By Globalization PartnersApril 2021
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Effective human resources management (HRM) is essential to the success of any company. Hopefully, you feel confident about your human resources (HR) practices in your company’s headquarters, but what if you’re expanding to new international markets? Global expansion can help you strengthen and diversify your team, but it also comes with some important HR considerations and challenges. We’re going to look at seven aspects of international human resource management that you should be prepared to handle to make your expansion a success.
1. Recruiting and hiring staff
Finding the right employees to staff your international branch or subsidiary, or to join your expanding team remotely is key to your expansion’s success. However, it’s also one of the most challenging HR responsibilities during an international expansion.
There are many reasons why recruiting and hiring can present new challenges internationally. If you handle recruiting in-house, your HR team will have to navigate different:
- Talent pools: It’s wise to research a country’s labor force before you start recruiting there. You may find applicants there have different educational backgrounds and skills than you’re used to seeing in your country. In some cases, a country’s impressive talent pool is a motivator to expand there, while in others, gaps in skills and qualifications you’re looking for may present a challenge.
- Labor markets: Familiarize yourself with other countries’ labor participation and unemployment rates. Know whether a labor market is tight, slack, or somewhere in between. In tight labor markets, recruiters may need to recruit passive job seekers and offer more competitive compensation and benefits packages to attract top talent.
- Recruitment methods: Your recruitment strategy in your home country may prove ineffective in a new market. Some countries put more of an emphasis on personal networking, for example, than you may be used to. You also need to know the best places to publish job ads to reach international job seekers, whether that’s on international job boards, country-specific job boards, social media channels, or print publications.
- Legal parameters: The recruitment and hiring process must comply with local laws. You’re likely used to anti-discrimination laws in your home country, for example, but another country’s anti-discrimination laws may include other provisions or protected classes. Countries can also place legal limits on an employer’s ability to conduct background checks or require certain pre-employment screening procedures.
2. Complying with employment regulations
Many regulations typically govern the employment relationship. They may come in the form of national legislation, local laws, industry policies, or Collective Bargaining Agreements (CBA). International HR departments must ensure that employees receive all the rights they’re entitled to. Employment regulations are likely to specify the following and more:
- Regular working hours and required rest breaks
- Limits and compensation for overtime work
- Entitlement to vacation leave and pay
- Entitlement to sick leave and pay
- Allowances for maternity and parental leave
- Minimum wage and other compensation requirements
- Employer-provided benefits, such as savings plans and health insurance
- Privacy requirements for employee data
- Obligations for safe and comfortable work environments
- Procedures for terminating an employment relationship
Each legal requirement also presents an occasion for potential noncompliance. By failing to follow some aspect of employment law, you can risk serious penalties from both governing bodies and employees who take legal action. It’s no wonder that global teams outsource legal services more than any other function. Even if you’re familiar with the employment regulations in your home country, never assume you’ll be prepared to hire employees in another country. With each new country you expand to, thoroughly research all the relevant regulations.
3. Running payroll
After legal services, payroll is the second most commonly outsourced function for international HR departments. Some companies outsource their payroll because you cannot place international employees on your company’s payroll in your home country. To hire and remotely pay employees in another country, you must have a business entity there. Otherwise, you must outsource your payroll to an Employer of Record (EOR). You can also forgo putting workers on your payroll if they are independent contractors, but misclassifying an employee as a contractor can have serious legal and financial consequences.
Even if you have an entity in the country you’re hiring in, running payroll in a new country can present some complexities. You may be dealing with a new currency. You also need to understand any laws governing payroll, including when and in what form employees should be paid, and comply with data privacy laws that mandate how you handle employees’ personal banking information for direct deposit.
Finally, for countries with Pay As You Earn (PAYE) systems for paying income tax and other social contributions, you must withhold the correct amounts from employees’ paychecks and remit those amounts to the government. These contributions tend to differ from employee to employee according to factors like their income and their age. You may need to provide tax forms for employees as well. Employers may also have to pay some form of payroll tax, which may go to unemployment insurance, workers’ compensation, or other programs.
4. Managing compensation and benefits
Other than some brief negotiations during the hiring process, determining the compensation and benefits packages you offer employees in your home country is likely something you understand well. When you’re hiring an international employee, creating fair and competitive compensation and benefits packages requires some research about that country’s:
- Legal requirements: First, you need to ensure your compensation offers meet minimum wage requirements and that your benefits packages comply with the legal requirements for paid time off, pensions, and anything else covered in the country’s employment laws. You may be required to offer benefits like transportation credits that you’re not used to offering in your home country.
- Cost of living: Determining a fair salary should go beyond observing minimum wage requirements. One consideration you should take into account is the cost of living where employees reside. The compensation you provide should be enough for them to live comfortably in that location. The world’s most expensive cities to live in currently include Zurich, Paris, Hong Kong, Singapore, and Tel Aviv.
- Customary benefits: Beyond legal requirements, HR professionals must also be aware of what types of benefits employees will expect based on local customs. For instance, in some countries, an extra month’s pay as a bonus is not legally required, but is expected nonetheless. Employees may also expect to receive time off for religious or cultural reasons, even if employers aren’t required to grant these days as holidays.
