Best Practices for International Compliance

When you operate across international borders, the legal situation for your company becomes more tangled. There are rules you’ll need to watch on either side of the border. You’ll need to ensure your compliance with the employment laws, no matter where you are, which can mean adjusting policies and practices for each new market you enter.

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This can be especially difficult for companies operating in North America. Canadian business owners may not realize all of the shifting details of American regulations and their American counterparts when they cross into Canada.

You can improve your international compliance. No matter which side of the border you’re operating on, you’ll be ready to adapt to new laws and regulations wherever you go.

What is international employment law?

International employment law is the set of regulations, treaties, and legal principles that govern the relationship between employers and employees when they are located in different countries. It is essential for businesses operating across national borders.

Its scope includes:

• Worker rights: Ensuring fundamental rights for employees, such as freedom of association, collective bargaining, and fair wages.
• Anti-discrimination practices: Prohibiting discrimination based on factors like race, gender, religion, or nationality in employment.
• Workplace safety: Establishing standards to ensure a safe and healthy working environment for employees.
• Employee benefits: Regulating aspects of employee compensation, social security, and other benefits.

The primary purpose of international employment law is to protect workers from exploitation and ensure fair treatment, regardless of their geographical location.

Sources of international employment law include:

• International treaties and conventions: Agreements between nations that establish common standards, such as those from the International Labour Organization (ILO).
• Regional agreements: Pacts between countries within a specific geographic area that harmonize labor standards.

A significant challenge addressed by international employment law is the complexity of different legal systems. Multinational corporations must navigate local legislation in the countries they operate in, while also adhering to broader international norms. This includes ensuring compliance with varying rules concerning taxation, benefits, and contractual agreements, especially with the rise of remote work.

Ultimately, a strong understanding of international employment law allows businesses to mitigate legal risks and enhance their reputation as fair and compliant employers in the global market.

Why international employment law is essential for global businesses

• Ensure compliance: Businesses must follow the specific rules and legal systems of each country they operate in to avoid hefty fines, operational limitations, and damage to their reputation.
• Protect brand reputation and attract talent: Adhering to international standards on employee rights, workplace safety, and anti-discrimination shows a commitment to ethical practices. This not only attracts skilled workers but also appeals to consumers and investors who prioritize socially responsible companies.

Key elements of international employment law

• Minimum Wage Compliance: Businesses must adhere to the minimum wage regulations set by each country in which they operate, as these can vary significantly and impact compensation structures.
• Employee Benefits: This covers the provision of statutory and customary benefits such as health insurance, retirement plans, and other welfare programs, which differ greatly between jurisdictions.
• Working Hours and Overtime Laws: Companies need to comply with local laws regarding standard working hours, rest periods, and the calculation and payment of overtime, which can be complex and strictly regulated.
• Employment Contracts: The drafting and execution of employment contracts must conform to the legal requirements of each country, including provisions for probation periods, termination notice, and dispute resolution.
• Payroll Compliance: Businesses must ensure that all payroll processes, including deductions for taxes and social security contributions, are in strict accordance with the local tax and labor laws of each operating country.
• Leave Entitlements: This element covers various types of leave, such as annual leave, sick leave, parental leave, and public holidays, all of which are subject to specific national regulations and can vary considerably.

Challenges of international employment law

• Diverse Regulations Across Countries: 
• The most prominent challenge is the variety of employment laws from one country to another. What is standard practice or legally required in one jurisdiction (e.g., minimum wage, overtime rules, leave entitlements, termination procedures, data privacy, and anti-discrimination) can be completely different in another.
• This lack of uniformity makes it incredibly difficult to standardize global HR policies and requires businesses to adapt their practices to each local labor market.
• Increased Complexity of Compliance: 
• Navigating these diverse regulations leads to an increase in international compliance complexity. Multinational corporations must ensure they meet a multitude of legal obligations, including tax withholding, social security contributions, employee benefits administration, and proper workforce classification (employee vs. contractor) in every country they operate.
• Operational Burden: 
• The administrative and resource-intensive nature of complying with international employment law creates a significant operational burden for businesses. HR and payroll teams, in particular, face increased workloads related to maintaining compliance with visa and work permit requirements, coordinating with local authorities, handling multilingual employment documentation, managing diverse compensation structures, and ensuring accurate payroll processing in different currencies and tax systems.
• Risk of Disputes and Legal Challenges: 
• Without a comprehensive understanding and adherence to international employment law, businesses face a heightened risk of legal disputes and challenges.These disputes can lead to costly lawsuits, significant financial penalties, operational restrictions, and severe damage to the company’s reputation in the global marketplace.
• Adapting to Frequent Legal Updates: 
• Employment laws are not static; they are constantly evolving. Countries frequently introduce new legislation, amend existing laws, or issue new interpretations. Global businesses must continuously monitor these changes across all their operational jurisdictions and promptly adapt their policies and practices to remain compliant.
• Failure to stay up to date with these updates can quickly lead to non-compliance, even if a company was previously in full adherence.

