3 Tips For Managing Complex Tax And Compliance Issues For A Global Workforce

Balancing global standards with local regulations

Employees in the post-pandemic world have consistently expressed a preference for more flexibility in where and how they work. Companies that embrace remote and hybrid work can attract and retain great employees, and teams that receive the right support from human resources (HR) can be more productive working remotely.

North America-based employers that allow employees to work remotely can also dramatically expand the pool of available candidates, which helps them address persistent skills gaps that result from a tight domestic labor market. At the same time, they can reduce labor costs by up to 40%, which is why the number of remote workers in Central America and the Caribbean rose 300% between 2020 and 2023.  

While the prospect of achieving higher employee satisfaction, better productivity and a larger labor pool are all excellent reasons to consider hiring staff outside the U.S., it is critical for HR leaders who are thinking of hiring offshore talent to plan carefully and fully understand the tax and compliance implications. Here are three tips to help you prepare to welcome a global workforce:

1. Be familiar with all applicable local accounting laws: Business accounting and reporting practices vary by tax jurisdiction, and the correct approach is often a moving target since laws can change over time. That is why it is essential to familiarize yourself with local accounting laws and follow them to the letter. For example, in some jurisdictions, governments require offshore employers to maintain accounts in local language and English. Setting accounting systems up to comply with local rules from the first day can help you avoid being out of compliance down the road.

Conducting a transfer pricing study before you hire abroad is also a good idea. A transfer pricing study is a detailed economic overview of your company, service, products, and related intangibles, and it functions as a planning tool you can use to create your offshore business structure. A transfer pricing study provides useful information on the tax implications of an overseas operation by region, helps facilitate tax efficiency, and can protect your business in case of a tax audit. 

2. Create global workplace policies and customize them for each region: One mistake employers make is implementing workforce policies from their home country in offshore regions when expanding globally. That does not work well because, like business accounting practices, employment legislation varies considerably across regions. A better approach is to develop a new global policy that meets the baseline requirements for policies like paid time off for illness, parental leave, etc., in all regions and then create custom variations for each region to comply with local rules.

In addition to factoring in baseline requirements for local regulations, you will also need to evaluate the competitiveness of your policies in each market so you can attract and retain employees. This assessment will directly impact the formulation of a standard global policy since you will want to ensure your company can compete effectively everywhere you operate. 

3. Tap the expertise you need to expand globally: Creating a structure for a global workforce requires setting up banking, payroll, tax withholding and reporting systems, which takes time and money. Many HR leaders determine that working with experts who have the experience and know-how to create compliant policies and accounting practices is a better option since it allows the HR team to focus on core competencies while reducing risk overall. 

Keep in mind that companies that run into conflict with local regulations can incur penalties and harm the brand’s reputation, so tapping outside expertise may be the best solution. Working with a global employer of record (EOR) is one option that can reduce risk. An experienced global EOR can establish an overseas entity so you can bring employees on board quickly, with the EOR handling labor, payroll, tax, banking and work contract requirements.

Whether you decide to work with an expert or go it alone, keep in mind that planning is the key to successfully setting up a global workforce. You will need to establish a legal business entity in the countries where employees are based and put systems in place to handle business accounting and reporting according to the rules in each jurisdiction. 

You will also need a policy framework for your global workforce that ensures you are competitive in the marketplace and compliant with all local regulations. That can be a daunting task, but if you are familiar with each country’s accounting rules, create customizable policies and get the expertise you need in-house or by working with an experienced partner, you can access the talent you need — anywhere in the world. 

Katherine Loranger is the Chief People Officer at Safeguard Global. She strives to align the human resources strategy with the strategic goals of the organization and promote a culture of innovative, accountable, ethical, and high-performing team members.