Expanding internationally is an exciting prospect that allows you to reach new markets and quickly grow revenue. But as you begin exploring expansion throughout different countries, many hiring details, such as country-specific laws and best practices, can be overwhelming to navigate.
You’ll need to consider employee compensation, benefits, taxes and payroll, as well as how to protect your company’s intellectual property, in each market you engage international staff, and each one of these considerations come with its own set of challenges.
Let’s take a closer look at these key challenges, so you can avoid any potential missteps as you hire international staff in unfamiliar markets.
Navigating international compensation and benefits
Every country has different laws and regulations that govern local employment, and your HR team may not be familiar with managing the nuances.
If you want to ensure your international staff receive a competitive employee agreement compliant with the local law, be aware of the following.
Benefit plan details. In the U.S., offering medical benefits makes an employer more attractive, but this isn’t always the case when expanding abroad. Many countries, including Canada, Austria, Australia and Denmark, have universal health care. These plans may cover a person’s medical needs, so if you offer medical benefits as part of your compensation package, employees may not realize the true value of the benefit. As a result, you aren’t fully utilizing your compensation dollars in the best way.
Research what benefits are available to local employees in the area of your international assignment so you can ensure compensation dollars generate greater impact.
Bonus plans may create challenges. Offering bonus plans for employees is common in the U.S. As you expand to different countries, however, regulations for this type of compensation structure can get murky.
If you operate in Germany, for example, there are equal-protection laws in place. The details of these laws may affect your ability to offer bonuses that are discretionary and performance-based. What’s more, the German labor courts have latitude to determine bonus pay amounts.
The cost of compensation extends beyond salaries. Local laws and taxes affect the total cost of employment. You might need to contribute to an employee’s pension, severance pay and other benefits. Understanding these details can help you forecast the true cost of employment and ensure that you’re staying legally compliant.
Bargaining agreements play a role in compensation. Bargaining agreements are common in many countries. These agreements, which dictate the working conditions and details of employment, will play a role in developing appropriate compensation. For example, roughly 60% of employees in the EU are covered by a collective bargaining agreement. Countries including Italy or Germany may have rules that relate to specific salary requirements in various industries. The collective bargaining agreement may dictate overtime pay in countries including Australia. As a result, researching the collective bargaining agreements in the new country and your chosen industry will play an important role in compensation details.
Understanding impacts of worker classification
There are two common types of worker classification, independent contractors and direct employees. But paying a person as an independent contractor can be a slippery slope. If the employee’s work starts to look more like that of an employee rather than a contractor, the organization is at risk of misclassification and the resulting noncompliance fines and taxes.
Alternatively, if you decide to classify employees as direct hires, there are many costs and a steep learning curve.
To protect your business and ensure the right type of worker for your international staffing needs, make sure your HR team is well-versed in the difference between independent contractors vs. employees.
Mitigating risk with IP protection and noncompete agreements
Another key area to consider is intellectual property protection. Laws vary greatly by country in this area, and understanding intellectual property protection laws in a new country will help mitigate risk and safeguard your company’s future.
In the United States, when you hire an independent contractor, you might require the person to sign an agreement that protects intellectual property rights. Agreements like these, however, might not hold up legally in other countries. In fact, in some countries, it’s against the law to require these agreements, so remaining compliant is critical.
Reach out to local authorities and ask about intellectual property protection. What type of agreements are legal? What laws apply to the work of independent contractors, and how do they relate to IP rights?
Noncompete agreements are another area to explore. In the U.S., you can ask employees to sign these types of agreements, but you might not have that option in some countries. Explore what types of contracts are legal and what protections you may put into place.
Avoiding challenges by using an employer of record
Not fully understanding local labor laws opens your company to potential risk. You must understand payroll, local tax requirements and more, but you must also understand any laws that affect how employees work. What are the laws about overtime? How do they relate to compensation and payroll? You can invest time in learning these requirements yourself, or you can partner with an employer of record (EOR) that enables you to offload these tasks.
Learn more about how our employer of record solution, Global Employment Outsourcing, can support your international staffing needs in more than 165 countries.