As companies race to grow their remote teams, international hiring has become extremely competitive, and that means organizations may be forgetting to do their homework on foreign countries.
Already, we’ve seen Google land in hot water for not paying its overseas temporary workers enough, which may cost the tech giant more than $50 million in back payments. It’s far from alone: 2 in 5 U.K. employers are paying their remote workers less, a new survey shows, which could come back to bite them legally.
Out of sight does not mean out of mind, and businesses need to know that if their team is distributed across 10 countries, they have to comply with the laws of 10 countries. It’s understandable that startups might shy away from pouring money into lawyers in each country to avoid tripping up, but burying your head in the sand can easily cost you money and reputation down the line. So start by raising your awareness.
What follows are four crucial compliance considerations that companies often overlook when hiring abroad.
Taxes are rarely a simple process, and organizations that choose to hire across borders have to map out what taxes they’re obliged to pay for hiring team members in another country. For instance, employers in Brazil are responsible for paying a portion of employees’ social security and unemployment tax. In Germany, employers pay taxes toward employees’ pension and health care. In the Ukraine, employers have to deduct 1.5 percent tax from salaries for military duty taxes.
No countries share the exact same tax frame works, and yet time and again, businesses assume that they only need to pay the taxes they are familiar with. Employers additionally have to make employees aware of the taxes that they are liable for, and if they have to make tax contributions in their countries of residence–if working in a different country.
To avoid tax noncompliance, companies should use a pay roll provider and task their finance and legal teams with researching and enacting compliance across the different locations. They could also choose to set up their own entities across countries, hire through local partners in those places, or use a global outstaffing platform or a Global Employment Organization that ensures compliance.
Employee background checks
In the fresh rush for talent, background checks are more frequently falling by the wayside. Missing records of historical misconduct could violate laws in some countries, while mandatory background checks could infringe on employee rights. For instance, employers hiring in Hungary are set to receive fines if they request criminal records from employees there.
Companies that don’t inform employees they’re running a background check could be noncompliant too–employees usually have a right to know. In fact, Amazon, Target and Wells Fargo have all faced lawsuits for background checks that violated federal law.
Employers also need to know if they can actually validate such checks abroad. What if universities in a country cannot provide graduation documents? What if health care records are inaccessible? What if previous employers cannot share information? These barriers could swiftly make companies noncompliant.
A simple Google search can verify each candidate’s identity, while county, state and open national databases can sometimes provide information around criminal history. These databases can also highlight if a candidate has any employment sanctions or exclusions. Meanwhile, license verifications and background screening technologies can confirm that candidate licenses and qualifications are up todate.
Employers can check applicants’ social media to verify information too. However, this option should be used with caution, as not to factor in bias around things like political affiliations when hiring.
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Mode of payment
The rise of fintech tools and borderless payments has tricked companies into forgetting that how they pay international staff is just as important as how much they pay. Some of the most popular payment platforms aren’t active or compliant in every country; for example, PayPal is restricted in a number of places. And while some employers are opting to pay individuals with crypto currency, Bitcoin is banned in a host of nations. There’s also the issue of conversion rates and platform fees that could result in companies underpaying teams if not factored in before selecting a mode of payment.
Companies have to ensure the way they pay employees is transparent and traceable–for employees and governing bodies–and that if using a digital medium, there is the necessary cybersecurity in place to protect employees’ and the company’s financial data. A data breach on top of noncompliance would be a nightmare for any organization. Depending on the country, businesses may even need teams to sign Data Protection Agreements, such as this one for the EU.
Businesses have to assess what modes of payment have the best terms, coverage and speed for them, and if they comply with local laws. Providers like Wise (previously Transfer Wise) and Revolut are useful, but leaders also need to collaborate with lawyers and financial advisers in both the sending and receiving countries to mitigate risks.
Compliance varies across countries depending on whether the contract being offered is fixed-term, freelance or full-time. In Japan and the U.K., employees with a fixed-term contract automatically become permanent employees after a certain amount of time. In France, fixed-term contracts cannot exceed 18 months and are only allowed underspecial circumstances like replacing an absent team member. In Russia, authorities are cracking down on companies that employ foreign nationals without local contracts.
To understand what type of contract is best when hiring remotely, companies need a local legal perspective. One of the quickest ways to get this knowledge from a far is to speak to the embassies of the target country in your own country, and ask to be connected with local business organizations–for example, a lawyers guild. It’s also worth looking at other companies in the same vertical that are active overseas and researching what contracts they give their employees and why.
The way people work is fundamentally changing. For now, the question at the heart of the transformation is how to make it happen legally. Compliance is part of the new framework for a remote, global workforce, and it can help companies themselves grow. After all, employees gravitate toward organizations that offer fair, compliant employment.
Article posted by Index's Founder Sergiu Matei on Crunchbase