Meeting the compliance challenges of hiring a global workforce

Finding the best talent is a strategic imperative in today’s economic climate, and more companies are exploring the opportunities of sourcing talent globally.

The advent and adoption of cloud technology opened the door to a more distributed workforce, and the necessity of remote work during the pandemic has created an ideal opportunity for organizations to embrace global hiring and gain a competitive edge in a rapidly changing and interconnected world. Recruiters are no longer limited to a 20-mile radius of the office, and companies are taking advantage of the benefits of hiring globally, such as access to diverse talent, cost efficiency, extended operating hours, and cultural intelligence.

From access to a diverse talent pool to cost savings and enhanced innovation, hiring globally has significant advantages — but it isn’t without challenges. Employee-centric companies put great effort and resources into finding great talent worldwide, yet many fail to understand the importance of compliance with tax and employment regulations to keep that talent working safely in each country and jurisdiction where they hire.

Employees or contractors?

One of the first compliance decisions you need to make when hiring globally, is whether your worker is a contractor or an employee. Classifying workers as employees or contractors is one of the most critical decisions organizations must make. How you classify workers as employees or contractors determines the rights, obligations, and responsibilities of both the worker and the employer. Contractors are responsible for managing their own tax obligations and can often lower their individual tax burdens. Employees, however, require employers to withhold and contribute to the tax obligations and social security programs in the jurisdiction where the employee resides.

As you might expect, each jurisdiction has its own specific tax considerations, which can vary greatly. Consider just a few:

• K. employers have to withhold national insurance contributions (NIC), as well as the apprenticeship levy.
• In Germany, the “solidarity surcharge” is an additional tax that supports the development of Eastern Germany.
• Australian employers need to consider “superannuation contributions” (similar to retirement savings).
• In Brazil, employers must also consider taxes related to the “13th salary” (a mandatory annual bonus).

While each jurisdiction has its unique regulations, there are some general indicators that employers should consider to help determine how best to classify their global workers.

• Control and supervision: Consider if your company controls what your workers do, what hours they work, where they have to do their tasks (in a company-owned facility or elsewhere?), and if they can work for other companies while working for you. The more control and supervision you have over a worker, the more likely they should be classified as an employee.
• Duration of the work: A contractor typically has a predefined employment period or a specific project deliverable, while an employee may remain on board indefinitely.
• Business intent of the work: Similar to duration, you should consider if a worker is hired to accomplish a specific task. Often a contractor will be hired to oversee a GDPR integration or software implementation, or perhaps they are filling a role in accounting until you can hire a permanent employee. On the other hand, employees typically have broader responsibilities that apply to the organization’s ongoing operations.
• Level of integration: Employee-centric organizations want to ensure everyone, even contractors, are treated well. But if the contractor has a company email, is listed on your organizational chart, attends company events, gets company perks, and walks around in a company logo shirt, you might have an employee. This is why some companies require non-employees to wear badges that identify them as contractors and limit their access to company facilities, events, and other benefits.

Misclassifying workers as contractors rather than employees might be seen as an attempt to circumvent these regulations. Legal penalties for tax evasion and potential liability for unpaid taxes or contributions can damage your company’s bottom line as well as its reputation. Seeking guidance from tax and legal advisors in each jurisdiction is the best way to ensure compliance when hiring globally, but in most cases, it’s not practical or even feasible (keeping up with 50+ in the U.S. alone is a daunting challenge!). Technology can help fill the void as today’s human resources and global employment platforms can provide up-to-date local knowledge that can help you avoid worker misclassification and other costly compliance mistakes.

Lock it down

The same technology that makes a global workforce possible can also be one of your most significant liabilities. Long gone are the days of having all your employees in one location and controlling their access to data and information with terminals and desktop computers that stay at the office. Working in the cloud means that every laptop, tablet, phone, or smart device your workers use is an endpoint into your network and creates a potential vulnerability. Likewise, with more workers using their personal technology for work, it’s also imperative that you consider the data security and privacy regulations that apply to how your organization handles worker privacy. Each jurisdiction has its own regulations and priorities, and it’s critical to understand what and how you can track and store personal employee data.

Beyond the technical aspects of securing your data, employers must understand the intellectual property, privacy, and data security regulations in each jurisdiction where you hire and work. It is crucial that you protect yourself contractually with strong contracts (for both employees and contractors) that lock down your partnership agreements, confidentiality, non-competes, and other terms vital to safeguarding your company’s intellectual assets. Software and templates can help reduce the burden of producing these contracts by providing up-to-date jurisdiction-specific contracts, clauses, and terms that protect you while remaining compliant.

Maintaining ongoing compliance

Congratulations, you’ve found the perfect person for the job! You followed compliance in that jurisdiction to the letter and classified them correctly. You’ve set up strong technology systems and IP protections. You’re all set, right? Unfortunately, too many organizations don’t take the time or effort to conduct ongoing audits of their workers’ contracts to ensure that they remain in compliance. As regulations change, or remote workers might become digital nomads, or the contractors and roles and responsibilities evolve, liability can also change for employers. It’s critical to establish a system to review employment agreements and contracts at regular intervals to ensure that they remain appropriate for the work being done, fair to the company and the worker, and in compliance with current regulations.

In short, great employers understand that a workforce and the world in which they work is always changing. You can set yourself up for success by routinely reviewing the composition of your workforce, and staying on top of each jurisdiction’s specific legal and tax obligations, rates, and reporting requirements.

The workforce of the future is global

The benefits of hiring globally make it an increasingly attractive option for organizations looking to remain competitive. Trends like remote/hybrid work and improved technology make global talent marketplaces more accessible and appealing. Yet, as the global talent pool continues to evolve, compliance and tax regulations are becoming more complicated. Meeting these tax and compliance challenges will be a significant part of finding, onboarding, and managing workers across multiple countries and jurisdictions.

Related: Younger workforce is not afraid to leave their jobs, study finds

Companies are often seen as either employee-centric or compliance-centric. Yet, with careful planning and the right tools and technology, you can provide your employees with excellent benefits and a great work experience while remaining compliant in each country or jurisdiction where you hire. Because an organization that’s keeping compliance top-of-mind is also one that’s prioritizing its people.

Miranda Zolot, general counsel at Oyster