Going Global? Watch Out for These Employment Risks

Global employment has significantly reshaped how companies of all sizes operate. With improved technologies and workflows, businesses now have easier access to larger talent pools, local expertise, and cost-saving opportunities while competing more effectively in emerging markets abroad. Hiring overseas, however, isn’t without its challenges. Navigating employment laws and managing payroll across multiple countries remain complex tasks that require careful attention.

Let’s break down the essential details to help you identify and avoid common pitfalls when hiring internationally.

Risks to Consider When Expanding Globally

Compliance with Local Labor Laws

Labor laws vary significantly across the globe, shaped by each country’s economic conditions and cultural values, which influence how policies are created and enforced. Despite globalization, labor standards remain unique and deeply embedded in each nation’s legal framework. Non-compliance with these standards can result in severe consequences, including legal and financial penalties, operational disruptions, high employee turnover, and even criminal liability.

Compliance requirements in global employment are multifaceted and vary significantly across regions. Here are a few considerations:

1. Timesheet Submission and Work Hours Regulations

In many jurisdictions, employers are required to maintain detailed records of employees' working hours. These records, often submitted as timesheets, must reflect the exact number of hours worked to ensure compliance with local labor laws. For instance, EU employers have implemented mandatory time tracking as part of the EU Working Time Directive. This is to protect workers’ health and safety, working hours must meet minimum standards applicable throughout the EU. It indicates weekly working time, daily rest, weekly rest, annual leave, night work, and rest breaks. However, member States may allow an individual worker to opt out of maximum weekly working hours, provided they give explicit consent without facing any detriment for refusing, and that records of the opt-out decisions are retained.

France and Italy are examples of countries that have enforced strict time tracking regulations, obliging companies to maintain detailed records of their employees' working hours. In Germany, new laws mandate most employers to electronically record employee working hours to ensure transparency and accurate compensation. Smaller employers with fewer than 50 employees are granted extended transition periods to adapt to this electronic system, allowing them more time to comply with the new requirements.

2. Wet Signatures for Contracts

By definition, a "wet signature" refers to any signature made on a hard copy using a pen or another writing instrument. Today, an electronic signature can carry the same weight and legal effect as traditional wet signatures on paper documents in most cases. However, some jurisdictions still require "wet" signatures, particularly for employment contracts and official agreements.  

In Switzerland, some parts of an employment contract, like overtime or non-compete clauses, must be signed "in writing." This means they need a wet signature (signed by hand with a pen) or a qualified electronic signature (QES). If these clauses aren’t signed correctly, they won’t be valid. So, it's important to use the right signature type to avoid legal issues.

3. Employment Contracts in the Local Language

Many countries require employment agreements, terms, and conditions to be provided in the local language to ensure employees fully understand their rights and obligations. In Quebec, Canada's only French-speaking province, all employment documents must be in French. Similarly, France and Spain mandate that employment contracts be provided in the national language for local employees. In Qatar, contracts must be written in Arabic, and while employers can draft contracts in English, only the official Arabic version is recognized by the Ministry of Labour.

4. Local Payroll and Bank Account Requirements

In many jurisdictions, companies must pay employees using local bank accounts to comply with labor and tax regulations. For example, payments to employees in Brazil are made via bank transfer. It is mandatory to issue payments in local currency, which is the Brazilian Real (BRL). The case is the same for India, in which foreign employers must pay their employees Indian Rupees (INR) unless the employee has a special foreign currency account. Companies must also comply with a country's currency control regulations when investing capital. For instance, in India, funds sent to the country must be contributed to and provided by shareholders, and the capital must then be approved by the relevant authority before it can be utilized.

5. Probation Periods and Employee Benefits

Probation periods are common in many countries, but the specifics—such as length, conditions, and termination procedures—vary widely. For instance, in the United States, the typical probationary period for a new hire ranges from three to six months. In France, probation periods are governed by collective agreements and typically last between one and four months, with extensions possible if both parties agree in writing for an additional one to four months, depending on the employee’s classification. In Canada, probation periods are often shorter, and certain employee rights like maternity leave or healthcare benefits take effect immediately, regardless of probation status. In countries like Belgium and Chile, probation periods are not recognized by law, but many companies use fixed-term contracts as a de facto probationary period.

