Expanding operations globally is a challenging endeavor, as complying with local regulations can pose significant legal and financial risks, such as penalties, back taxes,
legal liabilities, or jail time.
However, in this article, we aim to guide startups in avoiding these pitfalls by highlighting the three most common compliance mistakes and providing strategies to steer clear of them.
1. Employee Misclassification
Misclassifying employees as independent contractors is a common compliance mistake that can have serious consequences. Different countries have different criteria for determining employee classification. It is usually accidental but sometimes is a deliberate, unethical cost-saving strategy because employers don’t have to provide benefits to independent contractors.
2. Violating Local Payroll Regulations
Local payroll regulations vary from each country and can be complex, involving tax withholdings, social security contributions, and other mandatory payments. These are distinct rules, and many of them are easy to break.
Two major categories of local labor laws stand out: global payroll laws (e.g., pension, 401k contributions), and data privacy and protection laws (e.g., GDPR).
3. Failing to Meet Immigration and Visa Requirements
When hiring foreign workers or sending employees to work in other countries, it’s vital to comply with immigration and visa requirements. Failing to do so can result in immigration violations, visa denials, and legal repercussions.
Best practices for compliant hiring
If you have full-time employees in foreign countries, the best course of action is to:
● Hire local experts well-versed in domestic financial services, labor law, compliance, and regulation
● Use EOR services to ensure compliance while you focus on running your business
● Employ compliance and data protection officers to avoid penalties
Using independent contractors is flexible and cost-effective if you:
● Know how to differentiate employees and independent contractors
● Promptly pay independent contractors on time
Avoid these mistakes using EOR
Companies that hire internationally need to look outside their own company to ensure compliance, especially if they don’t have a dedicated team.
EOR acts as a co-employer for your company, assuming legal responsibility for employment compliance wherever you hire. It sets up local entities in countries globally
and generates employment contract that complies with their local labor laws. It also provides financial services like payroll and taxes, and manages the legal aspects of hiring so you can focus on the employee, not the compliance.
Deel ensures each contract a full-time employee or contractor signs is entirely compliant with local regulations while enabling to pay and manage them with ease. Therefore, there is no need to learn a new set of rules each time you’re ready to hire in a different country, so it shouldn’t let you stop diving into the global talent pool.
The article was written by Nir Levy MENA Partnerships at Deel.
Contact him at nir.levy@deel.com