- Industry norms: Even if you’re familiar with a country’s laws and customs for compensation and benefits, you may miss other norms that are specific to your industry. These industry norms are important to be aware of. Are employees in your industry used to receiving company cars, phones, or other equipment? Does a CBA call for extra time off or other benefits?
On top of these considerations, you may want to structure your compensation and benefits packages differently depending on a country’s tax laws. It’s wise to consult with local experts in a country who can help you create fair and effectively structured compensation and benefits packages.
5. Navigating cultural differences
Managing HR in international business isn’t just about numbers and legal compliance. One aspect of a global HR strategy that can easily get overlooked, but is critical to success, is the cultural factor. Empathy is an important piece of what makes teams work harmoniously and effectively, and this empathy can be harder to achieve in cross-cultural teams. After all, key cultural components are a common way of life and shared values. When ways of life and ingrained values differ between employees, misunderstandings can easily arise.
A culture’s unspoken rules of etiquette and typical styles of communication are important to understand if you want to build strong cross-cultural relationships with international employees. For example, Western-based companies may find that business dealings are less transactional and more relationship-based in East Asia. Human resources are also about human relations, so international HR departments need to be prepared to relate to people in a culturally informed way.
HRM must factor in cultural concerns in everything from hiring practices to handling conflicts in the workplace. Remember that culture does not tell the whole story of employees’ beliefs, attitudes, and personalities. Every person is different, but culture is a key component in human relationships, and when overlooked, can create problems for international businesses. Our research shows a positive correlation between hiring or partnering with cultural experts and reporting high levels of happiness and trust among employees.
6. Training and supporting employees
Another important function of HRM that can pose new challenges during international expansion is training employees. HR professionals are increasingly identifying and addressing skills shortages in their own countries. A McKinsey global survey found that 87 percent of companies are currently experiencing skills gaps or expect gaps to emerge within the next five years. While many HR departments are familiar with the issue of skills shortages on the home front, this problem can become an even greater challenge in global human resource practices.
Workers in other markets may have different skill sets than you’re used to due to disparate educational and professional opportunities. Before hiring in a country, it’s wise to research the educational backgrounds and qualifications applicants are likely to have and what they aren’t likely to have. This can prepare you to address gaps with initial training and ongoing support. Even if job candidates don’t have the educational degree you’re looking for, they could still be an asset to your company.
Soft skills are taking on greater importance as technology evolves and employees need to continually reskill. Look for candidates with in-demand soft skills like creativity, persuasion, analytical reasoning, collaboration, and adaptability. Once you find these candidates, you should be prepared to train them in the technical skills they need to succeed. Or, if you find candidates who are proficient in the technical skills you need but deficient in soft skills, create or outsource training programs to help them develop these skills.
7. Communicating across language barriers
International expansion HRM strategies should always include a plan for communication across global teams. Language differences may not come into play in some international expansions, but with thousands of different languages spoken across the globe, companies that expand their reach are bound to run into language barriers. In our 2019 survey, 43 percent of international HR professionals said more than two languages were officially used in their organizations. Perhaps even more astoundingly, 22 percent of companies were using five or more languages to communicate. Before recruiting in a new country, make sure you know the local linguistic makeup. If you’re looking for employees who are multilingual or proficient in a specific language, you can quickly narrow down your pool. Or, you may need to hire translators to help facilitate communication.
You should also find communication channels that help your team stay connected. Even if you’re all speaking the same language, global teams that collaborate virtually rather than in-person can experience more communication challenges. As the business world is increasingly embracing remote work models, however, plenty of tech tools are emerging to help teams communicate effectively and efficiently, no matter how far apart they are.
The benefits of outsourcing international HR
As we’ve seen, trying to expand HR internationally can be fraught with complications. With all the challenges of international HRM, you may want to consider outsourcing certain functions to global experts. Outsourcing international HR functions comes with some valuable benefits. You can save time and money, avoid headaches, and keep the focus on your core competencies and higher-level concerns.
Whether you’re learning how best to manage employees remotely or how to succeed in a new market, these concerns deserve a central focus. You don’t want critical aspects of your company’s strategy for growth to be overshadowed by time and attention spent on researching unfamiliar employment and tax laws or customary benefits.
Outsourcing can be a strategic way to capitalize on the areas where your company and HR team can deliver unique value, while leaving complicated logistics to someone who is better equipped to handle them. Partnering with an EOR provides a streamlined solution for the trickier aspects of international HRM, including compensation and benefits, payroll, and legal compliance.
International HR with Globalization Partners
Globalization Partners is a global EOR with an active presence in 187 countries across the world. Our local teams include HR professionals who understand the nuances of local laws and customs. When you work with Globalization Partners, all you need to do is find top talent to join your organization, and our team will handle onboarding employees, payroll, and providing legally compliant and competitive employment terms.
You can focus on building strong relationships across your global teams and making your expansion a success. To learn more about international HR so you can get started hiring in a new country, download your free copy of our eBook, “Global Hiring Handbook: Onboard and Manage Talent in 20 Top Expansion Countries.” Also, be sure to explore other articles on our blog to learn more about international HR and whether partnering with an EOR is the right solution for your company.