Why Staying Compliant Is The Biggest Barrier To Growing A Global Workforce

-

 

For multinational companies, growing a global workforce has many moving parts and throws up many complexities. Where in the world are you going to find the skills your company needs? How can you ensure you’re attracting the right talent when you’ve identified your hiring needs? 

But the biggest hurdles to successful global growth are arguably compliance related. Any global hiring strategy that doesn’t have compliance as a core principle is going to struggle to achieve liftoff. There are a number of reasons for this.

Firstly, every major hiring decision that your company makes is going to face compliance-related issues.

Should you set up a foreign subsidiary when you expand into a new country? Ultimately, the creation of this foreign entity will shape your wider global hiring decisions. 

Should you initially build your global workforce using contractors? Using contractors means your HR and leadership team need a firm understanding of relevant contractor classification laws, if you’re going to get this particular hiring strategy right. 

Are you going to be able to offer your globally distributed employees the most compliant and competitive benefits in each individual market where you’re choosing to expand? 

Secondly, there’s the problem of staying up to date with the relevant employment legislation and regulations in every country. In my time working with Omnipresent’s clients, I’ve seen how hard it is for senior leadership teams and HR managers to stay one step ahead of sudden changes in employment legislation that could derail their global hiring strategy. 

Let’s take a closer look at some of the examples I outlined earlier. 

Many multinationals leverage contractors for flexibility and cost efficiency, but this can introduce legal risks, especially when local governments scrutinize contractor classifications. 

For example, Spain’s stricter employee misclassification laws mean that incorrectly classifying a contractor could lead to criminal prosecution and, ultimately, prison time. Meanwhile, the USA is an example of a country that has just tightened its laws around employee misclassification in the transition from the Trump administration to the Biden administration. 

Misclassifying contractors as employees can lead to fines, back taxes, and penalties in some countries, where labor laws favor stronger worker protections. Using contractors can be a shorter, more low-cost route to building a global workforce. However, the risk of misclassification can lead to reputational and financial damage for your company. 

When hiring talent through foreign subsidiaries, companies often face differing local employment laws that dictate how contracts must be structured, what protections employees are entitled to, and even what termination procedures are lawful. 

A lack of compliance can expose a company to litigation or government sanctions. This becomes more challenging when trying to align global HR policies with local legal requirements, necessitating careful localization of contracts and practices. 

Payroll and benefits management are some of the most fraught areas for compliance. Each country has its own rules regarding mandatory benefits, tax withholdings, and social security contributions. 

For instance, failing to adhere to regulations around healthcare, pensions, or holiday entitlements can lead to disputes or penalties. Multinationals need robust systems in place to ensure accuracy and compliance, particularly when dealing with multiple currencies, tax regimes, and statutory requirements.

Applying a one-size-fits-all approach or providing inconsistent benefits across regions can lead to poor engagement and dissatisfaction. 

For example, a U.S.-based tech company expanding to Europe might overlook mandatory benefits like extended parental leave or the right to switch off. 

The one-size-fits-all approach means you’re less likely to offer competitive benefits in markets where you’re trying to hire and retain key staff members. 

All of these compliance issues can negatively impact your company’s ability to grow its global workforce. It’s one of the reasons why alternative employment models, such as working with an Employer of Record, are becoming more popular. 

An Employer of Record gives you the ability to expand internationally without having to set up a legal entity. 

What’s more, many EOR providers will give you a centralized platform from which you can onboard and manage your contractors, as well as giving you the ability to assess your liability to contractor misclassification. 

But even EOR providers come with their own compliance headaches. Not every country recognizes the Employer of Record model in the same way. 

Let’s take Italy as an example. An Employer of Record provider operating in this country is subject to much tighter regulations. 

Operating without compliance in Italy carries significant risks, including fines ranging from 5,000 to 50,000 euros, potential criminal sanctions, and increased termination costs. 

This is why, when choosing an EOR provider, it’s important to find a provider that offers alternative, compliant employment models in countries where the market is more tightly regulated. It’s also vital to find a compliance-first solution that will help you proactively understand the compliance headaches you’re going to encounter in each market. 

The key to ensuring compliance when growing globally is proactivity: whether you decide to use an EOR or take some other route to growth, you’ll need a firm understanding of the obstacles that will stand in your way and a clear plan to overcome them.