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Employment compliance is the legal obligation to follow specific local, state, and federal labor laws and tax regulations. International companies must adhere to the rules, laws, and regulations that apply in the markets where they conduct business.
Underestimating the significance of employment compliance can lead to being audited or sued by the local administration. This can have serious complications, such as seriously affecting the organization's profits and reputation.
Read on as our article explains employment compliance, its significance, the most common employment compliance mistakes, and how to avoid them.
Misclassifying Employees
One of the most common employment compliance mistakes when hiring overseas talent is employee misclassification. This is a severe violation of labor laws in numerous countries. It means the government loses out on payroll taxes, and if caught, it can result in heavy fines.
The laws governing employee classification differ from one country to another, thus, it becomes easy to make mistakes. However, businesses can use some common principles to understand employee classification for every country. The best way is to get access to the employee classification checklist and carry out an assessment for each hiring.
Similarly, some businesses try to stay below the 50-employee threshold due to the costs of complying with the Affordable Care Tax. They reclassify some employees as independent contractors. Organizations that misclassify their employees as contractors may incur hefty penalties. This is one of the most common employment compliance mistakes businesses make.
Unpaid internships are frequently non-compliant from a Department of Labor perspective and another area that can get your company in trouble.
An employee who works the same hours with the same responsibilities and in the same location as before cannot be an individual contractor.
Violating Global Payroll and Tax Laws
Violation of local or international payroll and tax laws is another significant mistake businesses can commit. Payroll and taxation are regulated and complex mechanisms. Companies must comply not just with the local laws but with the international treaties and regulations regarding payroll and taxation.
Businesses can go wrong in payroll tax withholding, employee registration, compensation, and tax calculation. Therefore, companies should consider outsourcing their global payroll to an efficient global payroll partner to ensure smooth business operations and avoid hefty fines.
Permanent Establishment
Hiring employees in foreign markets may have severe tax implications for businesses. When companies are involved in revenue-generating business activities in a foreign country, they hire employees to maximize revenue and often create a permanent establishment (PE).
A permanent establishment can make your business liable for paying income tax to the local authorities. The amount of income tax adds up over time, which they do not realize, and as the local authorities discover the business has a PE, the company needs to pay back taxes with interest and a hefty fine.
A common employment compliance mistake most businesses make is creating a permanent establishment. The safest route to take is to get legal advice from an expert. If there is PE risk associated with business activities in a foreign market, it is good to establish a foreign legal entity. Thus, the legal status remains clear from the start, depending on the business activities of the local employees, and the PE risks can be resolved with the help of an Employer of Record (EOR) service.
Data Privacy Law Infringement
Data is the new oil. Businesses use data to drive meaningful insights that can ensure desired outcomes. Thus, data is paramount, and so is data privacy. Therefore, data security laws have become part of global compliance.
Companies use data and are required to keep it safe. They are bound by the law to use it for authorized purposes only. However, many businesses fail to adhere to the data privacy and protection needs imposed by the local laws where they conduct business. In regions like Europe, non-compliance with business practices regarding data privacy can lead to steep fines.
The General Data Protection Regulation (GDPR) is the European Union's comprehensive data protection framework. It provides fines of up to four percent of a company’s total revenue (or 20 million euros, whichever is higher) for severe data privacy infringements. The companies must use a GDPR-compliant global payroll solution that offers high payroll security standards and sound employment compliance.
Failing to Meet Visa Needs
Global employment leads to mobility and creates opportunities and challenges for organizations. One vital challenge is meeting global immigration needs. Employees must have the right visa and work permit to enter a different country and intend to work from there.
One of the most common employment compliance mistakes is failing to arrange visas and work permits for employees who intend to travel for work purposes. Failure to arrange the required permits can have severe consequences for the global expansion project.
Businesses can work with an Employer of Record who offers global immigration support to ensure global employment compliance in terms of meeting visa and immigration needs.
Incomplete Hiring Paperwork
Many businesses fail to check the correct eligibility to work documents, record their documentation, and keep missing (or incomplete) I-9 forms. Failure to maintain adequate documentation records can get you into legal hot water.
Before you file any hiring paperwork, be sure all forms are filled out, including dates and signatures. You must also confirm that the I-9 form contains proper and valid supporting eligibility documentation.
It is essential to file hiring paperwork and validate the eligibility documentation with the I-9 form.
Businesses should provide new hires with an I-9 form and allow them to review the list of acceptable documents to make their selection.
Keep the I-9 forms current. Complete the paperwork within three days of your new employees’ hire date. If you miss the deadline, you may be subject to hefty fines.
Ignoring Safety Regulations
Businesses operating in the United States are bound to follow the safety guidelines of the Occupational Safety and Health Administration (OSHA). OSHA's General Duty Clause mandates that every company, regardless of its size and type, provide a place free from hazards for its employees to work.
Businesses must provide safety gear, such as ear and eye protection devices and hard hats, and safety training to employees.
Businesses must communicate safety rules verbally and in writing to all employees. They must also impart some training sessions to the employees and post a copy of the safety guidelines in a common area.
Businesses must take immediate action in case of a workplace accident. Failure to document, track, and implement corrective measures can jeopardize employment compliance.
Not Staying Updated
One of the most common compliance mistakes companies make is failing to keep up with the regulatory agencies and guidelines that govern the organization.
The laws have grown tremendously over the past few years and show no signs of changing. Companies need to stay alert and aware of the agencies that deal with:
- Workplace safety and health laws
- Employee privacy laws
- Sick leave policies
- Hiring laws
- Overtime pay laws
- Local, state, and federal family leave laws
- Workplace safety and health laws
- Payday laws, such as final pay rules and payroll deduction rules
- Recordkeeping requirements
- Anti-discrimination and anti-harassment laws
The enactment of regulations by the municipalities is more stringent, which adds another layer of complexity for businesses trying to stay updated.
Avoid Employee Compliance Mistakes by Partnering with Global Expansion
Global Expansion (GX) helps you navigate the complexities of employment compliance. You focus on your business, and GX takes care of your people.
GX is your trusted partner in keeping up with constantly changing labor laws, tax requirements, and other regulations.
Contact us today to learn more about our comprehensive services.
