Regulatory compliance can be a huge headache for companies hiring internationally or engaging a remote global workforce. From widely varying labor laws to dealing with payroll and currency conversions, there are a lot of details to cover. Cybersecurity risks like data breaches can be both a financial and legal danger. Companies need to do a ton of due diligence — and paperwork — before bringing on workers abroad.
To smooth their path, some businesses choose to contract with either an employer of record or a professional employer organization. These human resources providers serve many of the same functions, but they are slightly different in nature. An EOR is like a subcontractor that becomes the legal employer for your international workers. Working with a PEO, on the other hand, is more like outsourcing just your HR department.
Complying With Local Labor Laws
When you hire abroad, an EOR can take on the burden of complying with all local labor laws. But you’ll still need to be aware of how labor laws could impact your hiring and other organizational decisions. For instance, in countries with strict minimum wages and overtime laws, your timeline might be more extended and your budget more constrained. Missteps like misclassifying workers abroad can land you in lots of legal and financial hot water. Never try to get around the rules, or you’ll likely end up paying a whole lot more in the long run.
All the workers you hire internationally are protected by the local labor laws in the nation where they work. Every country has vastly different rules and regulations for employment and worker protections. Some have stringent worker safeguards, while others are lenient and might even allow for dangerous working conditions. Others, like Brazil, have complex paid holiday rules and long periods of notice for terminating employees. Still others, such as Croatia, require details about sick and vacation leave to be recorded on pay slips.
Unsurprisingly, Western European nations like Norway and Germany have some of the most stringent worker protections on the books. In comparison, the United States is relatively lax. Still, it may come as a shock that the U.S. has more workers’ rights violations than the Democratic Republic of the Congo.
Onboarding and Terminations
Throughout the hiring process, you’ll need to stay compliant with specific laws pertaining to hiring and onboarding. Certain nations mandate that all employees have written employment contracts, and several insist those contracts be written in a specific language. Indeed, most countries require you to have a business entity in the country in order to hire in the first place. Luckily, EORs allow to finesse this requirement, as they’ve established these entities and can hire workers on your behalf.
You’ll find that some countries require medical examinations, verification of credentials, or criminal background checks before onboarding can begin. And many have rules about the kinds of questions that can be asked during the employee interview process. Many nations also have rules about probation periods after initial hiring. This is a designated amount of time at the start of employment when it’s a bit easier to terminate an employee.
Terminating an employee is typically much more challenging in other countries than it is in the United States. That’s because most other nations don’t practice at-will employment, as the U.S. does. With most positions stateside, employees can be fired at any time for any reason. In nearly all other countries, an employer is required to give several weeks’ notice and a clear reason for termination. In some, there are even laws about which days of the month you can let someone go.
Taxes, Payroll, and Benefits
Taxes and payroll are some of the most complicated parts of hiring workers abroad. Unless you work with a PEO or EOR, you’ll need dedicated staff for calculating taxes correctly and avoiding payroll errors in each country. Tax structures vary widely. In Estonia, all workers pay a flat tax income tax regardless of their earnings. In Colombia, income is taxed in “units” that are pegged to salary ranges.
There are also laws about when and in what amounts employers have to pay their workers. For example, monthly disbursements are often required (versus weekly or every two weeks). It’s also quite common, especially in Latin America, to require an extra monthly payment or two. These 13th and 14th “month” payments are usually mandatory, and they are often made around the Christmas and/or summer holidays.
A great number of countries also have strict requirements about minimum health insurance benefits. Employers typically need to pay at least a certain percentage of coverage premiums for their workers. Many nations also have extensive requirements around paid parental and maternity leave for workers. Peru and France, for example, grant workers three and four months of paid maternity leave, respectively.
Working With Experts
Unless you’re hiring in just one or two other countries where you already have offices, hiring internationally is extremely complex. At minimum, you’ll need a handful of dedicated staff members to address all the potential compliance issues involved. If you’re a large company with ample resources, handling global hiring internally may be feasible. But for most growing businesses, scaling internationally requires outsourcing employment and compliance tasks.
If you have a business presence where you intend to hire, you can work with a PEO to handle taxes, payroll, and benefits administration. Keep in mind, however, that as the employer of your global workers, you’re still on the hook for ensuring compliance. Consequently, many businesses prefer to contract with an EOR. These third-party HR providers can take most of the headaches out of building a global workforce. They may even be able to advise you on the best countries to take your business and your workforce for optimal ROI.