The international talent market, while not as straightforward as domestic hiring, can be managed with the right information and local resources, mitigating risks and bringing new vitality to businesses.

A survey of multinational companies hiring international employees revealed that their primary concern is compliance with local laws and regulations. Non-compliance could lead to employee complaints, legal claims, or fines. In extreme cases, companies could face restrictions on recruitment and business operations.

What are the common compliance issues encountered in international employment?

Employee classification errors

When recruiting abroad for the first time, companies often initially consider hiring independent contractors or individuals to meet all labor law requirements. This can sometimes be feasible, especially for short-term projects. However, companies must be aware of the risks of misclassification, as contractors’ work may be deemed that of formal employees under certain regional standards.

For instance, if you regularly pay workers a fixed amount, provide work equipment, and control their time and methods, they may be deemed full-time employees (or they could claim to be). This means your company could owe various social security, benefits, and potential fines.

Violation of host country employment or contract laws

Every country and region has its own employment and labor laws, which may be even stricter than those in your own country or region. These laws cover various aspects such as termination notice periods, employment contract formats, overly restrictive contract terms, and rules to protect employee rights.

Failure to provide statutory benefits and rights

Statutory rights and benefits can vary significantly across different countries and regions, sometimes increasing total compensation costs by up to 50%. However, if a country’s social structure relies on rights and benefits provided by employers, these costs are unavoidable.

Employers may be familiar with benefits like health insurance and vacation days, but they may not understand mandatory pensions or extended full-pay maternity leave. Without knowing how to calculate the entitlements accurately, companies may struggle to provide precise offers, especially since employees may be more aware of customary rights in their country or region than the employer.

Incorrect payroll calculation or failure to pay social security and withholding taxes

International employment entails running local payrolls because companies cannot solely rely on their home country’s payroll systems. Foreign social security lists and payrolls are complex and laborious to manage, and errors in calculation or payment could impact employees’ net pay, social security, benefits, or retirement funds. Even if a company can handle the recruitment of foreign employees, running compliant payrolls still poses many pitfalls.

Failure to meet immigration or visa requirements

If an employee is a foreign national, the company is responsible for ensuring they have the correct work visa or residency permit. As a lawful employer, even if employees choose to reside abroad and work remotely, the company must comply with all local immigration regulations, which may involve outsourcing visa endorsement through a domestic legal entity to a third party. Employing foreign nationals on tourist visas or standard business visas is not permissible and may result in deportation or fines upon discovery. In such cases, the company, as the employer, also bears responsibility and may face penalties.

How to ensure compliance when hiring employees internationally?

Merging with a local entity

If a company has larger business plans in a particular country or region beyond just hiring remote workers, it may consider establishing its own corporate entity through a merger. To meet compliance requirements, we strongly recommend hiring legal and accounting experts and outsourcing payroll.

Utilizing third-party partnerships

Companies already operating abroad may engage vendors to handle payroll and social security for local employees, which could be the best interim solution as it relies on another enterprise to manage employment compliance.