Global workforce management

• Payroll and Compensation:
• This is one of the most complex areas, requiring adherence to local minimum wage laws, overtime regulations, tax withholding requirements, and social security contributions in every country of operation. Global workforce management involves establishing competitive and equitable compensation structures that account for cost of living, local market rates, currency fluctuations, and different pay cycles, while also ensuring timely and accurate payroll processing across various jurisdictions and banking systems.
• Data Privacy and Security:
• With employees’ personal and sensitive data residing in multiple countries, ensuring compliance with diverse and often stringent data protection regulations (like GDPR in Europe, CCPA in California, etc.) is paramount. This involves implementing robust data security measures, obtaining necessary consents, managing data transfers across borders, and establishing clear policies for data access, storage, and retention to prevent breaches and legal penalties.
• Tax Compliance:
• This is a multifaceted challenge, as global businesses must comply with corporate income tax, payroll taxes, social security taxes, and potentially individual income taxes for their employees in every country where they have a presence or employees. This requires a deep understanding of international tax treaties, transfer pricing rules, permanent establishment risks, and ensuring accurate tax reporting and remittances to avoid penalties and legal issues.
• The rise of remote work has further complicated tax implications for both employers and employees.
• Legal compliance and avoidance of penalties:
• This is a fundamental and overarching objective in global workforce management. It refers to the continuous effort by multinational organizations to ensure that all their employment practices, policies, and operations in every country they operate strictly adhere to the local, national, and international laws and regulations.
• The “avoidance of penalties” is the direct and crucial outcome of successful compliance.

Global Compliance: How to Stay Compliant When Hiring Internationally

1. Read up on the legislation and international labor laws

Before you expand into any foreign market, be it Canadian, American, or otherwise, you should familiarize yourself with the regulatory climate. Keep in mind that you may need to look beyond the federal level. In both the US and Canada, for example, states and provinces have at least some say in labour regulations.

Subscribe to local newspapers or legal newsletters that can keep you up to date on proposed legislation and changes being debated or passed in the legislature. This can help you stay up to date and pre-emptively amend your policies.

2. Classify your workers correctly

Legal Compliance and Risk Mitigation: Misclassifying workers can lead to severe financial penalties, back taxes, legal disputes, and reputational damage. Employees, for example, are typically entitled to benefits like holiday pay, sick leave, and pension contributions, which independent contractors usually are not.

Optimal Workforce Management: Accurate classification allows organizations to design more effective hiring strategies, compensation plans, and benefits packages, leading to increased employee satisfaction and a better workplace culture. It also provides clarity for future staffing decisions, helping managers determine whether to hire full-time, part-time, or engage contractors for specific projects.

3. Create a Compliance Plan (and Follow up on It)

It’s never too early or too late to make a compliance plan. Having a process in place for monitoring your compliance and correcting it can save you both time and money. After all, it’s better to make a proactive change than to pay fines and need to change your policies anyway.

Once you’ve created a compliance plan, you’ll need to make sure your employees are executing it. If they’re not, it’s time to ask why. Understand the challenges and make implementing and monitoring compliance as easy as possible.

4. Understand the Relationships Between Your Countries of Operation

Canada and the US are close neighbours and closer trading partners. In fact, the US is Canada’s largest market, and American companies often see Canadian operations as a prime market for their own services and products. Top 3 benefits of employing Canadians for U.S. businesses

Given the close ties between these two countries, it’s little surprise they have many treaties and regulations governing trade. The most famous was probably NAFTA, which was just replaced in late 2018 . The two nations also have tax agreements to minimize double-taxation.

