For HR

How to compliantly hire an international workforce

Caroline Esser, Lead Counsel & Sarah Bloom, Employment CounselFeb 24, 2023

No matter where you're hiring, you have to keep up with fluid employment laws and collective bargaining agreements that can change every year. 

For example, France's vacation policies are different from Germany's, which has a different minimum wage than the UK, which has a different pension scheme than India, which requires different mandatory workplace training than Canada…

Without diligent review, companies run the risk of unwittingly violating labor laws in the countries where they employ workers. So how do you monitor and enforce global compliance?

In the following sections, we'll highlight a multitude of international employment considerations, then explain how Rippling helps monitor and enforce international employment laws, so you don't have to.

What is compliant global hiring?

Compliant global hiring means employing people in a way that adheres to the relevant employment laws and regulations in that jurisdiction. And it can get complicated. 

Employment laws are a tangled web of federal, state, and provincial mandates that vary both within and among countries. Canada, for instance, has 10 provinces and three territories, each with its own employment laws that diverge from, say, the neighboring US, with 50 states that have varying employment regulations as well. It's crucial to know where your new hire lives and comply with all laws for their corresponding region. 

Why is this important? Because the cost of non-compliance can be steep. In Canada, for example, there was recently a $153 class action settlement for failing to pay overtime. In Germany, employers can be fined up to €500,000 for minimum wage violations. 

Contractor vs. employee: what's the difference?

The first step to ensuring compliant hiring is always to determine whether a worker is a contractor or employee. While each country has its own standards, these are the common factors that determine the distinction:

Contractor

Employee

Degree of control

Contractor controls key aspects of how they complete their work

Employee’s day-to-day work is overseen by the company, which can dictate how the work is done

Permanency of the relationship

Agreement tends to have a defined end date

Agreement does not have a defined end date (though many countries permit fixed term employment agreements)

Degree of integration

Doesn’t participate in typical company processes; a true contractor’s work isn’t considered integral to the business

Does participate in company processes; an employee’s work is considered integral to the business

Chance of profit and loss

Can realize a profit or incur financial losses from their work

Does not bear an economic risk

Exclusivity of service

Can freely provide services to multiple organizations

Generally works for their employer exclusively

Keep in mind that no single factor is determinative; you want to look at the relevant factors in totality when classifying new hires. Once you've decided between contractor and employee, you can drill down to figure out how to compliantly work with them. 

Example: Let’s say you engage a freelance worker based in Australia. After a while, they ask if they can expense some software they need to complete a certain project. It might seem like a reasonable request, but contractors typically pay for their own equipment. So if you agree, their degree of integration with your company may begin to resemble that of a full-time employee.  

Checklist for hiring an international contractor 

Issue contractor agreement

You will generally want to enter into a contractor or consulting agreement with the contractor. This will specify key details about the nature of the business relationship, such as wage, hours, term, and expected output of both parties.

Set up contractor payments

You will of course have to pay this contractor, so you’ll have to set them up in your payroll system. Contractors typically submit invoices on a per-project or per-period basis, so your payroll system must support these types of payment schedules. It also must support other differences specified in the contractor agreement, such as payments in local currency.  Contractors typically handle their own tax withholdings. 

Beware of misclassification

There's less compliance to manage when hiring a contractor abroad. But make sure you're categorizing workers properly! If you misclassify someone as a contractor when they really should be an employee, you can face fines, penalties, and civil lawsuits. You also may need to pay back wages and run the risk of reputational damage. 

In 2021, for instance, a Dutch court ruled that Uber drivers were actually employees who were entitled to back pay and benefits. And in 2015, FedEx paid out a $228 million settlement after misclassifying drivers as independent contractors in California.

Since the stakes are so high, you may want a hand in determining whether someone is a true contractor or better categorized as an employee. We’ve built a tool to help you understand whether you’re misclassifying your workers, so you can avoid falling foul of misclassification laws. You can take our quiz in 90 seconds here.

Checklist for hiring an international employee 

While you won't have to worry about misclassification, there are many more compliance considerations when hiring employees. 

Set up a local entity

The first step towards hiring an employee abroad is setting up a local entity in the country in which they’re being hired. Each country has different documentation and notarization requirements, meaning that the timeline to set up an entity can vary widely from country to country.

In some countries, this process can be onerous. For example, it can take months to set up an entity in India as there is a high volume of documents that require notarization and apostille. In Portugal, there are strict requirements that passport signatures match exactly with signatures on registration documents. To set up local entities in Ireland, Australia, China, and Singapore, you're required to have local directors and local contacts who are residents and nationals of the corresponding country.

Issue employment agreements

Before you can hire an employee, most countries require you to draft  agreements that lay out key conditions of employment like salary, vacation, termination notice, and meet any local language requirements. You should also consider adding clauses that protect your intellectual property. 

It's important to work with local counsel to tailor these agreements to each local jurisdiction where your employees live. You should also be mindful of non-compete and non-solicitation clauses, which are only legally enforceable in some countries and often require additional consideration or payment. 

Local policies and mandatory trainings

Many countries require companies to provide employees with written policies on workplace health and safety and sexual harassment. You need to know what those exact policies are, and the processes you're required to follow. 

In select countries, a company may be required to set up internal committees that oversee certain company processes protecting workers. 

