4 Global Hiring Compliance Mistakes and How to Prevent Them

Businesses are increasingly looking beyond borders to find the best talent. Hiring internationally gives companies a real competitive edge. But it also comes with complex legal and financial responsibilities. Each country has its own set of rules for employment, taxes, and business operations. Failing to follow these rules can result in hefty fines or even legal trouble for company leaders.

This blog will cover some frequent mistakes companies make when hiring globally and offer practical tips to avoid them. By understanding these common pitfalls, you can build a diverse, international team while staying on the right side of the law.

Employee misclassification

Employee misclassification occurs when a worker is incorrectly labeled as an independent contractor instead of an employee. This mistake often happens when companies try to reduce costs or simplify their hiring process, especially when dealing with remote or international workers.

The consequences of misclassification can be severe. Companies may face hefty fines, back taxes, and penalties from government agencies. They might also be required to provide retroactive benefits and overtime pay. In some cases, misclassification can lead to lawsuits from workers claiming unfair treatment or lost benefits. These issues can damage a company's reputation and financial stability.

To avoid this mistake, businesses should carefully evaluate each worker's role and relationship with the company. Key factors to consider include:

• The level of control the company has over the worker's schedule and methods
• The permanence of the relationship, and
• Whether the work is integral to the business.

Source

Companies can protect themselves by creating clear, written agreements that accurately reflect the nature of the working relationship. Regular audits of worker classifications can help catch and correct any issues early. When in doubt, it's always best to consult with experts.

Ignoring local labor laws

Each country has its own set of regulations governing employment, and these can differ significantly from what you're used to at home.

Local labor laws often cover areas like:

• Minimum wage
• Working hours and overtime
• Leave entitlements
• Termination procedures
• Employee rights

Unintentionally overlooking these laws can lead to serious consequences. Companies might face financial penalties, legal disputes, or damage to their reputation. In some cases, it could even jeopardize the company's ability to operate in that country.

Businesses expanding their workforce across borders, particularly those aiming to hire in multiple countries can take help of an Employer of Record (EOR) to stay compliant. An Employer of Record (EOR) serves as a strategic partner for your company, taking on the legal responsibilities of employment compliance across various countries where you hire. These specialized organizations establish local entities in numerous nations - for example, Thera has a presence in over 150 countries.

When you're ready to bring on talent from another country, the EOR crafts an employment contract that aligns with the specific labor laws of that location. This ensures you're compliant from day one, without needing to become an expert in each country's unique regulations.

EORs also handle crucial financial services such as payroll processing and tax management. They navigate the complex landscape of international employment law, freeing you to concentrate on what matters most — growing your team and business.

Not knowing local payroll requirements

When it comes to international hiring, many companies underestimate the complexity of local payroll requirements. It's not as simple as agreeing on a salary and transferring the money. Even well-intentioned employers can easily make compliance mistakes due to the intricacies of these laws and rules.

For instance, a U.S.-based company might hire a remote worker in Germany and assume that paying them a set amount each month is sufficient. However, they might overlook the legal requirement to provide a "13th month" salary bonus or fail to calculate and withhold the correct amount for social security contributions.

Similarly, a startup expanding into multiple countries might apply a one-size-fits-all approach to overtime pay, not realizing that the rules vary significantly from one jurisdiction to another. They could end up underpaying employees in some countries while overpaying in others, both scenarios potentially leading to legal issues.

Local payroll requirements often include specific rules about:

• Pay frequency: Some countries mandate monthly payments, while others require bi-weekly or even weekly payrolls. For example, in Germany, salaries are typically paid monthly, while in the United States, bi-weekly or semi-monthly payments are common.
• Payment methods: Certain regions may have preferences or requirements for direct deposit, checks, or even cash payments.
• Payslip information: The details that must be included on a payslip can differ by country.
• Tax withholding: Each country has its own tax system, with varying rates and brackets that must be accurately calculated and withheld. For instance, in Brazil, employers must withhold for the FGTS (Fundo de Garantia do Tempo de Serviço), a government severance fund.
• Overtime calculations: Rules for overtime pay can be complex and differ significantly between countries. In China, overtime on weekdays is paid at 150% of regular wages, while weekend overtime is paid at 200%.
• Holiday and leave pay: How to calculate and when to pay for holidays, vacation time, and sick leave can vary. In Spain, employees are entitled to 30 calendar days of paid vacation annually, which must be factored into payroll calculations.

For businesses expanding globally, it's crucial to recognize that each new country brings its own set of payroll compliance challenges. Proper research, expert guidance, or partnerships with global employment platforms are often necessary to ensure full compliance and avoid costly mistakes.

Neglecting data privacy regulations

Data protection refers to the safeguarding of personal information collected from employees and job applicants. This includes a wide range of data such as names, addresses, social security numbers, bank details, health information, and even performance records.

Data protection laws, which can vary significantly from country to country. For instance, the European Union's General Data Protection Regulation (GDPR) sets strict rules for handling personal data of EU residents. A U.S. company hiring in Europe might inadvertently violate GDPR by storing employee data on U.S. servers without proper safeguards or consent. Similarly, countries like Brazil, Japan, and South Africa have introduced their own comprehensive data protection laws, each with unique requirements.

Companies often make mistakes by:

1. Collecting more employee data than necessary
2. Failing to obtain proper consent for data processing
3. Not implementing adequate security measures to protect employee information
4. Overlooking employee rights regarding their personal data
5. Improperly transferring data across borders

These oversights can lead to severe consequences, including hefty fines, legal action, and reputational damage. For example, [GDPR violations](https://gdpr-info.eu/issues/fines-penalties/#:~:text=83(4) GDPR sets forth,to that used in Art.) can result in fines of up to €20 million or 2% of global annual turnover, whichever is higher.

Hire global employees without compliance risk

Thera simplifies global hiring by handling all compliance aspects for you. We take care of local labor laws, tax requirements, and payroll across different countries, so you can focus on finding and managing top talent. Our platform ensures proper employee classification, handles work permits, and manages mandatory benefits in each location.

With Thera, you can confidently expand your team internationally without worrying about legal risks or complex regulations. We stay up-to-date with changing laws to keep your business compliant. Our solution saves you time, reduces costs, and eliminates the stress of global hiring compliance.

Ready to hire globally without the headaches? Schedule a demo today and see how we can streamline your international hiring process.

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