They also have agreements about immigration and work permits, which can ease the process.

Be sure to investigate the various agreements governing trade between your home country and any foreign market you plan to enter. This is especially important for Canadian and American companies, but it’s a good rule of thumb no matter where you go.

5. Pay talent accurately and on-time

Accuracy means precise calculations for wages, overtime, bonuses, and deductions, making employees feel appreciated and avoiding pay disputes. Timeliness in payroll creates financial stability for employees, boosting morale and reducing turnover. Investing in strong payroll systems not only keeps your workforce happy and loyal but also helps you attract and retain top talent in a competitive market.

6. Get Help from the Experts

You won’t know all the labor laws when you expand your business operations to a new country. Nonetheless, you will be expected to enforce compliance.

It’s difficult to comply with laws when you don’t know they exist or don’t understand the nuance of them. That’s why you should get help from the experts whenever you want to expand or ensure your compliance. Experience in both the Canadian and American markets can help.

7. Remain Flexible

The regulatory framework is changing all the time. It can sometimes seem overwhelming to keep up. Remaining flexible is one of the best things any business owner can do, whether they’re maintaining compliance in their home country or in several international markets.

Taken together, these best practices will help you implement and maintain compliance, no matter where your business expansions take you.

Streamline international employment compliance for your business

Compliantly hire and pay global employees

Instead of grappling with the intricate nuances of every country’s labor laws, tax systems, and payroll requirements, PayrollEdge allows you to compliantly hire and pay global employees with unparalleled ease.

PayrollEdge empowers your business to confidently build and manage a truly global team, transforming the daunting challenge of international employment into a strategic advantage for your organization’s success.

Pay people in their currency effortlessly with PayrollEdge

PayrollEdge streamlines the entire global payment lifecycle, making it effortless for your business to fulfill its financial obligations compliantly, efficiently, and with complete peace of mind. This allows you to truly focus on growing your global team and scaling your business, rather than getting bogged down by the intricacies of international finance.

FAQ

• Is it required to establish a legal entity when employing someone?
• Not always. You can often use an employer of record (EOR) service to hire legally without setting up your own entity.
• Is it required to have a written employment contract in place?
• Generally, yes, in most countries a written contract is legally required or highly recommended to clarify terms and protect both parties, in terms of non-solicitation vs. non-compete agreements.
• Is it possible to do hiring checks?
• Yes, but the types of checks (e.g., background, reference, criminal) and their legality vary significantly by country.
• Are the rules different for executives?
• Often, yes. Executive contracts may have different terms regarding notice periods, severance, non-compete clauses, and benefits, subject to local laws.
• Is there any legislation regarding remote work?
• Increasingly, yes. Many countries are developing specific laws on remote work that cover aspects like equipment, expenses, working hours, and health and safety.
• What is international tax compliance?
• International tax compliance refers to the adherence to tax laws and regulations across multiple jurisdictions. This necessitates a thorough understanding of various tax treaties, local regulations, and reporting requirements to ensure that organisations remain compliant and mitigate the risks of penalties. Each country has its own tax laws, which can vary significantly in terms of rates, exemptions, and filing deadlines.

How The Payroll Edge Can Help

Navigating the complexities of international employment law is a continuous journey, not a destination. With regulations constantly evolving across different jurisdictions, proactive adaptation and a deep understanding of legal nuances are paramount for global businesses. 

By embracing best practices such as thorough legislative research, strategic compliance planning, and understanding inter-country relationships, companies can mitigate risks and safeguard their reputation. This is where Payroll Edge truly excels, transforming these daunting challenges into a seamless operational advantage. 

By leveraging Payroll Edge’s expertise, businesses can compliantly hire and pay global employees with unparalleled ease, ensuring accurate, on-time payments in local currencies. This empowers you to build and manage a truly global team with confidence, allowing you to focus on strategic growth and innovation rather than getting bogged down by the intricate web of international compliance.

To learn more about how Payroll Edge can streamline your international compliance, contact us today.