In India, for example, the PoSH Act (also known as the Sexual Harassment of Women at Workplace Act) mandates every employer to provide a safe working environment at the workplace.  It requires employers to set up an internal committee with a presiding officer who's a woman employed at a senior level at the company, at least two employee members, and one external member. 

Set up payroll, taxes, and deductions

Like contractors, you will have to set up each employee in your payroll system so you’re able to pay them. However, with employees, companies are now responsible for withholding taxes and making other required deductions—including bonuses, commission, sick day pay, and more—from an employee's paycheck, which vary based on each country’s requirements. 

Requirements vary by jurisdiction and often contain small details that are easy to overlook. For example, depending on the province, employers in Canada are typically required to add into vacation pay bonuses, commissions, and sick day pay, in addition to base salary. 

Employers need to deduct necessary costs related to health insurance benefits, which vary from country to country. Companies also need to contribute to legally mandated schemes, like pension funds. You should also know whether you're required to set up worker's compensation insurance. 

Adhere to wage and hour requirements

Are you complying with minimum wage, overtime, and break requirements? Most countries set a specific minimum wage based on cost of living and currency conversion rates, with some tailoring it to specific ages. Similarly, each country has different standards on how to treat overtime work. 

Verify work authorization

Many countries require specific documents and processes to verify work authorization, like the I-9 in the US, VEVO check in Australia, or use of employee share codes on the gov.uk website in the UK. 

Ensure legal reporting 

Some countries have strict reporting requirements that solicit demographic information from employers. Large US workplaces, for instance, have to fill out an EEO-1 Report, which requires the company to collect information about employees’ job categories, ethnicity, race, gender, and more.

Countries can also require a company to submit additional information about their disabled employees, relating to benefits and deductions. 

Institute privacy policies

Companies need to institute privacy policies compliant with local data protection laws, as some countries require an employer to make it clear in writing how an employee's data will be collected and used on the job. 

This is especially important for European countries that adhere to the General Data Privacy Regulation (GDPR), a law that aims to protect personal data of any employee living in the EU.

Understand termination law

Before you hire anyone in a different country, make sure you understand the rules and protocols for dismissing employees. 

You’ll want to make sure you know the answers to these questions:

  • Am I required to share certain information in termination agreements?
  • Am I held to certain performance management criteria prior to termination?
  • What are the legal grounds for fair and unfair dismissal?
  • What kind of termination notice am I required to provide?
  • What kind of termination payout or severance am I required to provide, and does it vary based on tenure or salary?

In the UK, for example, employees get unfair dismissal rights after two years. If an employer wants to terminate an employee after that period, the employer has to follow a specific process involving a disciplinary meeting and a potential appeal. Employees can bring claims of unfair dismissal if the process isn't carefully followed.

You can learn how to proactively monitor local compliance regulations, and set up policies that automatically enforce them, by watching our free webinar.

How to identify and avoid non-compliance

Obviously, there are a lot of opportunities to fall into non-compliance if you operate as a global company. The best way to proactively avoid it is setting up policies that are compliant with the local requirements—whether by country, state, or province—where you're hiring. But without the right kind of help, this can be an HR nightmare: one where you spend countless hours tracking down niche labor laws that may apply to a single employee. This quickly becomes laborious, time-consuming, and unproductive.

Rippling’s default policies

Rippling's HRIS, however, comes with default global compliance rules already built in. In supported countries, Rippling will automatically account for:

  • Localized overtime policies
  • Localized holiday calendar
  • Localized time off policies (vacation, sick leave)
  • Localized break policies (meal and rest periods)

Custom policies

You can also use Rippling to create your own compliance policies. This way, you can build off what we've seeded in the defaults and further tailor it to your business, like offering US employees more vacation time than the legally required minimum.

These custom policies support features like:

  • Automated notifications
  • Assigned tasks
  • Custom reports
  • Automated surveys 

Flagging issues

Rippling’s Compliance 360 product will automatically send alerts when you've departed from requirements regarding: 

  • Global minimum wage
  • Global overtime
  • Global sick leave and mandatory breaks
  • Global compliance training

Using an EOR to manage compliance

Your company may not have the time, resources, or know-how to manage compliance manually. But an Employer of Record (EOR) helps you compliantly hire employees globally without having to create your own local entity or master local employment laws. 

While you handle the strategic work of running your business, Rippling's EOR handles the busy work of complying with legal requirements around payroll taxes, benefits enrollment, mandatory training, and so much more.

Rippling’s local entities provide compliant employment agreements that protect your IP and ensure your employees are receiving the benefits they're entitled to. They also manage necessary termination documents, notices, and settlement agreements. 

Rippling’s native global payroll system quickly pays contractors and employees worldwide, all while guaranteeing you're withholding enough in taxes for different jurisdictions. 

Rippling's EOR services also grant you access to local HR advisors that can provide guidance on local employment regulations. 

Because while compliance is important, it doesn't have to be a headache. Request a demo today to see how Rippling's EOR ensures everyone receives their entitled working conditions, no matter where they live.

Disclaimer: This blog post is for educational purposes only. It does not (and is not intended to) constitute legal advice. Readers should contact their own attorney for advice about their particular situation. Use of this website does not create an attorney-client relationship.