How to compliantly hire an international workforce

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 differ 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 risk unwittingly violating labour 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 and 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. It can get complicated. 

Employment laws are a tangled web of federal, state, and provincial mandates varying within and among countries. Canada, for instance, has 10 provinces and three territories, each with their own employment laws that diverge from, say, the neighbouring 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. 

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

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

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 the Philippines. 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 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

When hiring a contractor abroad, there's less compliance to manage. But make sure you're categorising workers properly! You can face fines, penalties, and civil lawsuits if you misclassify someone as a contractor when they really should be an employee. You also may need to pay back wages and risk 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 categorised 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, hiring employees involves many more compliance considerations. 

Set up a local entity

The first step in hiring an employee abroad is setting up a local entity in the country where they’re being hired. Each country has different documentation and notarisation requirements, meaning that the timeline for setting 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 notarisation and apostille. In Portugal, there are strict requirements that passport signatures match the signatures on registration documents exactly. To set up local entities in Ireland, China, and Singapore, you must have local directors and local contacts who are residents and nationals of the corresponding country.

Issue employment agreements

Most countries require you to draft agreements before hiring an employee that lay out key conditions of employment like salary, holidays, and termination notice. You must also meet any local language requirements and 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 training

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 must 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'll have to set up each employee in your payroll system so you can 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 varies based on each country’s requirements. 

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

Employers must 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 the cost of living and currency conversion rates, with some tailoring it to specific ages. Similarly, each country has different standards for overtime work. 

Verify work authorisation

Many countries require specific documents and processes to verify work authorisation, like the I-9 in the US, the use of employee share codes on the gov.uk website in the UK, or coordination with agencies like the Bureau of Immigration and the Department of Labor and Employment (DOLE) in the Philippines.

Ensure legal reporting

Some countries have strict reporting requirements that solicit demographic information from employers. For example, in Singapore, companies may be required to submit information regarding their workforce composition and practices as part of the Fair Consideration Framework (FCF).

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. Some countries require employers 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 the 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 unfair dismissal claims if the process isn't carefully followed.

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

How to identify and avoid non-compliance

Obviously, there are many opportunities to fall into non-compliance if you operate as a global company. The best way to proactively avoid it is to set 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 labour 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:

• Localised overtime policies
• Localised holiday calendar
• Localised time off policies (holiday, sick leave)
• Localised 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 Filipino employees more holiday 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 regarding payroll taxes, benefits enrollment, mandatory training, and more.

Rippling’s local entities provide compliant employment agreements that protect your IP and ensure your employees receive 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 who 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.