Hiring across borders: Five compliance challenges and how to solve them

Author: Miranda Zolot, Oyster

The remote work revolution has made it possible for companies to tap into the global talent pool and work with skilled professionals around the world. This means employers can overcome local talent shortages, build more diverse teams and reduce costs. But, as Miranda Zolot, general counsel at Oyster, explains, global employers need to stay compliant in every jurisdiction in which they operate. Failing to do so means risking government audits, legal claims, financial penalties and reputational damage.

Below are five compliance challenges of hiring across borders - and how you can solve them to build a thriving global team.

1. Navigating country-specific labour laws

One thing that often holds businesses back from going global or expanding their workforce across borders is the myriad of legal regulations and compliance requirements involved. The complexities are further compounded when there are multiple countries or jurisdictions involved.

Even within a single jurisdiction, you'll need to understand employment laws, health and safety regulations, tax and pension schemes, permanent establishment risk, as well as operational laws that are industry-specific, such as licensing or contracting. All of these will impact how your company operates in that jurisdiction, so it's easy to feel overwhelmed.

The good news is that there are partners that can help you navigate those requirements or take on the actual legal responsibility for complying with them. Working with a law firm, a global payroll partner or an employer of record (EOR) will make it easier for you to benefit from the wider talent pool without worrying that you might be creating additional risk for your company.

2. Staying on top of regulatory changes

If it wasn't complicated enough to manage compliance across multiple jurisdictions, there's also the challenge of keeping up with legislative changes worldwide that may impact your global workforce. These include changes like the amount of paid time off (PTO) or annual leave someone is entitled to, whether they get reimbursed for their electricity bill as a remote employee, employer contributions for social insurance, and so on.

If you prefer sourcing your own data or are operating in just a few jurisdictions, you can set Google alerts to serve you relevant articles weekly or monthly. You can also subscribe to listservs from law firms and professional associations, as well as newsletters from EORs and other vendors that keep up with changes in global employment law.

If you don't have time to keep up with these updates or have workers in many jurisdictions, a better option is to work with a partner such as a consultant, a professional employer organisation (PEO) or an EOR. These providers will keep up with regulatory changes, figure out which ones are applicable to your business and your workforce, advise you on how to stay compliant, or automatically implement the necessary changes.

Fortunately, regulatory changes take time, so there's no reason to panic. Generally, after a law is proposed, it goes through a vetting process in the legislative body of that country, followed by a rule-making process that engages with stakeholders to get their input. In other words, it may take six months to two years for a legislative change to go into effect. This means you'll get plenty of lead time to implement any necessary changes to your agreements, policies or processes.

3. Employee travel and mobility

It's one thing to meet compliance requirements for an employee located in a particular country, but it's become more complicated now as remote work has made employees more mobile. Even though employees may want to embrace the freedom to travel the world while working remotely, there are potential risks involved for both the employer and the employee.

If employees travel and work outside their legal country of residence, there may be consequences in terms of tax and labour laws. Even in regions like the EU, where it's easy to travel between member states, there are still strict recording and reporting requirements to make sure that the employer and the employee are taxed appropriately by the authorities. Getting it wrong may result in penalties for the employer as well as significant tax implications for the employee, whose summer in Portugal may lead to a massive tax bill in January. Avoiding such mishaps requires careful planning and consultation.

As an employer, you can minimise risk by creating and communicating clear policies around employee travel to set expectations around what's allowed and what isn't. When creating the policy, consider your business needs as well as risk tolerance. If employee travel is critical for your business, work with a law firm or an accounting firm to build the travel policy as well as a process for tracking travel.

If travel isn't business-critical but something you value in your company culture, adopt a policy that allows maximum travel with minimum risk. Each country has its own limits, but six weeks of travel and work in another jurisdiction is generally safe and won't have significant tax implications.

If you're using an EOR, they will likely already have a policy in place, so you won't have to create one because employees hired through the EOR will automatically follow their policy. In choosing an EOR, ask about their travel policy to see if it matches your vision for the level of flexibility you want to offer your employees.

4. Worker misclassification

When companies hire across borders for the first time, they often start by hiring an independent contractor since it presents a lower barrier to entry in terms of both costs and compliance requirements. Hiring contractors gives companies the flexibility to test out new markets before making a more long-term commitment.

However, there's a risk of misclassification if a contractor is really doing the work of a full-time employee. Misclassifying workers can lead to legal claims, government audits, regulatory fines and reputational damage. Regulatory agencies want to ensure that employees are receiving the protections and benefits they deserve and that companies aren't evading taxes by misclassifying their workers.

While there's always some level of risk involved with hiring contractors, there are steps you can take to minimise risk. Make sure you're aware of the criteria used to assess whether a worker is an employee or a contractor. If they're a contractor, their work should be temporary or project-based rather than ongoing and business-critical. Contractors should be working independently, on their own time and using their own tools, whereas an employee would be more closely supervised and directed. Remember that it's not the contract that determines the worker's status, but the nature of the work and degree of control in the working relationship.

If you want to assess the risk of misclassification for someone currently on your team or a new person you're about to hire, you can use a misclassification analyser to see if they're at a low, moderate or high risk of misclassification. If there's a high risk, one solution is to convert the contractor to a full-time employee. This not only mitigates risk, but also ensures a better employee experience and smoother continuity of your business operations.

5. Data security

When it comes to compliance requirements around data security, there are several layers to consider.

First, from an HR perspective, you're collecting and storing sensitive personal information from your employees, so you need to be aware of how you're using that data, how you're sharing it and how you're protecting it at every stage of the employee lifecycle.

Next, if you have a global workforce, it introduces additional complexity since data and privacy laws may be different where the employee lives versus where your company is headquartered. It's possible that the employee may be entitled to greater protections than what's required in the company's home base. For instance, this happens often with US companies that have employees in Europe.

In addition to employee data, you also need to protect customer data. Your company's commercial contracts may include restrictions that you may need to consider when hiring for certain roles. For example, if a customer requires their data to remain localised in Europe, you can't have an employee outside Europe accessing that data. In other words, be aware of the contractual requirements for how your business handles confidential customer data, and ensure that those requirements aren't compromised due to the varying laws of the countries where your employees are located.

How can you navigate data security and privacy laws when you have a globally distributed team? One way is to adopt the most restrictive or protective scheme and apply that across your entire workforce. While some people may get additional protection that they're not statutorily entitled to, you'll have peace of mind knowing that you're providing the highest standard of security for everyone. In fact, that may be easier than trying to harmonise the data privacy rules across all the different jurisdictions.

Most importantly, make sure you have clear policies and processes in place for handling both employee data and customer data. Be sure to review them regularly because as your business evolves and your third-party providers change, you may need to adjust your policies and practices to ensure ongoing compliance.

Taking the leap

Compliance requirements can seem overwhelming and might discourage companies from working with global talent.

But it's possible to overcome these challenges, whether through your own processes or with support from a partner - and opening up to the global talent pool is worth the effort. Building a globally diverse team will bring new perspectives and fuel innovation and growth, and research from McKinsey shows that diverse teams actually perform better.

Even beyond business considerations, I know from working in a globally distributed organisation how rewarding and enriching it is to work with talented individuals from around the world. There are solutions out there to help with the compliance challenges, and you'll find that the benefits of hiring talent internationally far outweigh the initial trepidation you might have about going global.