4 costly compliance mistakes employers need to avoid when hiring remotely around the world – crunchbase news
Through Sergiu Matei
As companies rush to develop their teams remotely, international recruiting has become extremely competitive, which means organizations can forget to do their homework on foreign countries.
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We have already seen Google land in hot water for not paying its temporary workers overseas enough, which could cost the tech giant more than $ 50 million in arrears. This is far from the only one: 2 in 5 UK employers pay their remote workers less, a new investigation shows, which could legally come back to bite them.
Out of Sight doesn’t mean out of mind, and businesses should know that if their team is in 10 countries, they must comply with the laws of 10 countries. It’s understandable that startups are reluctant to pay lawyers in every country to avoid tripping over them, but sticking your head in the sand can easily cost you money and a reputation down the line. So start by educating yourself.
Here are four critical compliance considerations that companies often overlook when hiring from overseas.
Taxes are rarely a straightforward process, and organizations that choose to hire overseas must determine the taxes they are required to pay to hire team members in another country.
For example, employers in Brazil are responsible for paying part of employee social security and unemployment tax. In Germany, employers pay taxes on employee pensions and health care. In Ukraine, employers have to deduct 1.5% payroll tax for military taxes.
No country shares exactly the same tax frameworks, and yet, time and time again, companies assume they only need to pay the taxes they know.
Employers must also inform employees of the taxes they are subject to and whether they must contribute in their country of residence, if they work in another country.
To avoid tax non-compliance, businesses should use a payroll provider and task their finance and legal teams to research and enforce compliance across different locations. They could also choose to set up their own entities in all countries, hire through local partners in those locations, or use a global staffing platform or global employment organization that guarantees conformity.
Employee background checks
In the new rush for talent, background checks are increasingly being abandoned. Missing records of historical misconduct could violate the laws of some countries, while mandatory background checks could infringe employee rights. For example, employers hiring in Hungary should receive fines if they ask for criminal records from the employees there.
Companies that fail to inform their employees that they are performing a background check can also be non-compliant – employees generally have a right to know. In reality, Amazon, Target and Wells fargo have it all face 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 can’t share information? These barriers could quickly make businesses non-compliant.
A simple Google Research can verify the identity of each candidate, while national, state and open databases can sometimes provide criminal history information. These databases can also highlight whether a candidate is subject to employment sanctions or exclusions. Meanwhile, license checks and background screening technologies can confirm that applicants’ licenses and qualifications are up to date.
Employers can also check applicants’ social media to verify information. However, this option should be used with caution, so as not to take into account prejudices about things like political affiliations when hiring.
Means of payment
The rise of fintech tools and borderless payments has caused companies to forget that how they pay international staff is just as important as how much they pay.
Some of the more popular payment platforms are not active or compliant in all countries; for example, Pay Pal is restricted in a number of places. And while some employers choose to pay individuals with cryptocurrency, Bitcoin is banned in a multitude of nations.
There’s also the issue of conversion rates and platform fees that could cause companies to underpay teams if not factored in before selecting a payment method.
Companies need to ensure that the way they compensate their employees is transparent and traceable – for employees and governing bodies – and that if they are using a digital medium, the necessary cybersecurity is in place to protect employees’ financial data and of the company. A data breach in addition to non-compliance would be a nightmare for any organization. Depending on the country, companies may even need teams to sign data protection agreements, such as this one for the EU.
Businesses need to assess which payment methods offer the best terms, coverage and speed for them, and whether they comply with local laws. Suppliers love Wise (formerly TransferWise) and Revolution are useful, but leaders should also work with lawyers and financial advisers in home and host countries to mitigate risk.
Type of Contract
Compliance varies from country to country depending on whether the contract offered is for a fixed term, self-employed or full-time.
In Japan and the United Kingdom, employees with fixed-term contracts automatically become permanent employees after a certain period of time. In France, fixed-term contracts cannot exceed 18 months and are only authorized in special circumstances such as the replacement of an absent team member. In Russia, the authorities are crack down on companies employing foreigners without a local contract.
To understand what type of contract is best suited for distance recruiting, companies need a local legal perspective. One of the fastest ways to get this knowledge remotely is to talk to the target country’s embassies in your own country and ask to be put in contact with local business organizations, for example a lawyer guild.
It is also worth looking at other companies in the same industry that are active abroad and find out what contracts they grant to their employees and why.
The way people work is fundamentally changing. For now, the question at the heart of the transformation is how to achieve it legally. Compliance is part of the new framework for a remote and global workforce, and it can help businesses themselves grow. After all, employees gravitate towards organizations that provide fair and compliant employment.
Sergiu Matei is the founder of Index, a platform that helps teams find and hire world-class remote software developers and be globally compliant from the start.
Drawing: Dom guzman
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