An essential part of running a successful business abroad is maintaining compliance with local labor laws and other employee protections.
For companies expanding internationally, failing to adhere to local labor regulations may result in fines, tax penalties, and other legal issues that hinder business and productivity.
Follow this useful guide to develop global compliance protocols in any country.
Classify Your Workers Correctly
Growing international companies use contractors to expand quickly and test market viability. With these types of workers comes a need for classification compliance.
According to general tax law, properly classifying contractors means that a business must declare the exact nature of the contract agreement. A business cannot attempt to control the work methods and schedule of a contractor. If a full-time employee is misclassified as a contractor, a company may face tax penalties and fines.
Research and training help maintain compliance and avoid misclassification issues. By researching the local labor laws of a new market, you can navigate the classification process with ease. Talent management training will also help you avoid misclassification issues, like controlling the work methods and hours of contractors.
Understand International Labor Laws
Within every country’s legal system there are labor laws designed to regulate and align business operations with the needs and rights of workers. These labor laws are different for every country and may vary from offering strong protections for employees to very few worker rights.
For example, local labor laws in France require employers to give workers written employment agreements, protection against dismissal, severance pay, 30 days of paid vacation per year, 35-hour work weeks, up to 10 weeks of paid maternity leave, and three days of paid paternity leave.
In the United States, businesses typically have “at-will” employment agreements, which give employers the right to terminate an employee at any time, without prior warning or cause. In many other countries, at-will employment and wrongful terminations are illegal and can result in legal claims and expensive fines.
Due to complex variances, it’s crucial to familiarize yourself with local labor laws and ensure your onboarding, employment, and termination processes uphold the rights of international employees.
Obtain Required Work Visas or Permits
Another common issue of global compliance relates to work visas and permits. When relocating or transferring talent to international markets, a company must obtain credentials that allow employees to work within the country for more than six months. Without securing the necessary visa or permit, both employers and employees may face fines and immigration penalties.
The best way to avoid these issues is to obtain the required work visas and permits for relocated employees. First, determine which type of work visa or permit the foreign country requires. Then, consult with your company’s local labor agency about sponsoring the correct immigrant or nonimmigrant visas.
In the U.S., companies must apply to sponsor employment visas with the Department of U.S. Citizenship and Immigration Services and, in some cases, the Department of Labor. Within this process, employers must demonstrate that relocated employees will not displace other U.S. workers and clarify if the worker will eventually need to seek permanent residency.
Pay Talent Accurately and On-Time
One major concern for companies expanding internationally is conducting payroll overseas. Incorrect payroll contributions or late payments lead to penalties and fines as well as reputation damage in the foreign market.
Because most payroll providers based in a company’s home country do not cover international employees, an enterprise must outsource payroll services within its foreign markets using a third-party provider. Partnering with a global payroll provider allows a business to pay employees accurately and on time while accounting for employer burdens that involve social contributions. These burdens include but are not limited to VAT tax, health insurance, social security, retirement plans, paid time off, worker’s compensation, and holiday bonuses.
Provide Statutory Benefits and Entitlements
In most countries, employees are entitled to a number of statutory benefits, including mandatory paid vacation days, extended sick leave, extended maternity leave, paid paternity leave, and shorter work weeks. Businesses hiring within global markets must uphold worker rights and allow all employees equal access to these rights, or else they face fines and litigation.
Acknowledging these benefits while establishing accurate hiring, payroll, and termination processes will help your company stay compliant in providing the proper benefits to all overseas employees.
Avoid Permanent Establishment
An overlooked aspect of global compliance is the international tax concept of permanent establishment. Under this ruling, a business is susceptible to corporate taxes in the foreign countries they operate and generate revenue in.
Permanent establishment (PE) is triggered by several factors, such as having a stable business presence in a foreign market, generating taxable local revenue, and regularly conducting business from a fixed office or virtual area, like a remote branch.
To mitigate the risk of triggering PE status, open secondary business headquarters within your foreign markets or partner with a global Employer of Record (EoR). A global Employer or Record doesn’t safeguard against triggering permanent establishment, but it does help handle PE issues by providing detailed tax documents and showing compliant business operations.
Maintain Global Compliance With a Partner
To maintain compliance while engaging foreign talent, many businesses work with an experienced global workforce partner. With entities in more than 185 countries and all 50 United States, Velocity Global has a proven track record of helping businesses navigate complex labor laws and payroll regulations.
Our global Employer of Record and Contractor Management solutions ensure accuracy, timeliness, and consistency while helping you achieve your international hiring goals. Velocity Global’s expertise and cloud-based compliance guides provide valuable insight and accurate information about your target markets.
Reach out today to learn more about hiring globally and staying compliant.
Disclaimer: This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. You should contact your attorney or tax advisor to obtain legal and/or tax advice with respect to your particular situation. Only your individual attorney or tax advisor can provide assurances that this information – and your interpretation of it – is applicable or appropriate to your specific situation. All liability with respect to actions taken or not taken based on this information are hereby expressly disclaimed. All content is provided “as is” and Velocity Global makes no representations or warranties concerning this information.