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.
Growing international companies sometimes 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 avoid international staffing challenges and navigate the classification process with ease. Talent management training also helps you avoid misclassification issues, like controlling the work methods and hours of contractors.
Within every country’s legal system are labor laws designed to regulate and align business operations with the needs and rights of talent. 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.
Labor law in the United States allows for “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. Instead, most international employment contracts are indefinite-term.
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.
A global mobility policy enables employees to relocate and work from anywhere in the world, which bolsters talent retention and grants businesses insights into new markets—among other benefits. However, a common issue of global compliance related to global mobility is obtaining 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.
One major concern for companies expanding internationally is ensuring global payroll compliance. Incorrect payroll contributions or late payments lead to penalties and fines, as well as reputational 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 13th-month pay.
In most countries, employees are entitled to a number of statutory benefits, including mandatory paid vacation days, extended sick leave, paid maternity and 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 helps your company stay compliant in providing the proper benefits to all overseas employees.
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 an employer of record (EOR). An EOR partner doesn’t safeguard against triggering permanent establishment, but it does help handle PE issues by providing detailed tax documents and showing compliant business operations.
To maintain compliance while engaging foreign talent, many businesses work with an experienced global workforce partner like Velocity Global. With entities in more than 185 countries, Velocity Global has a proven track record of helping businesses navigate complex labor laws and payroll regulations.
Our Employer of Record (EOR) solution allows companies to quickly and cost-effectively hire international talent without the need for entity establishment. We handle onboarding, payroll, benefits administration, contractor conversion, employee relocation requirements, and HR support while ensuring full compliance with international labor and tax laws.
Reach out today to learn more about how we can help support your global expansion and hiring goals.
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 is hereby expressly disclaimed. All content is provided "as is," and Velocity Global makes no representations or warranties concerning this information.