Global HR Compliance: Common Risks and How to Avoid Them

In today’s world of digital infrastructure, free trade agreements, and information technology, global expansion is a viable growth strategy for nearly any company.

Still, one of the most challenging aspects of expanding overseas involves developing HR policies that adhere to local employment, labor, and tax laws in multiple countries. Because regulations vary worldwide, HR teams must practice extra due diligence to avoid fines, costly litigation, and other noncompliance penalties.

This guide provides a complete breakdown of global HR compliance. Find a concise definition, learn why it’s important, and discover examples of varying employment regulations worldwide. Plus, find useful tips on mitigating risk as you expand.

What is global HR compliance?

Global HR compliance refers to adhering to labor, employment, data, and tax codes in each jurisdiction where a company operates. It involves everything from minimum wage and overtime regulations to payroll tax laws, data privacy codes, and other industry-based rules.

Navigating global HR compliance can be cumbersome and exposes companies to risks ranging from fines and litigation to reputational damage and employee churn. For instance, overlooking your corporate tax liability can lead to tax arrears, limited business opportunities, and reputational damage.

Global HR compliance is critical for ensuring operational success and creating a consistent workplace culture within an organization across the globe. HR teams must conduct regular audits to ensure changing workplace dynamics remain compliant with evolving regulations.

Key aspects of global HR compliance

Global HR compliance is a complex topic spanning many areas of international business law. However, we can divide it into the following focus areas:

Employment law. Employment law includes regulations related to hiring, termination, working hours, wages, benefits, and other employment terms and conditions.
Labor relations. Labor relations refers to employee representation, industrial relations, and the provisions that labor unions and collective bargaining establish in addition to federal and local laws.
Workplace safety and health. This includes occupational health and safety standards that address workplace hazards and risks and ensure a safe work environment.
Data protection and privacy. Data protection laws, such as the EU’s General Data Protection Regulation (GDPR), establish provisions that safeguard employee data and privacy rights.
Diversity and inclusion. These regulations promote diversity, equity, anti-discrimination, and inclusion in the workplace.
Employee benefits and welfare. Statutory employee benefits cover everything from health insurance and retirement pensions to leave entitlements and bonuses.
Taxes and social security. Tax law includes income tax withholdings, statutory benefits withholdings, and employer contributions to public insurance programs.
Employment documentation and recordkeeping. This involves maintaining accurate, compliant, and up-to-date employment records, including work agreements, pre-employment evaluations, tax forms, compliance reports, and other documentation.

The importance of global HR compliance for expanding businesses

Businesses must ensure global HR compliance to avoid financial penalties, operational delays, and limited business opportunities. However, HR compliance isn’t only a matter of legality, it’s also about creating a healthy workplace where your team feels comfortable, stable, and productive.

Global HR compliance impacts an organization in the following ways:

Finances. Noncompliance often leads to financial penalties that can disrupt budget planning. For instance, companies that violate tax laws usually have to pay back taxes plus additional fines.
Employee well-being. Employees who work in a non-compliant workplace often experience stress, anxiety, and burnout. Ensure your people thrive by creating an equitable, safe workplace and delivering timely and accurate payments.
Reputation. Maintaining a clean legal record and a strong reputation in a particular market can help your company establish lasting, healthy business relationships.
Operations. Noncompliance often leads to time-consuming litigation, injunctions, and employee turnover, all of which disrupt workflows and timelines. Global companies can avoid major operational setbacks by maintaining compliance.

In addition to ensuring regulatory compliance, global companies should familiarize themselves with local customs. While customs aren’t legally binding, meeting employee expectations can help a business secure top talent and improve employee retention.

For instance, 13th-month pay isn’t mandatory in France. However, most French employers offer it to their full-time employees, making it a critical part of a competitive benefits package.

Global HR compliance examples in different countries

One of the biggest challenges of ensuring global HR compliance is navigating varying regulations across multiple jurisdictions.

For instance, most countries provide overtime limits and termination requirements. However, limits and conditions vary worldwide. Federal regulations in some countries, such as the U.S., don’t offer any of these rights.

Understanding regulatory differences between markets is critical for ensuring smooth operations, maintaining employee satisfaction, and avoiding penalties.

Below, we compare U.S. employment regulations with those in several other countries to illustrate how wide these variances can be.

Employment agreements: U.S. vs. Canada

Despite the many similarities between the two countries, Canadian employment laws differ drastically from those in the U.S.

For instance, the U.S. is one of the few countries worldwide that still allows at-will employment, where employers can dismiss an employee for any reason and without warning. At-will employment in Canada is forbidden.

Plus, there are no minimum requirements for employment contracts in the U.S. However, the Canadian federal government implements the following rules:

The employer and employee must sign the contract
The contract must describe the employment terms and conditions
The contract must articulate the employer's responsibilities and the worker's rights
The contract must ensure the worker gets fair working arrangements

Canadian federal employment laws also guarantee paid maternity leave and paid vacation. However, the U.S. federal government doesn’t provide either of these protections.