Payroll and Taxation Management

Employing overseas also means managing international payroll, encapsulating varying tax rates, social security contributions, payroll cycles, minimum wages, exchange rates, and withholdings. These differences directly not only impact employees' take-home pay and add significant administrative challenges for employers. Any errors can lead to financial penalties, legal pitfalls, and employee dissatisfaction.

To effectively handle international payroll and taxation, it’s crucial to focus on these key factors:

1. International Payroll Tax Compliance

Managing global payroll tax compliance is challenging due to differing regulations, deadlines, and reporting standards across countries. Employers must navigate tax withholdings, social security contributions, and other jurisdiction-specific levies. In some countries, compliance still requires in-person visits. For instance, while the Philippines has moved to electronic submission for many filings, the Bureau of Internal Revenue (BIR) once required in-person submission of alphalists via USB. In Vietnam, both in-person and electronic submissions are supported, but certain processes, like registration amendments, may still necessitate direct updates with local authorities in person.

2. Tax Rates and Withholdings

Different countries have varying income tax rates and withholding requirements, which can greatly impact an employee's take-home pay. Some countries use a progressive tax system, where tax rates increase as income rises, while others apply a flat rate. For example, the United States follows a progressive tax system, taxing employees at higher rates as their income increases. In contrast, the United Arab Emirates (UAE) has a 0% personal income tax rate, allowing employees to keep their full salary without income tax deductions. However, the UAE is introducing a corporate tax rate of 9% on profits exceeding AED 375,000 in 2024, which will apply to businesses, not individual income.

In addition to income tax, withholding requirements also differ across regions. Countries like the UK and Germany require payroll filings to be submitted before the end of the month, with payments typically due the following month. For example, in Germany, payroll for November (1st to 30th) must be filed by the 25th of the same month. Employers must also ensure the correct amount is withheld for social security, pensions, and other local deductions, which vary by country.

3. Social Security and Benefits Contributions

The percentage of payroll allocated to social security, health insurance, pensions, and other employee benefits can vary significantly from country to country. Some countries mandate substantial contributions, while others have minimal or no such obligations. For example, countries like France and Germany require employers to make significant contributions to social security and pension funds, often exceeding 30% of the employee's salary. In contrast, countries like the United States have lower mandatory contributions, with the employer's share of social security taxes typically around 6.2%.

In some regions, benefits like health insurance or pension plans are not mandated by law but may be offered as part of a company’s employee benefits package. Employers must be aware of these variations to ensure compliance and avoid penalties. Additionally, failing to meet local contribution requirements can result in legal consequences or employee dissatisfaction.

4. Minimum Wage Laws

When hiring employees in another country, it's crucial to follow the local minimum wage laws. Some countries, such as the United Kingdom, Australia, and South Korea, set a single national minimum wage for all workers, with slight variations based on age or employment type. In contrast, countries like Kenya, Brazil, India, Mexico, and China have more complex minimum wage systems where rates vary by industry, job type, region, and other factors, often set by local or sector-specific regulations.

Cultural and Language Barriers

Navigating differences in local laws, systems, processes, and frameworks is a primary challenge when hiring overseas. However, cultural and language barriers can also significantly impact relationships between countries, stakeholders, employers, and employees. For example, factors such as communication styles, recognition of culturally significant holidays, acceptable business practices, attitudes toward hierarchy and authority, and awareness of sensitive or taboo topics can all influence interactions.

While bridging cultural and language gaps is not the core responsibility of an EOR provider, their local expertise and tailored support for both employers and employees can make navigating these challenges much more manageable. By offering insights into local customs and practices, EOR providers can help ensure smoother communication and operations, minimizing potential misunderstandings and fostering a positive work environment.

