Despite the well-laid plans of HR professionals, there will always be changes to the laws regulating employment around the world that threaten to wreak havoc on compliance.
However, with every change comes opportunity.
Compliance issues are unlikely to disappear—a continually shifting global political environment will see to that. The volume of complex HR and employment legislation is only likely to increase in the future.
Understanding the top HR compliance challenges can help you be ready to take full advantage of the opportunities they present.
New market compliance
According to a recent survey, 87% of U.S. companies believe international expansion is a necessity for long-term growth.
The sheer number of organizations exploring markets outside the U.S. creates certain inevitability—sooner or later a request from the CEO to support international plans is going to filter down to your desk.
Each new territory your company eyes for expansion has its own laws and regulations. And the responsibility of figuring out how to register, employ and pay employees in each country falls on your shoulders.
If you can accomplish this in under three months and keep your organization’s growth plans on track, consider yourself a compliance wizard.
But if current trends continue, this is likely to be a rare occurrence.
Regulations are documented in the native language. Tax calculations are unfamiliar and confusing. One of the most common mistakes is to assume employment in foreign markets occurs exactly as it does in the U.S.
Doing so can be costly.
In Mexico, for instance, onboarding first-time employees comes with a statutory requirement that new hires be registered with the government within a five-day window. However, in Spain, new employees must be registered with local authorities before their first day.
Maintaining on-the-ground support and expertise is clearly advantageous. The challenge is whether your compliance solutions can scale. A request by management to establish business presence across eight new countries in six months can stretch even the most experienced and well-resourced HR departments.
Flirting with payroll compliance can be a dangerous game.
Noncompliance with tax deadlines can result in heavy fines and penalties. Complexity is added when different regions and municipalities within each country have their own individual laws. But learning each of these requirements is only half the battle, as HR must keep up with continual updates.
What do you need to keep an eye on? Certain countries, such as Uruguay, Argentina and Chile, require employees sign their payslips upon receipt. Overlook this and it would be within the rights of any employee to come back and sue the company for lost wages.
Mismanagement of any country’s withholding and reporting requirements can lead to inconveniences that aren’t a quick fix. For example, in Italy you’ll need an Italian bank account to pay your monthly statutory tax returns. Not knowing this until the day the tax is due is a surprise you could do without.
But failure to maintain compliance doesn’t stop at legal sanctions and fines. Compliance failures can seep into and affect the morale of your workforce. What would your employees do if their wages were delayed by just a few hours? How about days? The reputation of your company can be severely damaged in the long term if this is picked up by media outlets.
Even what you may perceive as small payroll errors can take their toll on employee engagement.
One survey discovered 49% of American workers will start looking for a new job after just two payroll errors on their paycheck. Suddenly you’re adding recruitment to backfill existing positions to your to-do list.
Your global benefits policy calls for a multifaceted approach.
First, review the statutory benefits requirements for each country. If you’re fluent in the local language, many governments will detail the statutory minimums on their website.
This should also be your opportunity to evaluate the other end of the scale—are you spending too much on benefits? For example, though it is required by law for large employers to offer certain levels of health coverage in the U.S., most countries around the world have state-provided healthcare coverage. If you’re offering private health insurance to all your international employees, this may be a redundant cost.
If senior employees make up a part of your international workforce, once again, the rules of engagement change. A senior director in the U.K. may require supplemental private healthcare insurance for his entire family, a company car and share incentives. Do you have a local resource in each country where you do business who can advise you on nuanced cases?
Gender equality continues to dominate headlines. At the forefront of this is the practice of paid family leave. Standards around the world vary widely—both in terms of time and circumstances.
For example, parents in Denmark get 52 weeks of parental leave. The mother is entitled to four weeks leave before birth, then 14 weeks after. The father is entitled to two weeks leave during the first 14 weeks after the birth. The 32 weeks that follow are then shared between the parents at their discretion. In these scenarios, HR must not only consider compliance, but also the resource planning to ensure you’re not understaffed during periods of leave.
Liability insurance provides a specific level of protection for the workers you employ.
Are you aware of the coverage limits of each of the countries you have employees? Not all countries have a state mandated plan for your company to pay into.
Even in instances where state plans exist, there has been a growing trend for global organizations to set up their own liability insurance to protect both the work site and employees working there. This appeases the legal and moral responsibility we all have to look after the people we employ.
It’s essential to your culture of your organization that every employee knows they are being treated equally and fairly, regardless of where in the world they are working.
Termination policies and practices
Terminations are an unfortunate necessity of business.
When managed incorrectly, they can be unpleasant for both employee and employer. It’s well documented that “at-will employment” only exists within the United States. In other countries, there are numerous procedures and processes that must be followed in order to avoid noncompliance pitfalls.
Termination rules tend to depend on the scenario at hand. If an employee breaks the law or steals from the company, naturally the termination process is more straightforward. However, if termination is based on employee performance, complexity can escalate quickly.
This scenario highlights the need for documenting and following process. Prior to compliantly terminating an employee for poor performance, many countries require employers to attempt to increase the employee’s performance level to required standards—and to provide supporting evidence of this.
This stage alone can take up to a year; but only then may a legal termination be made. Even in instances where you can legally justify the decision, a notice period and severance pay may still be mandatory.
Retirement and pension plans
With Gen Xers and baby boomers making up an estimated 58% of the workforce, employers are turning an increased focus toward retirement planning and pension plans in 2019.
Substantial resource planning must occur in anticipation of a large population exiting the workforce. But pension plans and their availability are now a hot topic for employees of all age groups.
Employers with an international workforce should know mandatory retirement ages will vary from country to country. Historical and cultural expectations often shape this age. In France, for example, workers can retire once they have reached the statutory retirement age of 62.
However, they are not required to claim their pension at this age—and can even get a higher pension by continuing to work to the full-rate retirement age of 67. Early retirement is also a possibility for those with a disability, a long career or a history of arduous work.
Clearly no assumptions should be made regarding retirement age. Rules and expectations differ greatly, and as evident by the example above, a large number of gray areas exist with regard to individual circumstances of each employee.
As you hire more international employees, you’ll quickly learn many countries’ pension provisions are part of their social insurance or statutory requirements. These requirements fluctuate frequently, so staying on top of the rules can be a challenge.
One growing trend is for a greater number of jurisdictions to require employers to make contributions to their employees’ pensions by law—a concept unfamiliar to employers with a solely U.S. workforce.
In August 2014, for instance, the U.K. re-wrote its pensions laws to require employers to contribute at least 3% into an employee’s private pension scheme. Additional options such as public models, government pension funds paid for with taxes, and group pensions only add to the complexities that companies must understand to succeed in the countries where they operate.