Making the decision to hire a global workforce is exciting. You are literally opening your business to a world of possibilities. If you aren’t careful about how you do it, though, you can also open it up to legal jeopardy.
International law is no place to make assumptions because ignorance, as they say, is no defense. If your company runs afoul of another country’s laws, rules, and regulations, you will be held accountable. It can cost your business a lot of money or even result in becoming a corporate persona non grata in that country.
Global hiring may be the final talent frontier. If you want to explore it, just make sure you do it with your eyes wide open. Here are three areas of international law to look at when hiring globally.
1. Required Corporate Legal Status
At the very least, a foreign country will require your company to obtain a tax registration before hiring its citizens. It’s not unlike the requirement in the U.S. to register for tax purposes in another state as a “foreign entity.”
Most counties, however, require that businesses establish a legal entity there prior to hiring or conducting business. That doesn’t mean that you necessarily need to open an office in that country. But it does mean you need a formal, legal presence, either your own or one you’ve contracted to use.
If you establish a legal entity in a foreign country, you are solely responsible for compliance with local laws and managing relationships with local payroll and benefits providers. You may therefore want to consider entering a co-employment agreement with a professional employer organization (PEO).
What’s a PEO? It’s essentially a company that knows the employment laws of each country where it operates. The PEO can handle your payroll and human resources functions for you. That should keep your company in compliance and out of legal trouble.
If you don’t have an established legal entity in the country of hire, work with a PEO that’s also an employer of record. An EOR serves as the established legal entity so you don’t need to be. On paper, the EOR is the employer, but you maintain control of whom you employ and what they do.
2. The Mechanics of Hiring, Firing, and Everything in Between
The number of variables in other countries’ employment laws can be mind-boggling. Although there may be similarities with what you are used to, you should beware taking anything at face value. Language translations and how laws are interpreted abroad can be starkly different.
Some countries require formal employment contracts, and the mandatory content of those contracts can vary widely. Some require they be written in the country’s “official” language. Even in the absence of that requirement, doing so may make contracts more enforceable if they’re ever challenged legally.
Background and reference checks and education verifications are routinely used in the U.S. Abroad, whose permission you need to conduct certain checks and who can perform them run the gamut. In the European Union, for example, it’s smart to hire a company that checks criminal records in all member countries.
Probationary periods for new hires are also common practice in the U.S. However, they are time-restricted in some countries and not allowed in others, so be careful.
Terminating employees for any reason, whether for cause or in response to economic conditions, can be tricky. Required notice periods, documentation, the employee’s ability to challenge termination, and severance indemnity are a few potential legal issues. Make sure you have your legal ducks in a row before you start letting people go.
3. Benefits, Taxes, and Privacy Issues
Consider how much more complicated HR legal compliance is now than it used to be. The complexities have given rise to HR as a profession and a standard corporate department. Now, consider how complex HR can be when you’re operating under another government’s rules.
In all likelihood, the general benefits you provide your domestic employees is standard across the board. Retirement contributions, the availability of health insurance, and paid time off conform to U.S. laws and customary practices. In a different country, where the laws and cultural norms are different, all these HR considerations will be as well.
This can create problems for U.S. companies hiring abroad. For example, a number of foreign countries mandate far more generous maternal and paternal leave practices than the U.S. does. You will need to comply with those laws and figure out how to reconcile them with potentially disgruntled domestic workers.
What you can count on is that you will be responsible for paying and withholding employee taxes. Albeit on varying terms, social security programs and income-related taxes are globally common. Get those wrong, and you will be in legal trouble.
Privacy and security laws also have serious legal implications. Many foreign countries restrict access to personal information much more stringently than the U.S. does. Elsewhere, your company will probably need to demonstrate a much higher level of data security.
Obeying the Law: Worth the Effort
Legal compliance is paramount to capitalizing on the potential opportunities presented by hiring global workers. You might begin your expansion exploration with the question, whose laws apply? Complying with the laws of a foreign country doesn’t necessarily mean you can forgo complying with certain U.S. laws.
If this all sounds complicated, it is. But to deepen your recruitment talent pool, enter new markets, or just diversify your workforce, don’t let “complicated” stop you.
For certain, it’s a big world out there. Every country wants to assert its legal authority over its citizens and those who want to hire them. But staying on all the right sides of the law is worth the success it may bring.
