Globalization Partners

Why Compliant Employment Documentation is Now More Important Than Ever

by Globalization Partners
May 2018
Reading Time: 2 minutes

As they do in the U.S., other countries have guidelines about what constitutes a true contractor and what is really an employee in disguise. Though the guidelines may be similar, the penalties may be much more severe if an overseas tax authority decides a contractor should be reclassified as an employee.

An area where compliance may be less evident but no less important is in human resources-related documentation. Employers in the United States are likely acquainted with the American legal system as it pertains to employee disputes. Whether your company has resolved past disputes informally or has been party to employment-related litigation in the past, you recognize the importance of properly maintaining employment records, personnel files and other performance related information. An expanding global workforce means these delicate situations could arise in jurisdictions governed by vastly different legal systems.

Ground zero of any compliant global workforce expansion is an appropriate employment agreement. Internationally, employment laws tend to favor workers more than in the United States. Benefits such as paid notice prior to termination of employment, mandatory vacation and sick pay, expanded parental and other leave policies and severance based on length of service and set by statute are common.

Depending on the jurisdiction, employment agreements must contain these or other requirements, and some have specific requirements that would surprise American employers. Mexico, for example, requires the employee’s fingerprint on the employment agreement, and before the agreement is valid the employee must sign the agreement in person in front of representatives of the employer. Similarly, prohibitions exist in some countries on including language about at-will employment or restrictive covenants that many consider standard in the United States.

Rules related to compensation in employment agreements vary as well. Canada’s overtime rules vary from providence to providence, and employment agreements must reflect those differences where the employee lives and works. In Brazil, including commissions plans in an employment agreement risks making commissions part of an employee’s regular pay to be included when calculating severance and notice period pay.

Using a standard agreement based on U.S. law will create more problems than it solves. Drafting a locally compliant employment agreement that not only satisfies statutory and regulatory obligations but also complies with local customs and meets the employee’s expectations is not only a best practice, it is a must for any global employer. And should a company find itself in a dispute with an international worker, problems with the underlying employment agreement could strengthen the employee’s position and result in greater exposure for the employer. Globalization Partners only engages its clients’ global workforces via our fully compliant contracts. In fact, the client is disallowed from adding non-compliant terms to our employment contracts. Because Globalization Partners takes on the responsibility to ensure that all our clients’ employees are legally employed in the country in which they work, this practice ensures all parties avoid exposure if there is a dispute with an employee.

Why Global Business Compliance is Now the Only Option

At one point, loose adherence to in-country labor laws may have been worth the risk. That’s no longer the case due to a raft of new laws, rules, and—of most importance—substantial penalties. Read our article, written by Globalization Partners Associate Counsel Adrienne Drew, to find out what’s changed, and how the Global PEO model can help.

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