Data Privacy and Security

Managing global teams comes with the responsibility of safeguarding employee data and complying with international data privacy regulations, such as the General Data Protection Regulation (GDPR) in the European Union. Protecting sensitive information is not just about security—it’s also about maintaining trust and meeting legal obligations. Mishandling employee data or failing to comply with both local and international data protection laws can result in severe legal consequences, financial penalties, and reputational damage.

Businesses should implement strong data protection measures, such as encrypting sensitive information, limiting access to authorized personnel, and conducting regular security audits. Using secure payroll platforms that prioritize data privacy and provide compliance with local regulations is also crucial. Additionally, partnering with experts familiar with regional privacy laws can help businesses stay compliant and avoid costly mistakes.

Political and Economic Instability

Operating in regions with political instability or economic uncertainty presents significant risks for global businesses. Sudden changes in government policies, political unrest, or economic crises can disrupt operations, compromise employee safety, and create challenges in meeting contractual obligations. These situations can lead to unexpected costs, supply chain disruptions, or, in severe cases, force businesses to scale back or exit operations entirely.

To mitigate these risks, companies should conduct thorough market research and risk assessments before entering such regions. Gaining an understanding of the local political and economic climate helps identify potential vulnerabilities. Additionally, collaborating with local experts and staying informed on geopolitical developments can provide valuable insights, helping to safeguard both operations and employees.

Given these complexities, having a dedicated payroll team and reliable advanced system to process transactions and keep accurate records is necessary to make sure the whole process run smoothly, efficiently, and compliantly.

Managing Global Employment Risks

Conducting Thorough Market Research

When expanding into a new country, it’s vital to dive deep into research about the local labor market, legal requirements, and overall economic stability. This helps you get a clear picture of the landscape you’re entering and anticipate any challenges ahead. From understanding local employment laws and tax structures to gauging workforce availability and cultural expectations, these insights can make all the difference in how smoothly your expansion goes.

It’s also a smart move to work with local consultants or legal experts who truly know the ins and outs of the region. They can guide you through the complexities of local regulations, highlight potential roadblocks, and help you make well-informed decisions. Taking the time to do your homework and lean on local expertise ensures you’re setting your business up for success in a new market.

Implementing Global HR Policies

When managing a global team, having standardized HR policies is a game-changer. These policies create a solid foundation that keeps things consistent across all your locations, but they also need to be flexible enough to adapt to local requirements. Think of it as striking a balance—you want to ensure fairness and alignment globally while respecting the unique needs of each region.

For example, your policies on benefits, working hours, and communication should have a clear framework, but they should also leave room for localization. Maybe that means adjusting for public holidays in different countries or accommodating cultural norms around work-life balance. By building flexibility into your approach, you can ensure your policies work for everyone, no matter where they are. It’s about creating a cohesive system that feels fair and inclusive while supporting your team worldwide.

Building a Localized Support System

When you’re managing teams across different regions, having localized support can make a world of difference. Bringing on local HR managers or partnering with regional experts helps you stay on top of the unique challenges each location presents. These professionals know the ins and outs of local laws, cultural expectations, and workplace norms, which can save you from a lot of guesswork and potential missteps.

It’s not just about compliance—it’s also about connection. Local experts can help you create stronger relationships with your employees by understanding what really matters to them. Whether it’s addressing cultural nuances or ensuring smooth day-to-day operations, having the right support on the ground helps you manage your teams more effectively and shows your commitment to their success.

Partnering with an Employer of Record (EOR)

If managing compliance, payroll, and HR across different countries feels overwhelming, partnering with an Employer of Record (EOR) can be the best solution. EOR services are designed to handle the complexities of hiring and managing employees in other countries, taking care of everything from staying compliant with local laws to managing payroll and benefits.  

By working with an EOR, you can reduce the administrative load that comes with managing a global workforce. Instead of worrying about navigating local regulations or handling the finer details of employment law, you’re free to focus on growing your business. It’s a practical way to expand into new markets while knowing that all the behind-the-scenes complexities are in good hands.

While global employment comes with its challenges, the opportunities it offers your business make it well worth the risk. Explore how partnering with an EOR like Knit can make managing your international team easier.