Hiring a global workforce offers numerous advantages, from accessing diverse talent pools at an affordable cost to gaining a competitive edge in international markets.
Global hiring yields different perspectives and experiences, which can result in improved problem-solving and innovation.
However, when hiring remote workers in different countries, navigating the complex landscape of international employment laws and regulations can be challenging.
This guide explores the top compliance risks companies planning a global expansion must be aware of, ensuring your organization can build thriving global remote teams while staying on the right side of local regulations and laws.
Non-Compliance with Labor Laws
When building an international team, it’s essential to be mindful that not only does each country where you’re hiring have its own customs and cultural differences, but it also has its own set of labor laws and legal requirements.
For instance, in France, the standard workweek is 35 hours, with strict rules on overtime compensation. In contrast, 57.1% of workers in Southern Asia routinely put in more than 48 hours per week. Japan recently implemented work-style reform laws to address its culture of overwork, including mandatory paid leave and limits on overtime hours.
Global employers must adhere to these local laws and regulations when hiring remote employees, even if the company doesn’t have a physical presence in the country.
Misclassification of Workers
Every country has specific criteria for determining worker classification, and incorrectly classifying employees as independent contractors or freelancers is a common and costly mistake.
For example, in the U.S., the IRS uses a six-factor test that considers:
- Profit or loss: The worker’s potential for profit or loss based on their managerial skills
- Investment: Financial investments made by both the worker and the employer
- Permanence: The duration and stability of the working relationship
- Control: The level of control the employer exercises over the worker’s duties
- Integral work: Whether the worker’s tasks are essential to the employer’s business operations
- Skills and initiative: The worker’s level of independence and expertise
Misclassification can lead to significant financial consequences and legal issues, like when Uber reached a $100 million settlement in the U.S. for misclassifying their drivers as contractors.
Employers can face heavy penalties for misclassifying German employees.
For example, they may have to pay back social security contributions for up to four years (30 years in case of intentional misclassification).
Additionally, company directors may face criminal charges, leading to potential fines or prison time.
Tax Payment Errors
Navigating international tax laws is complex and confusing for employers hiring in a new country.
Common issues global employers might encounter include:
- Failure to withhold the correct amount of income tax
- Misunderstanding Social Security contribution requirements
- Overlooking mandatory pension contributions
For example, in the U.K., employers need to enroll eligible employees in a workplace pension scheme and make minimum contributions.
Employers must also manage PAYE (Pay As You Earn) contributions for their employees, which involves deducting income tax and National Insurance contributions from salaries.
Meanwhile in Australia if employers fail to make superannuation payments on time they must pay the Superannuation Guarantee Charge (SGC), which includes unpaid contributions, a 10% interest fee, and a $20 administrative fee for each employee per quarter.
Visa and Work Permit Violations
As remote work becomes more prevalent, employers must ensure that their international employees are authorized to work in their chosen location. Non-compliance can result in severe penalties for both the employer and the employee.
For instance, hiring a foreign national without a proper work visa in Japan can result in fines of up to JPY 3 million for the employer.
In France, employers face increased criminal penalties and administrative fines of up to EUR 20,000 per illegal employee.
Inaccurate Benefits and Social Security Contributions
Entitlements and employee benefit packages vary from country to country, and getting it wrong can lead to legal headaches.
Typical benefits and contributions to stay on top of include:
- Vacation time: In the U.S., there is no statutory paid leave. However, in Madagascar and Peru employees are legally entitled to 30 days of paid vacation annually.
- Parental leave: While mandatory in most countries, the amount of paid time off for new mothers varies. For example, Switzerland offers 14 weeks of paid maternity leave and two weeks of paid paternity leave. Meanwhile, in Australia, mothers are entitled to four weeks of maternity leave, fathers receive four weeks of paternity leave, and either parent can take up to 14 weeks of parental leave.
- Social security and bonuses: In China, employers must contribute to various social insurance programs, including pension, medical, unemployment, and work-related injury insurance. In addition to social programs, several countries require employers to provide a 13th-month payment as an annual bonus, including Brazil.
Data Protection and Privacy Violations
Data protection and privacy regulations vary significantly across countries. Lack of compliance can pose significant challenges for foreign employers, especially if their company is based in a country with much less stringent or non-existent data protection laws than the one in which they are hiring.
The European Union’s General Data Protection Regulation (GDPR) is one of the most comprehensive data protection laws.
It applies to any company processing the personal data of EU residents, regardless of its location. Violations can result in fines of up to EUR 20 million or 4% of global annual turnover, whichever is higher.
Germany, in particular, has stringent data protection laws. The Federal Data Protection Act (BDSG) complements GDPR and includes additional requirements for employee data processing.
For instance, employers must obtain explicit employee consent for certain types of data processing. Only necessary data can be collected and processed, and employees possess significant rights regarding their data, including access, rectification, and deletion.
Failure to Follow Proper Termination Procedures
Termination procedures vary dramatically from country to country, and failure to follow local requirements can lead to costly legal disputes and damage your company’s reputation.
Japan, for example, has a concept of lifetime employment, making it challenging to terminate employees. Employers must have objectively reasonable grounds for dismissal and follow a specific procedure, including providing 30 days’ notice.
Likewise, dismissing an employee in the Netherlands requires carefully adhering to legal procedures. If the employee agrees with the dismissal, the termination can proceed as occurring via mutual consent.
However, employers typically need permission from either the Employee Insurance Agency or the sub-district court if the employee disagrees with the termination.
Stay Compliant When Hiring Your Global Team with RemoFirst
Mastering global employment HR compliance requires extensive knowledge and resources that many companies may simply not have in-house.
Without that internal expertise, expanding your workforce could expose your company to global payroll compliance issues and risks, including hefty fines, legal disputes, and damage to your reputation.
One way to mitigate global workforce management risks is by partnering with an Employer of Record (EOR) like RemoFirst.
An EOR assumes the legal responsibility for international workforce management and ensures compliance with local labor laws, tax regulations, visa and work permits, and other regulatory requirements.
By working with RemoFirst, you can avoid worker misclassification risks, manage international tax obligations, adhere to data protection regulations, and be confident your company is following proper hiring and termination procedures.
