Dynamic employee ecosystems tap into global talent, but ignoring global hiring compliance can throw even the most innovative companies off track.
Compliance spares the high cost of misclassification, PE risks, vague IP clauses, and other oversights in the global hiring process.
Here Are 14 Critical Compliance Checks to Enforce Today, Clearing the Way for Onboarding Global Expertise:
1. Worker Classification
Make sure your worker classifications are up to date. Your ecosystem may have a variety of classifications, including:
- Full and part-time employees
- Independent contractors
- Temporary workers
Automated classification assessments can prevent misclassifications by alerting HR to potential flags.
2. Employer of Record (EOR)
If you’re hiring globally, an employer of record (EOR) service can classify new hires as employees. An EOR is a third-party service that legally hires workers on behalf of a company while handling such essential tasks as taxes, payroll, and labor law compliance.
3. Permanent Establishment (PE)
An EOR can help you avoid permanent establishment (PE) compliance risks by serving as the legal employer of your global hires.
PE can be determined by:
- A physical office
- Construction projects
- Resident agents who act on behalf of the company
Not going through an EOR could lead to heavy PE corporate tax liabilities.
4. Real-World Compliance Scenarios
A real-world scenario can further illustrate how EORs help maintain global hiring compliance by avoiding PE risks.
Suppose a US-based tech firm wants to hire a software developer in Jakarta. They research Employer of Record (EOR) services in Indonesia, mitigating PE risks.
The EOR collects the new hire’s KTP ID number and NPWP tax ID for onboarding. The EOR also handles Indonesia’s progressive income tax, PPH21, and BPJS social security payments.
5. Currency Compliance
The EOR in the above scenario also converts all USD payments from the tech firm into Indonesia’s native currency, Rupiah. Not paying international workers in their native currency can lead to labor law violations, while also exposing them to volatile exchange rates.
6. Social Security
Remember that every country has its own social security framework, like Indonesia’s BPJS. You’re still mandated to contribute to these social safety nets. An EOR can handle this process for you, as illustrated in the above scenario.
7. Payroll Taxes
International tax agencies require local income tax withholdings. For instance, in Indonesia, you’re obligated to withhold and send PPH 21 taxes to the government.
EORs also manage international payroll taxes. Otherwise, make sure your payroll system has automated local tax reporting for each country where you have global hires.
8. Holidays and Mandatory Bonuses
Countries have their own respective holidays and religious allowances, which must be reflected in payroll.
For example, the EOR in the earlier scenario would apply a mandatory religious bonus equivalent, called the THR (Tunjangan Hari Raya), for one month. This is also called the “13th month” and is typically paid out 1 to 2 weeks before the holiday.
9. Local Language Contracts
Make sure all global hire contracts are written in the employee’s local language, as English-written contracts may not be recognized by a jurisdiction’s labor court. Always create dual-language contracts as a compliance precaution.
10. Termination Compliance
Remember that US-based “at-will” employment is rarely practiced globally, so it is vital to prioritize global hiring compliance by expecting international jurisdictions to require just-cause documents, notice periods, and severance packages. To protect your business, create a separate termination compliance checklist to avoid costly global labor fines.
11. IP Clauses
Create airtight intellectual property (IP) clauses written in local languages, stating that all work produced follows local copyright and patent laws. Relying on US-based IP laws can result in unenforceable contracts in international jurisdictions.
12. Data Privacy
When transmitting and storing international employee data, you must follow data privacy regulations like GDPR. This requires receiving consent to manage data. To maintain compliance, enforce Data Processing Agreements (DPAs) as part of your governance policy.
13. Visas and Residency
As a compliance measure, employees must provide documents proving they have the legal right to work in a particular country. An EOR can prove this by collecting national ID numbers. An employee who moves to another country will need to provide the right visa or employment document.
14. Pay Schedules
Always follow a respective locale’s pay schedule. Where some locations require bi-weekly payments, others may mandate monthly payment schedules. Make sure your payroll system reflects these schedules, or go through an EOR.
Stay Compliant
One missed detail could result in a costly oversight regarding global hiring compliance. Avoid fees, penalties, and even lawsuits by integrating this 14-point checklist into your business strategy.
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