Hiring employees across borders allows you to tap into the best talent across the globe, but it also comes with challenges. Without a legal entity in each country where you operate, ensuring compliance with local labor laws can be complex — and even minor missteps can expose your business to legal and financial risks.
One way to protect your business during a global expansion is by partnering with an Employer of Record (EOR). EOR services simplify global hiring since the EOR serves as the legal employer of a company's international employees. EORs take care of everything from onboarding and payroll to benefits administration and ensuring full compliance with local labor laws.
Key takeaways:
- EORs are experts in other countries' local labor laws, so they'll ensure your company remains compliant even as laws evolve and change.
- It's not uncommon for companies to inadvertently misclassify employees, resulting in hefty fines, but EORs help ensure your employees are classified correctly.
- EORs handle employee contracts, international payroll, benefits administration, and more — and assume liability by acting as the legal employer for international employees.
Navigating Legal Compliance in International Employment
Every country has local regulations covering everything from worker rights and benefits to termination procedures and tax laws and obligations. Understanding and adhering to these laws and regulations can be complicated and overwhelming for companies hiring in a new market for the first time.
And the fallout from non-compliance can be costly.
Companies that don't abide by local employment standards can face legal issues, hefty fines, and even restrictions on future hiring. There's also the risk of damage to a company's brand, making it difficult to hire talent in that country again if mistakes are made.
As global employment experts, EOR helps mitigate these issues by handling essential tasks in full compliance with local labor laws, such as drawing up employment contracts, onboarding employees, and managing global payroll and tax withholdings.
How Employers of Record (EORs) Ensure Compliance
EORs operate in one of three operating models: direct, indirect, or hybrid. They either establish a legal entity in each country where they have a presence (direct), work with partners who possess local expertise (indirect), or combine these methods (hybrid).
No matter which format they follow, EORs can help companies by assuming responsibility for managing the following:
Local Labor Laws
First and foremost, an EOR ensures full compliance with each country's labor laws. This includes:
- Working hours and minimum wage
- Leave entitlements (vacation, holiday, sick, maternity, paternity, etc.)
- Termination and severance pay
- Assisting with applying for visas and work permits so workers are employed compliantly
Proper Employee Classification
Governments prioritize ensuring workers are correctly classified to protect workers' rights and ensure proper tax contributions.
Misclassification of an employee, something 10% to 30% of businesses are either suspected of doing or have been found guilty of doing, can result in fines, owed back taxes, operational disruptions, and even jail time in extreme cases.
Employee classification laws vary significantly from country to country, with each jurisdiction using their own tests and criteria to determine whether a worker qualifies as an employee or an independent contractor. For example, the government in India has two tests to determine a worker’s role: the control test and the integration test.
In some cases, these rules can even differ by region within the same country, adding another layer of complexity and upping the risk of non-compliance. Take the United States: the IRS relies on a common law test to classify workers, while states such as California enforce the more stringent ABC test.
Managing Payroll and Tax Compliance
Unless your HR team is prepared for the administrative burden of mastering compliance requirements for payroll and tax regulations for an international workforce, you'll need to take steps such as hiring a local payroll firm, accountant, or legal advisors.
Or you can opt to partner with an EOR that will:
- Manage country-specific payroll requirements, such as issuing properly formatted pay slips
- Pay employees in their local currency to avoid fluctuations in salaries
- Withhold the correct taxes, Social Security contributions, and other deductions
- Ensure accurate reporting to local tax authorities and issue tax forms to employees, such as P60s in the United Kingdom and W2s in the United States
Administering Mandatory Benefits
Every country has its own statutory benefits that employers legally must provide. Failing to provide these mandatory benefits can result in severe consequences, including legal disputes, fines, penalties, and a damaged employer reputation.
An EOR partner helps mitigate these issues by:
- Providing legally compliant benefits administration, such as vacation time, health insurance, maternity and paternity leave, and pensions
- Adapting benefits as needed to meet country-specific labor laws
- Adjusting benefit packages to go above a country's minimum legal requirements, such as offering private health insurance, wellness benefits, additional vacation and sick leave, and more
Drafting Compliant Employment Contracts
Getting everything in writing is key when hiring anyone, but drawing up employment contracts for international workers can be challenging without a thorough understanding of local labor laws and employment norms.
That's why many businesses choose to work with an EOR provider, as they're experts in:
- Structuring contracts to align with local laws, industry-specific regulations, and cultural norms and expectations
- Including provisions that clarify job duties, working hours, wages, termination policies, insurance, annual leave, and benefits
- Integrating individual companies' policies — such as codes of conduct and confidentiality agreements — while ensuring they don't contradict local requirements
- Stipulating country-specific termination and severance pay terms
Staying Up to Date With Changing Laws
Laws aren't static; they're constantly evolving. It can be daunting for your HR team to keep up with the labor regulations of multiple different regions. However, if you hire an EOR they will:
- Monitor legal changes — including new employment legislation, tax filing updates, changes to mandatory employee benefits, and updates to probation and termination rules
- Inform clients of any labor law updates that could impact their global team
- Update policies and employee contracts to maintain compliance with new legal employment practices as they take effect
The Benefits of Using an EOR for Compliance
To sum up, utilizing Employer of Record services for your international hiring needs has many benefits, as the EOR will:
- Reduce legal, financial, and reputational risks
- Assume all liability as the international employees' legal employer
- Streamline and standardize HR and payroll processes while still adhering to each country's unique labor requirements
- Simplify global employment by allowing businesses to expand globally without setting up local entities
- Save your company time and money by handling the legal complexities of international employment so you can focus on growing your business
Compliantly Employ Workers in 185+ Countries With RemoFirst
Navigating local employment laws in multiple countries can be a significant hurdle for a company's international expansion, but with the right partner, it doesn't have to be. An Employer of Record like RemoFirst makes it simple to stay compliant, no matter where your team is based.
With our all-in-one platform, you can hire employees in 185+ countries and manage and pay contractors in 150+, all without setting up a local entity. We handle everything from global payroll management to statutory benefits with rates as low as $199 per employee per month (depending on location).
Ready to hire internationally without the legal complexity? Schedule a demo to see how easy global compliance can be with RemoFirst.
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