Taking your business overseas can be an exciting new adventure and open up more market opportunities. On the other hand, going global means ongoing challenges related to compliance with other countries’ business regulations and employment laws. Standards and rules in a company’s home country may not exist in another nation.
While there might be some similarities between countries, it’s the differences that companies need to be aware of and follow. Not complying can put you and your company in a risky and costly situation. While it can be tough to track and understand all the details and exceptions that exist, it can be done. Let’s discuss four ways global business owners can simplify compliance with international employment laws.
1. Work With a Partner
The easiest way to comply with another country’s HR laws is to work with a knowledgeable partner. This person or organization knows all the ins and outs of managing and navigating international employment laws. Besides individual legal and HR experts, companies can partner with a professional employer organization or PEO.
If you’ve never heard of the term, you might ask what is a PEO and how can a PEO help. A professional employer organization manages global payroll, taxes, employee benefits, and some legal documentation. A PEO ensures your international employees get paid and your business withholds the right amount of payroll taxes. Professional employer organizations also oversee benefits like health insurance, vacation pay, and extra salary payments.
Your business can work with a PEO if you own legal entities where you want to hire employees. But if you don’t have a legal entity, you’ll need to work with an employer of record or EOR, instead. An EOR can also handle employee payroll and benefits like a PEO does.
However, unlike a PEO, an EOR employs international employees on your behalf and becomes the legal employer. EOR services are a seamless and cost-effective option for companies that want to hire international workers right away. An EOR may also be a more practical choice for businesses that need to establish small teams throughout the world.
2. Know the Differences Between Employees and Contractors
Many companies find the idea of hiring international contractors appealing. It’s less risky to expand into a new market by trying or testing things out. If relationships with contractors are successful, businesses might bring them on as employees and create a local branch office. Alternatively, global contractors can help companies get up to speed and stay on as local consultants once businesses establish roots.
Yet, hiring contractors versus employees is an area where companies can get into hot water. International legal disputes involving ride-sharing services show that business models may not transfer well to other countries. Misclassifying workers as contractors when job duties and conditions put them in the employee category can be an expensive mistake.
Besides the legal fees and penalties, businesses may have to pay retroactive salaries and benefits. It’s better to not assume that classification laws are similar in other countries. Small details and nuances can matter. That fine print can also help a business owner assess whether it makes sense to hire contractors. Owners unfamiliar with a country’s classification laws may want to consult with a local HR or legal expert.
3. Review HR Policies
Nearly every company has documented HR policies that manage the employer-employee relationship. Your business may have employee handbooks, agreements, and written procedures that work well in your home country. Yet, not all of these policies and agreements will apply in international markets.
For example, about half of U.S. businesses have at least some employees sign non-compete agreements. These agreements usually prevent workers from accepting job offers from competitors or starting a related business. They can also spell out how long employees have to wait to join the ranks of a competitor after resigning.
Non-compete agreements are meant to keep a company’s trade secrets and intellectual property under wraps. Whether an entire agreement or only certain parts of it applies in specific U.S. states or countries can vary. A review of procedures and policies like non-compete agreements can uncover whether a business needs to make changes. The employer-employee relationship in another country may need to exclude some of those policies.
In other cases, you might need to adapt procedures or make a few tweaks to comply with local employment laws. For instance, at-will employment conditions may not exist in other countries. Your business might need to remove any language referring to at-will employment from handbooks and other documents.
4. Schedule Regular Audits
If one thing is certain about employment laws, it’s that they change. The countries your business operates in may introduce new legislation, overturn previous laws, or modify a few important details. Even without any changes, you might believe your company is in compliance when it’s not. Regular audits can help catch mistakes and address gaps before they become court cases or news headlines.
Your organization might want to use an external auditor or firm for your international locations. If you have remote employees, external auditors can still review HR contracts and other practices you’re using. External auditors not only remove any internal blinders, but they may also be more familiar with a country’s laws.
In the beginning, you might want to set up more frequent audits. However, your audit schedule may also tie into the stability of countries’ laws. New court cases and government leaders could signal upcoming changes. While auditors can catch oversights after the fact, it might help to have someone stay on top of emerging developments.
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Staying in Compliance
International employment law compliance is a complex task for most businesses. It’s often the small details and differences that can cause problems. Professional partners like EORs can simplify the process and keep companies from making expensive slip-ups.