Severance pay: U.S. vs. Mexico

Mexican labor law guarantees all terminated employees receive severance pay. If an employer terminates an employee for an unjust cause, the employee receives the following:

90 days’ total compensation
20 days’ compensation and benefits for each year of service
Seniority premium worth 12 days’ wages for each year of service on earnings up to twice the minimum wage
Accrued wages and benefits

Terminations for just cause receive accrued earnings and benefits and a seniority premium. Conversely, the U.S. has no federal regulations governing severance pay.

National minimum wage: U.S. vs. U.K.

The national minimum wage in the U.K. ranges from £6.40 (US$8.12) per hour to £11.44 (US$14.51) per hour, depending on the employee’s age.

The federal minimum wage in the U.S. is US$7.25 per hour. However, states and local jurisdictions can establish higher minimum wages. For instance, California’s statewide minimum wage is US$16 per hour, while Los Angeles County’s is US$17.28.

Collective bargaining agreements: U.S. vs. Brazil

Collective bargaining refers to the negotiation process between a federal government and a worker’s union regarding supplementary employment rights and conditions on top of basic federal regulations.

In many countries, collective bargaining agreements (CBAs) are extremely complex and have varying degrees of reach. Some apply industry-wide, while others only apply to individual employers.

For instance, CBAs influence most worker’s rights regulations in Brazil. As a result, Brazilian employers must stay abreast of evolving provisions and ensure their work agreements are up-to-date and compliant.

The U.S. also uses collective bargaining, although it’s on a smaller scale than in Brazil. While 75% of private sector employees and 66% of public sector employees have the right to collective bargaining in the U.S., only 11% of working American adults are union members.

Maternity leave: U.S. vs. the Netherlands

Maternity leave in the U.S. is unpaid and usually much shorter than in most countries. The Family and Medical Leave Act (FMLA) grants qualifying American employees 12 weeks of unpaid maternity leave. In the Netherlands, for instance, employees receive 16 weeks of paid maternity leave.

Challenges of managing global HR compliance

Adhering to local employment regulations is just one aspect of navigating global HR compliance. Other challenges include dealing with fragmented HR systems, overcoming language barriers, allocating resources, and enforcing HR policies.

Below, we list the primary difficulties organizations face as they manage HR compliance overseas:

Fragmented HR systems. As companies expand into new markets, they often end up with fragmented HR systems split between multiple jurisdictions, making it difficult to work with information, optimize workflows, and collaborate with vendors.
Lack of experience. Without previous experience, organizations face inefficiencies and delays when establishing HR infrastructures in new markets.
Lack of resources. Global HR teams need additional resources, such as workforce management solutions, to handle ongoing obligations outside their home country.
Regulatory complexity. Complex employment laws, regulations, and compliance requirements vary worldwide and constantly evolve, creating an added risk.
Cultural diversity. What is acceptable or customary in one country may not be elsewhere. Maintaining your reputation and developing strong business relationships abroad requires a deep understanding of local customs and norms in each market.
Language barriers. Language differences can make it difficult to understand and interpret legal documents, communicate policies, and ensure compliance.
Data privacy and protection. Ensuring compliance for global HR data poses significant challenges. Companies that transfer and store employee data overseas must consider local legal requirements and implement security measures.
Labor union and CBAs. In regions where labor unions are prevalent, navigating CBAs and managing labor relationships can complicate compliance efforts.
Tax and payroll compliance. Tax laws and payroll regulations vary worldwide, requiring ongoing due diligence to stay abreast of tax liabilities, withholding obligations, and reporting duties in each market.
Employee mobility and immigration. Managing compliance for expats, remote employees, and business travelers requires navigating complex work permit, visa, and residency procedures.
Enforcement challenges. Enforcing HR policies and compliance standards for distributed teams in different locations in various languages requires extra resources.
Cost and resource allocation. Maintaining global HR compliance requires substantial financial and human resources, including legal expertise, compliance training, technology infrastructure, and administrative support.
Risk of noncompliance. Failing to comply with local HR regulations can result in litigation, fines, reputational damage, and fewer business opportunities, underscoring the importance of having robust compliance management processes.

Common global HR compliance risks of hiring talent abroad

Understanding the above HR challenges is critical for crafting a successful global expansion strategy. However, international organizations must be aware of specific legal areas that pose a unique risk.

For instance, worker classification is an ongoing issue for many international organizations, often leading to costly, extensive litigation and hefty fines. Other difficult areas include payroll taxation and immigration.

We discuss each of these risks in detail below.

Worker misclassification

Worker classification refers to how you designate talent—as employees or contractors. Misclassification occurs when an employer inaccurately classifies a contractor as an employee. Fines for worker misclassification vary between countries but include fines, back taxes, benefits arrears, and injunctions.

