s hiring on Upwork. Now let’s look at hiring outside of Upwork.
OUTSIDE OF UPWORK
Now, this bit is tricky. When you sign up on Upwork, you sign their terms and conditions. And one of those terms and conditions is that you hire offshore staff you found on Upwork on Upwork or pay a USD 5,000 headhunter fee. And if Upwork finds out that you hire their freelancers outside the platform, they can close your account. So you need to be really careful.
When you hire outside of Upwork, you need to work out five things.
# 1 – Cover Your Tracks
If you find your staff member on Upwork and you want to hire them outside of Upwork, never discuss this via Upwork. Never via the Upwork messenger app. Always discuss this outside. You will have spoken outside anyway during the interview etc, so discuss this outside. Or if you don’t like this secrecy, you can pay Upwork a headhunter fee. But that fee is insane. It is about USD 5,000.
And if you find your staff member through word of mouth, then you don’t need to worry about this anyway. This is only an issue if you found the person through Upwork.
# 2 – Choice
Give your staff member the choice of working on Upwork or outside. Just ask them what they prefer. Some have a strong preference one way or another.
And if you give them the choice and they choose outside of Upwork, then it is a joint decision and you are both ‘partners in crime’ and both breach the terms and conditions of Upwork together.
# 3 – Contract
Some of you might do a contract. But who is to enforce this contract anyway? You do the right thing by them and they do the right thing by you. But of course, there are arguments to put everything in writing and make it clear.
# 4 – Time Recording
You need a time recording app to record your staff’s working hours and observe their screen if you want to do that. You might just pay a fixed wage per week without tracking time and without screen recording. Or you might track hours through the Xero app or a different app without screenshots.
But if you want screenshots, you need an app. And there are many out there – for example, Time Doctor or Top Tracker. The advantage of Time Doctor is that it can record several screens. So if your staff work on two screens, you can see both screens. And the dashboard is quite nice. The advantage of Toptracker on toptal.com/tracker is that it is free. But time recording and screenshots can easily be manipulated. So you need to work closely with your staff.
# 5 – Payment
Next, you need to pay your staff and again there are various payment platforms out there.
Revolut is not yet in the Philippines. So for the Philippines try WorldRemit. You pay AUD2.99 for a transfer and it instantly hits their bank account. And there is also Payoneer but some countries have issues with Payoneer. And many times recording platforms also offer payments. Both with Top Tracker and Time Doctor you can make a payment, so you have various options.
So that is how to hire outside of Upwork.
START ON UPWORK AND THEN MOVE ON
And then the third option is basically that you start on Upwork and when you are both comfortable with each other and it goes well, then you move off Upwork and hire offshore staff directly outside of Upwork. And you either do this by just closing the contract on Upwork and declare the project as finished or you pay Upwork a USD 5,000 headhunter fee.
So that is how to hire offshore staff. Now before you can actually start working together, you need to give your staff access to your software, data and ATO portal and that is the final step in the onboarding of your staff.
Step # 11 – How to give access?
If you are in the cloud, then giving access to overseas staff is the same as giving access to Australian-based staff. Nothing different. Access to your data and software is easy.
But now to the ATO portal. That is a lot harder for offshore staff. And the reason is that your offshore staff doesn’t have an Australian tax file number. So you can only set them up as a basic user. Your overseas staff can’t get a strong ID with the ATO since they don’t have an Australian tax file number.
But a basic user can’t change any data. So they can’t update the address or phone numbers. They can’t add clients or remove clients. And so on. If you are the only one in your practice with a strong id in the ATO portal, then you are the one who has to do all the data updates in the ATO portal. And that is not a good use of your time.
So that’s how it is. If you don’t want to do the data entry, if you don’t want to be the one left holding the baby, you have two options.
Access to the ATO Portal #1 – Hire Somebody in Australia
You hire somebody in Australia who can get a strong ID and do the data entry for you. For example, you pay them for 5 hours a week and then they update all the data that needs updating. Not ideal, because it is inefficient when you have two people working on something that could be done by one.
Access to the ATO Portal #2 – Have your Overseas Staff Temporarily Work in Australia
You get an overseas staff member a working visa for Australia. It must be a working visa. With a tourist visa your staff member won’t qualify for a TFN.
So you get them a working visa, fly them to Australia, get a TFN for them, get a strong user id on the ATO portal and then they return home. That strong id should stay with the staff member. But of course, if that staff member then leaves, you need to fly somebody else in and do this again. Expensive and time-consuming.
So these are two options you have – and they are legal.
Using a VPN
And the third option you should have is that you can give temporary strong id access to your staff with basic id. At the moment that option doesn’t exist, but it should.
So what very few accountants do, almost nobody does this, it is a cyber security breach and that basically nobody does it – and we are very nervous to even mention it after the Optus data breach, but it will actually point to a solution. And thats why we want to mention it.
So just in theory, you could give strong user id access to a staff member overseas by them logging into the ATO portal with your strong user id through a VPN, they get a code which they give you via a chat and then you enter this code into your myGovId app and then they have access for that one visit. Highly illegal, cyber security breach and the lot, that’s why we don’t want to discuss this in any more details. And that’s also why basically nobody does this.
But it points to what the ATO should give us. And that is a way that we can give temporary strong id access to a basic id user for one visit. So basically what I described before but in a legal way. So a basic id user would log into the ATO portal with their id, and then once they are in, they would request strong id access from you, which you would then grant them through your MyGov Id app.
Here are four arguments that speak for a solution like this – four arguments for a solution that would allow us to legally give our overseas staff temporary strong user id access to the ATO portal.
Defence # 1 – You control the timing
Your staff doesn’t get universal access. They only get access for that one visit. The moment they are done and log out, they can’t get back in until you let them in again. So you control the timing of the access.
Defence # 2 – Only access to your clients
Your staff only gets access to your clients. So it is not like they get access to the entire ATO database but only to your clients.
Defence # 3 – The door is already open
The door is already open. You just open it wider. Your staff can already see your clients’ confidential data as a basic user in the portal as well as through your accounting and tax software. So they can already see the data anyway. And if there were bad intentions, they could already do a lot of bad things just with seeing the data. So giving them access to update the data, opens the door wider but the door is already open.
Defence # 4 – Staff can already update
And the fourth argument is that your staff can already update a lot of the data anyway through your tax and accounting software, this just changes the timing. When your staff change client details in your tax software like Xero Tax and you then lodge that tax return, it will update the data in the ATO portal.
So your staff can already update client details in the ATO portal via the tax software anyway. This VPN access just allows them to update it directly straight away without having to lodge a tax return.
Hire Offshore Staff
So that is how to hire offshore staff. Once this is done, you work together. And that is not really any different from working with a remote team in Australia.
We will look at offshore teams again in episodes 367 and 368. And there we will discuss, what’s better. Labour hire agency or direct hire. Of course one is not better than the others. Both have strong points and weak points. So let’s go through those in a month’s time.
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Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.