Companies that hire internationally or engage a global workforce can find regulatory compliance a major headache. There are many details to consider, from the widely differing labor laws to payroll and currency exchanges. Cybersecurity risks, such as data breaches, can pose a legal and financial risk. Before hiring workers from abroad, companies need to perform a lot of due diligence and complete a lot of paperwork.
Some businesses contract with an employer of records or a professional employers organization to smooth out their journey. Both of these human resource providers perform many of the exact same tasks, but their nature is slightly different. EORs are subcontractors that become the legal employers of your international workers. A PEO is like outsourcing your HR department.
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Compliance with Local Labor Laws
An EOR can help you comply with local labor laws when you hire overseas. You’ll need to know how the labor laws can affect your hiring decisions and other organizational choices. In countries that have strict laws on minimum wage and overtime, you might find your budget and timeline more restricted. You can get into legal and financial trouble if you make mistakes like misclassifying foreign workers. You’ll end up paying more if you try to skirt the rules.
The local labor laws of the country where the workers are employed protect them. Each country has a vastly different set of rules and regulations regarding employment and worker protection. Others have stricter worker protections while others may be lenient, and even tolerate dangerous working conditions. Brazil has complex rules for paid holidays and requires long notice periods to terminate employees. Others, like Croatia, insist that details of sick leave and vacation time be included on the pay slip.
It is not surprising that Western European countries like Norway and Germany offer some of the strictest worker protections. The United States, in comparison, is relatively lax. It may still surprise you to learn that the United States has more violations of workers’ rights in comparison with the Democratic Republic of the Congo.
Onboarding and Termination
You’ll have to comply with certain laws during the hiring process. Some nations require that every employee sign an employment contract, and others insist on the language of those contracts. In fact, many countries require that you have a local business entity before you can hire anyone. EORs can help you to meet this requirement as they have already established these entities.
Some countries require that you undergo a medical examination, verify your credentials or conduct a criminal background check before the onboarding process can begin. Many nations also have rules on the types of questions you can ask during an employee interview. Many countries also have rules regarding probationary periods following initial hiring. It is a period of time that’s designated at the beginning of an employment, when it’s easier to fire someone.
In most countries, it’s much harder to terminate an employee than in the United States. Most other countries don’t have at will employment as we do. In the United States, most employees are able to be terminated at any time and for any reason. In almost all countries, employers are required to provide several weeks of notice and a reason for termination. Some countries have laws that specify which days in the month an employee can be terminated.
Taxes and Payroll Benefits
Hiring workers overseas can be complicated, especially when it comes to taxes and payroll. If you don’t work with a PEO, EOR or other professional organization to calculate taxes and avoid payroll mistakes in each country, you will need dedicated staff. Tax structures differ widely. In Estonia, regardless of the amount earned by each worker, they all pay a flat income tax. In Colombia, income tax is calculated in “units”, which are based on salary ranges.
Also, there are laws that specify when and how much employers must pay their employees. Many laws require monthly payments (instead of weekly or every 2 weeks). In Latin America it’s quite common to ask for an extra payment every month or two. The 13th and/or 14th “months” are normally mandatory and are made around Christmas or summer holidays.
Many countries have also strict requirements regarding minimum benefits for health insurance. Employers are usually required to pay a minimum percentage of premiums. In many countries, workers are also entitled to paid parental leave and maternity leaves. Peru and France for example offer workers three months and four month of paid maternity leaves, respectively.
Working with Experts
Hiring internationally can be a complex process, unless you are hiring in only one or two countries where you have an office. You’ll at least need a few dedicated staff to deal with all of the compliance issues. You may be able to handle global hiring in-house if you are a large organization with plenty of resources. Scaling internationally is difficult for many growing companies. They must outsource employment and compliance.
You can hire a PEO if you already have a presence in the country where you plan to hire. They will handle payroll, taxes and employee benefits. As the employer, you are still responsible for compliance. Many businesses prefer to hire an EOR.
Third-party HR providers are able to take the majority of the headaches away from building a global workforce. These third-party HR providers can even advise you where to send your business and workforce to maximize ROI.
