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When a company expands into a new country, there are key areas where potential disruption and mistakes can occur. One of these crucial areas is compliance — companies must possess the appropriate knowledge and legal expertise to successfully hire internationally in accordance with local laws. Aside from the financial repercussions, noncompliance can damage a company’s reputation and trigger distrust among stakeholders, investors, and customers.
Here are some examples of compliance mistakes companies should look out for on their global expansion journey:
1. Failing to meet complex global tax obligations
When entering a new territory, many companies plan to send domestic employees to new countries without thinking through the legal implications and significant risks involved. There are also added costs, such as income tax and the different social security norms around the world that companies must consider, as well as employee pension packages and medical coverage, as they too vary from country to country.
2. Underestimating the risks related to employee mobility
If companies decide to send local employees abroad, it is crucial to think about how employment will work post-migration: What will the additional tax- related fees be if the employer does not have an in-country entity established where the employee is transferred to?
Another significant compliance risk associated with employee mobility is knowing all the corporate records and filing requirements mandated by each country. Several nations have passed new teleworking laws after seeing global mobility accelerated during the pandemic — companies must have up-to-date documentation for each legislation.
Sending employees to a new location requires a lot of planning and preparation, and the responsibility sits with the company to assess if it is advantageous to do so.
3. Overlooking the hurdles associated with entity setup
Companies must be aware of the laws and regulations that apply in the country they plan to set up an entity in. Each country has its own set of legal and accounting rules; therefore, insufficient knowledge of local norms and regulations can cause setbacks and delay the international hiring process. Awareness of local culture and ways of doing business are also vital when expanding globally and setting up entities in international jurisdictions.
Companies must navigate many pitfalls when transferring their processes and policies to other countries. For example, a company expanding into Japan could experience the following challenges:
- Unfamiliarity with relationship-based cultures and workstyle differences.
- More hands-on intervention between levels in an organization.
- Communication style differences that lead to misunderstandings and frustration.
4. Failing to provide a tailored employee benefits plan
Employee benefits vary from country to country. How can global companies adhere to the specifics of a country’s laws and customs while still offering “equal” benefits to all employees?
As there is no singular way to roll out one equal benefits plan for all international employees, it is important instead to offer an equitable benefits plan based on each country’s labor laws, economy, and culture; for example, in some countries, a 13th-month bonus is a mandatory component of employee benefits, while in other countries, it’s not mandatory but employees expect it, making it hard to stand out to top talent without it. A tailored employee benefits strategy will not only avoid compliance-related fines, but it will also give your company a competitive edge to attract and retain talent in different jurisdictions.
5. Misclassifying employees
One common mistake companies make is classifying full- or part-time employees as contractors, which allows the employer to forgo responsibilities like paying taxes for these workers and providing employee benefits. If employers are discovered making this misclassification, they can face hefty fines and significant legal consequences. Employers should seek the advice of local experts to make sure they are classifying workers properly, based on the country’s local labor and tax laws.
Companies must assess the costs and preparations — and measure the advantages and disadvantages — that come with hiring international team members. With proper planning around compliance, building global teams can lead to new perspectives, expertise, and insights that take companies to new heights.
Learn more about Globalization Partners‘ fully compliant global employment platform.