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4 Global HR Compliance Mistakes and How To Avoid Them

HR & Compliance

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4 Global HR Compliance Mistakes and How To Avoid Them


Remote work has been an opportunity for individuals worldwide to log in from anywhere and work for an organization headquartered many thousands of miles away. At the same time, companies facing a talent crunch in their immediate geographic area are no longer limited to where they can find qualified talent. Employers can now seek and find motivated applicants across borders in any country.

While this allows employers to cast a wider net regarding their recruiting efforts, it also adds new challenges. One of the challenges is that the globally expanding company must follow the laws and regulations regarding employment in the country where they are headquartered and the laws of the countries where they are hiring.

When hiring employees in foreign countries, global compliance with local employment laws is an essential issue for human resources departments. In each country, there is a different set of laws governing employment. Countries in which your company hires may have statutes vastly different from one another, complicating compliance without a unified global payroll platform from which to work.

Employee Misclassification

Independent contractors work independently and are not on the payrolls of other entities. They supply a service to clients and send an invoice to pay for employment hours. They file income tax and pay their share of social security and tax withholding. They are not entitled to statutory benefits.

Contractors, unlike employees, are not entitled to a minimum wage. They pay for health insurance themselves, unlike employees, who are often provided this benefit by employers.

If a company hires independent contractors, there is a risk of misclassification, which happens when a legal employment relationship entitles the employee to benefits and employment law protections.

Differences Between Employees and Independent Contractors

The term employee may be defined explicitly in employment laws. There are characteristics of an employment relationship that may establish a worker's status and which may be used by the government to see if misclassification has occurred.

An independent contractor:

  • Performs work for a client  whom they invoice
  • Sets the price of the work
  • Supplies materials and tools for the task
  • Is not supervised, is not subordinate, and is not punished by anyone
  • Can work for different clients at the same time

An employee:

  • Performs work for an employer for a paycheck
  • Does not set the price of the labor
  • Is supplied tools and materials for the task by the employer
  • Is supervised, is subordinate, and can be penalized or dismissed for their performance
  • Is generally limited to working steadily for one employer during their employment contract

Potential Consequences of Misclassification

Suppose it is the case that an employment relationship exists. Even a contract defines the relationship between a contractor and a client, and then the local government may require the company to pay the consequences of misclassification.

Consequences for misclassification depend on the local laws and may include:

  • Unpaid minimum wages and overtime owed to employees, with interest
  • Compensation for unpaid benefits and annual leave entitlements
  • Potential criminal prosecution and fines
  • The inability to hire employees in the nation

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Employment Law Violations

The countries where you are hiring will all have their employment legislation governing the employment of citizens and residents within those countries. Employers must learn and understand these employment laws or risk the consequences of employment law violations. Employment laws may change and be complex, so companies should hire local legal experts or partner with an outsourcing solution to ensure compliance.

Employee rights and entitlements in the employment laws can include:

  • Entitlements to various types of leave, such as annual leave, maternity leave, paternity leave, adoption leave, care leave, emergency leave, sick leave, study leave, and personal leave
  • Public holidays for which employees may be given time off or paid extra for working
  • A nationally set minimum wage, which may vary depending on the industry or job title
  • The prohibition of unfair dismissal
  • Laws regarding employee dismissal and redundancy, a notice period for termination, and potential severance pay, which may include annual leave compensation

Global Payroll Best Practices

Compliance With Payroll Laws

Global compliance includes following employment laws involving payroll. Payroll laws regulate how employees are paid. Depending on the country, there may be laws that govern:

  • A minimum wage
  • Payroll frequency – often once or twice per month
  • A standard workweek and rules for the compensation for overtime, night hours, weekend hours, or work on public holidays
  • Severance pay, including compensation for unused annual leave

GDPR Compliance

Global Data Protection Regulation (GDPR) is a European privacy and data protection law that companies that collect data from people in Europe are required to follow.

The law governs the collection and processing of personal data and requires entities that collect data to:

  • Be lawful, fair, and transparent
  • Limit the purpose and scope of data collection
  • Minimize data mining
  • Be accurate
  • Limit the storage of data
  • Have integrity, confidentiality, and accountability

To be GDPR compliant, companies must disclose when and how they collect data from European citizens and get consent from these people to do so. Companies must have data processing agreements with all third parties who collect the data, appoint a data protection officer, and implement technical and organizational measures, such as training and policy making, to keep personal data safe. If there is a data breach, the company has 72 hours to inform all whose data was breached. Specifics about the law can be found on the European Union (EU) website in PDF form and should be reviewed by your data protection officer and legal counsel.

Permanent Establishment Risk

Thanks to tax treaties, companies hiring remote employees internationally are not necessarily liable for corporate taxes or double taxation. Double taxation is when a company pays taxes in a foreign nation and the company’s domestic country. For companies hiring workers, this should be avoidable, considering they are hiring labor and not generating revenue from the nation itself.

The company may need to pay taxes and interest if a government considers the company a permanent establishment, having a long enough presence in the country to require taxation.

Using an employer of record can help reduce the risk of permanent establishment status because your company would be employing through the employer of record. You would not need a local entity because the employer of record would already own the local legal entity.

Immigration and Visa Requirements

Depending on national law specific to the country you’re hiring, foreign nationals and residents may need a work permit to work legally for an employer or even a foreign company. An employer of record, in addition to hiring citizens of foreign nations, can help sponsor visas for immigrants living in those nations and help with their visa applications.

Visas are work permits that permit non-citizens living in the country to work before they have citizenship. The permits allow individuals to work for a set duration based on the type of visa and the national laws.

Some countries may have specific allowances for foreigners working in the country if their home country is a part of a partnership. For example, individuals working in the nation of Luxembourg who are from countries that belong to the EU or European Economic Areas (EEA) do not need a visa to work in Luxembourg. Organizations must carefully review the laws of each country they hire.

As a legal employer, an employer of record can ensure immigration and visa requirements are met for all employees.

Conclusion – Partner With Skuad for Full Compliance

Employers who hire international remote employees will need to take significant care not to violate any employment laws, including payroll laws, privacy laws, and employee classification laws, or they may face expensive consequences such as hefty fines and other liabilities.

Solutions are available to companies in the form of partnerships with human resources outsourcing companies such as Skuad. With the help of an employer of record, many of the risks and liabilities involved with hiring and employing international teams are minimized.

Get Started With Skuad for Global Hiring

Compliance is just one part of global employment. In addition to ensuring compliance with local employment laws, an employer of record can take care of human resources responsibilities such as drafting legally compliant contracts, hiring new applicants, onboarding new employees, accurately calculating payroll, and generating employee payslips on time.

Skuad can offer companies the following:

  • Hiring employees and independent contractors in over 160 countries
  • Global HR compliance with local employment laws
  • Accurate and timely payroll and payroll taxes
  • Contractor management to pay contractor invoices
  • Paying employees and independent contractors in any of over 100 currencies

Get a demo to see how Skuad can help your company with international hiring and global compliance with an employer of record services.

About the author

Catalina Wang is a Human Resource Consultant. She manages recruitment, onboarding, and contract administration staffing for many organizations and remote teams. She’s passionate about efficient HR management and the impact of tech on hiring practices.

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