8 Steps to Maintaining International Compliance

While hiring talented workers in other countries and expanding your company comes with a lot of benefits, this jump also requires you to navigate tricky situations and have a team that helps with risk management. 

When you want to hire internationally or open an entity in another country, you need to make sure that you have the right knowledge about labor laws, payroll, compensation, and benefits. Even large companies like Google have come under fire for not paying their temporary workers the correct salary. 

8 Steps to Maintaining International Compliance

Employers all around the world are making common mistakes about how to properly compensate and stay compliant when hiring in other countries. Here's a look at what you need to keep in mind while hiring abroad.

1. Understand local and federal taxes

For a US-based company, it may come as a shock that the social security system in many other countries is a lot more extensive. 

As the employer, you will need to have extensive knowledge regarding the exact deductions you need to make in your payroll for both yourself and your employees. You will need to have a strong HR team and management that understands international expansion. 

To avoid any legal ramifications, it’s important to understand exactly what social programs are covered by the taxes in that particular country. For instance, is maternity leave paid by the government or by the employer? (add one more example here directly related to taxes)

For this reason, hiring a team of local tax attorneys or partnering with Justworks' global EOR services helps you avoid any compliance or legal problems. 

2. Anticipate time and costs associated with entity setup 

To hire talent abroad, most countries require employers to either set up an entity or partner with an EOR service like Justworks. Unfortunately, setting up an entity in another country will come with its own significant risks. 

Not only will you be required to understand how to set up an entity properly according to each country’s unique laws and regulations. You will also need to invest a significant amount of time and money into the initial business and management. This can take six months or more and cost hundreds of thousands of dollars.

3. Manage global employee benefits

Required employee benefits vary from country to country. You will need to ensure that you are adhering to each country’s specific laws while also making sure that you set up fair benefits packages that attract top talent.

Many countries, especially in Latin America and Europe, require and expect robust benefit packages as proper compensation for their workers. As the employer, you will need to tailor and understand proper benefits and compensation packages to retain employees and stay competitive. 

For example, many countries outside of the United States require or encourage a 13th-month bonus salary that is already part of the employees base salary and benefits package. 

4. Classify employees accurately 

Another common mistake that many foreign businesses make when hiring employees globally is classifying full-time employees as contractors. A lot of employers choose to take this route to avoid paying taxes and benefits for these workers. The taxes and legal ramifications of misclassifying employees in most countries can be severe. Mexico, for example, has made it almost illegal to hire contractors without having proper proof that the work the person is completing can only be done as a contractor. 

If you plan to hire contractors abroad, you will need to extensively research what types of workers can and cannot be classified as contractors. This usually depends on the contract length and position type. You should create a management team that helps supervise independent contractors. 

5. Understand international labor laws

You must also consider all of the labor laws that govern wherever you plan to hire or expand to. 

Some countries, like Mexico and Brazil, have robust requirements for severance packages, while other countries may not protect workers who are dismissed or laid off at all. 

The United States is considered an at-will country where employers and employees are able to terminate their employment at any time without notice or written justification. For a business where the parent company is headquartered in the United States, it may be quite the adjustment to hire team members in another country where 30 days written notice is required by law to lay off or dismiss workers. 

To avoid any problems with compliance, you should always familiarize yourself with local labor laws, or use a global EOR service (like Justworks) that partners with international labor law experts that help businesses maintain their integrity abroad. 

6. Ensure international payments are seamless

Another obstacle that many businesses face when hiring international employees is making payments across borders. If you don’t have an in-country bank account set up in the country where you have employees, you won’t be able to compliantly issue paychecks and pay full-time employees unless you partner with an EOR service like Justworks. For contractor payments, the laws surrounding international payments are even more ambiguous. 

Each approach comes with its own benefits and risks, so you should research the options and think about what works best for your business before you decide how to run payroll. 

7. Review laws behind background checks

In the United States, background and even credit checks are a legal part of the hiring and recruiting process (with candidate consent, of course). 

However, in a lot of countries, background checks are illegal and violate laws surrounding anti-discrimination. In the United Kingdom, for example, it is almost illegal to conduct a background check (except for certain positions, such as roles that require closely working with children). 

If you deny employment or terminate a worker based on the results of an illegal background check, your business can face lawsuits and fines. 

8. Determine if you have permanent establishment 

Businesses that don’t consider permanent establishment requirements when hiring workers abroad also face tax burdens. 

Permanent establishment is defined when an organization has a fixed place of business or entity in another country. If your business meets permanent establishment requirements, you will likely have to pay higher corporate tax rates, which can add up quickly. 

To determine if you have a permanent establishment, ask yourself these questions: 

• Is there a fixed entity or business in the country?

• How long has the company been operating there?

• Is business being conducted regularly?

• How much control does the parent company have over the employees? 

Without researching and understanding exactly what is expected of you in the country where you plan to expand, you are likely going to run into a lot of problems with compliance. It would be wise to hire a team of experienced resources that know the ins and outs of payroll, taxes, and hiring laws. 

Streamline your global expansion and ensure international compliance by teaming up with an experienced EOR like Justworks. With a network of on-the-ground experts and established entities in target markets, they provide a reliable solution for expanding internationally.

How Justworks Provides International EOR Services for Small Business

Through Justworks International, you can now expand the boundaries of your talent search without setting up a local entity. Focus on building your team, and leave worrying about the nitty-gritty of HR and international compliance to us. 

Our team of local labor lawyers and experts ensure that your small business always remains compliant while expanding internationally. We handle the responsibility side of things so you can focus on what matters: managing your team. 

Learn more about how you can expand your international business through Justworks, and get started today. 

FAQ

What is international compliance? 

International compliance means that you are adhering to laws and rules established in the country you plan to expand your business to. This compliance covers anything from payroll and labor laws to border and trade regulations. 

What is an ICA certificate? 

ICA certificates are introductory courses that provide knowledge about key areas when expanding abroad like money laundering, compliance, financial crimes, and sanctions. 

What is global compliance and reporting? 

Global compliance and reporting helps manage the company’s compliance, reporting, and any other risks associated with adhering to laws and regulations. 

What is global regulatory compliance? 

Global regulatory compliance helps monitor products to meet country-specific regulations.