While misclassification may seem relatively straightforward, worker designation laws vary drastically worldwide, creating a unique risk for foreign employers unfamiliar with local statutes.

These laws can be ambiguous and often leave plenty of room for interpretation. In case of a dispute, courts usually consider the full context of the worker-client relationship to determine the correct classification. This includes the worker’s profit and loss exposure, their ability to set their own work schedule, payment frequency, and relationship exclusivity.

Global companies must perform extra due diligence to avoid worker misclassification as they expand. Consider partnering with a third-party legal expert with experience in local labor regulations to mitigate this risk.

Payroll and taxes

Administering timely, accurate payroll for distributed teams in multiple countries is one of the biggest challenges global companies face as they expand.

As previously mentioned, payroll laws vary drastically worldwide, with each country implementing unique requirements and rates for income taxes, statutory insurance programs, and various levies.

For instance, companies operating in the U.S. must deduct income taxes and make accurate withholdings and contributions for Social Security, Medicare, and unemployment. However, employers in India must withhold income taxes and make withholdings and contributions for Employees’ State Insurance (ESI), the Employees’ Provident Fund (EPF), the Employees’ Pension Scheme (EPS), and the health and education cess.

Running noncompliant global payroll can lead to financial penalties and employee churn. International organizations must familiarize themselves with payroll tax regulations in each market, clarifying current rates and making accurate, timely payments to their team.

Learn more in our complete guide to payroll tax.

Work authorization and immigration

Global expansion involves managing distributed teams. While most of your foreign employees will be local citizens with permission to live and reside in the target country legally, you may find yourself in a situation where you need to hire a foreign national.

For instance, over 88% of talent in the United Arab Emirates (UAE) are expats. Any company that hires employees in this market must be ready to navigate immigration procedures.

Or, you may need to relocate a domestic employee abroad as a part of your global mobility offering. Regardless of your circumstances, every international company must have a qualified HR team with the necessary resources to swiftly navigate visa and immigration processes.

Collecting documents, obtaining authorizations, and ensuring ongoing compliance can result in rising costs and lengthy delays that disrupt operations and cause new hires to seek employment elsewhere.

Tips for mitigating global HR noncompliance

Taking several precautions and practicing extra due diligence from the start can help an organization avoid major headaches as it enters new markets.

For instance, conducting compliance assessments, staying abreast of regulatory changes, and providing ongoing training and education to your HR teams can help you avoid many of the above-mentioned pitfalls.

Below, we provide some tips that all international companies can follow to reduce their risk exposure as they navigate global HR compliance:

Perform compliance assessments. Conduct a comprehensive review of regulations and standards in your target markets. Identify key compliance areas, such as employment and labor codes, data privacy requirements, tax obligations, immigration requirements, and worker classification laws.
Stay informed of regulatory changes. Stay abreast of evolving employment, labor, and tax regulations. Regularly monitor legislative updates, regulatory guidance, and industry trends to ensure ongoing compliance.
Establish compliance policies and procedures. Develop and implement standardized HR policies, procedures, and practices that align with local laws and regulations while reflecting the organization's values and culture. Ensure consistent HR practices across different locations while adapting to local requirements.
Train and educate staff. Offer training and education to HR staff, managers, and employees on compliance requirements and best practices. Brief your employees on their rights, obligations, and responsibilities under local laws and regulations.
Enlist third-party support. Partner with legal experts and HR professionals experienced with international employment law and global HR compliance. Consult with local specialists in each market to ensure compliance with specific requirements and nuances.
Implement compliance monitoring and auditing. Monitor and audit internal HR practices, policies, and procedures to ensure ongoing compliance. Regularly assess your processes to identify compliance gaps, risks, and areas for improvement.
Maintain accurate recordkeeping. Keep accurate and up-to-date records of HR documents, including employment contracts, personnel files, payroll records, and compliance reports. Securely store records and ensure they are easily accessible for compliance purposes and regulatory audits.
Ensure data privacy and security. Implement robust data privacy and security measures to protect sensitive information and comply with local data protection laws. Encrypt employee data, establish access controls, and implement retention policies to safeguard privacy and mitigate data breaches.
Address cross-border employment challenges. Develop strategies for handling cross-border employment challenges, such as international payroll processing, global benefits administration, and immigration. Consider partnering with global mobility experts to navigate complex international HR issues efficiently.

Ensure global HR compliance with Velocity Global

Ensuring global HR compliance can overwhelm in-house HR teams and lead to mounting costs and delays. Mitigate risk by partnering with an international compliance expert like Velocity Global.

With a tenured global footprint and robust integrations, our employer of record (EOR) solution makes it easy for organizations to expand to over 185 countries without worrying about violating local employment, labor, and tax codes along the way.

As a trusted partner, we create long-term, strategic value for businesses that need to quickly and compliantly build and manage an international workforce with high complexity. From onboarding and ongoing management to offboarding, our in-house capabilities and in-country expertise ensure compliance at every step.

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