Imagine you’re running a business and you've just hired a top programmer from Brazil, a marketing expert from France, and a customer service agent from Japan; all working from home. It's exciting, right? The world has become a much smaller place, and now you can hire the best talent from anywhere. But while you're excited about building a global team, there's something else to consider. With this freedom comes a tricky challenge: following the employment laws of each country.

Whether you're hiring full-time employees or independent contractors, global HR compliance is a major responsibility. If you don’t follow the laws, you could face fines, penalties, or worse, being banned from doing business in certain countries. In this blog, we’ll talk about the most common mistakes companies make when hiring globally and how you can avoid them.

Why Global Compliance Matters

Let’s break it down. Each country has its own labor laws. These laws tell you how you must hire, pay, and treat your employees. So, if you hire someone from a country you’re not familiar with, you need to make sure you're following the rules there, not just the rules in your own country. You might be asking, “What could go wrong?” Well, a lot!

Here’s what could happen:

• You might accidentally misclassify an employee as a contractor.
• You might fail to provide the legally required benefits, like health insurance or paid leave.
• Or, you could even trigger tax liabilities in a country you didn’t expect.

The good news? These issues can be avoided with careful planning and a bit of help from the right partners. Let’s walk through the common mistakes and how to fix them.

Read More: Independent Contractor Tax Deductions Guide

1. Employee Misclassification

This is one of the most frequent mistakes companies make. Misclassifying employees as independent contractors is when you hire someone as a contractor but treat them like an employee. Why does this matter? Contractors and employees are not the same.

Here’s a simple way to understand the difference:

• Employees work full-time, follow your rules, and get benefits like health insurance and paid leave.
• Contractors work independently, set their own hours, and use their own tools. They usually don’t get benefits.

For example, imagine you hire a freelancer from India to work on a marketing campaign. You tell them when to work, what to do, and they use your company’s resources. Guess what? They’re probably not a freelancer. They’re an employee. If local authorities find out, you could face heavy fines for not offering the required benefits or not paying taxes for that employee.

How to Fix It:

Make sure you classify your workers correctly. Check the local laws to see how the country defines an employee versus a contractor. If you’re unsure, partner with a global Employer of Record (EOR) like Gloroots. They can handle the legal side and make sure everything’s done right.

2. Violating Local Employment Laws

Every country has laws that tell you how to hire, pay, and treat employees. These are called employment laws, and they cover things like minimum wage, working hours, and overtime. If you don’t follow these rules, you could face serious penalties.

For instance, in Japan, employees are entitled to specific health benefits. If you hire a remote worker in Japan but don’t provide these benefits, you could be in violation of local laws. The same goes for places like Germany, where paid vacation is mandatory. In Brazil, you need to offer certain social security contributions to your employees.

How to Fix It:

Research the local labor laws before hiring. Each country has different requirements, and it’s important to know them. To make things easier, you can use a global HR compliance solution, like Gloroots, which can help ensure you’re following the rules in every country where you hire.

Read Also: Impact of Globalization in Human Resource (HR) Management

3. Payroll Mistakes

Another common mistake is payroll mismanagement. Imagine sending the wrong paycheck to an employee in a different country or forgetting to account for local taxes. This can lead to frustrated employees and big headaches for your business.

Each country has its own rules about how employees should be paid. For example, in France, workers receive their salaries monthly, not bi-weekly like in some other countries. Some countries also require businesses to withhold taxes and submit them to the local government. If you miss a tax deadline or underpay your workers, you could face penalties.

How to Fix It:

Setting up a global payroll system is key. Make sure it complies with the payroll laws of each country. Using a global payroll provider can help streamline this process and make sure your employees are paid correctly and on time.

4. Permanent Establishment Risk

When you hire workers in another country, you might accidentally create what’s called a Permanent Establishment (PE). This means that local governments could see your business as having a taxable presence in their country, even if you don’t have a physical office there.

For example, if you’re a U.S.-based company but hire full-time employees in Germany, the German government might say that you now have a permanent establishment there, and you’d be required to pay local taxes. This is a huge risk for companies that expand internationally without understanding the tax implications.

How to Fix It:

To reduce PE risk, partner with an Employer of Record (EOR). The EOR legally employs your workers in that country, so your company doesn’t have a permanent presence. This way, you can hire international employees without worrying about extra tax liabilities.

5. Termination and Severance Errors

Terminating employees is another area where companies often make mistakes. Different countries have different rules about how and when employees can be terminated. In some countries, you must give several weeks' notice and provide severance pay. In others, firing someone without a valid reason could lead to legal action.

For instance, in Italy, workers are entitled to significant severance packages, and terminating an employee without just cause can result in a lawsuit. In Mexico, employees can challenge wrongful terminations in court.

How to Fix It:

Before terminating an employee, review the local laws regarding dismissal. Ensure that you provide proper notice and severance if required. Consulting with a legal expert or your global HR partner can prevent these errors from happening.

Learn More: Top 5 Global HR Challenges For International Companies (2024)

6. Not Complying with Health and Safety Laws

Even when employees work remotely, you are responsible for providing a safe work environment. Some countries have strict health and safety laws that apply to remote employees, and failing to comply could result in fines or penalties.

For example, in Australia, employers are required to ensure that the home office of a remote worker meets certain health and safety standards. If you’re hiring remote employees, make sure you’re providing the proper equipment and conducting safety checks when necessary.

Read More: Countries with Universal Healthcare: 2024 Global Overview of Healthcare Systems

How to Fix It:

Regularly check in with your remote employees to ensure they have the tools and support they need. You can also work with an EOR, which will help ensure that you meet health and safety compliance in each country.

Conclusion

Hiring talent from across the globe is a fantastic way to build a diverse and skilled team. But with this global reach comes the responsibility of staying compliant with the laws of each country. Whether it’s avoiding employee misclassification, following payroll rules, or understanding permanent establishment risks, global HR compliance is not something to take lightly.

By staying informed and partnering with an Employer of Record like Gloroots, you can avoid common mistakes and ensure your global team is treated fairly while you remain compliant with local laws. Expanding your team globally doesn’t have to be complicated; just make sure you have the right resources in place.

Ready to build your global team? Contact Gloroots to learn how we can help you hire, manage, and pay employees around the world while staying compliant and stress-free.