Expanding businesses to international markets is common practice for enterprise companies. However, with this comes the challenge of complying with diverse regulations and laws across different countries, many of which pertain to tax, hiring, and protecting sensitive data.
Lack of compliance can lead to severe consequences such as hefty fines, legal proceedings, reputation damage, license revocation, and market access restrictions. Therefore, prioritizing cross-border compliance is vital for enterprise companies to thrive globally.
In this article, we’ll highlight seven common cross-border compliance concerns that companies should be aware of and how to avoid them.
1. Permanent establishment risk
Hiring workers across borders without establishing a foreign subsidiary in the new hire’s country exposes companies to permanent establishment risk, potentially triggering corporate tax liabilities with the local tax authorities in the respective country.
Businesses can opt for an employer-of-record (EOR) solution to help mitigate this risk, allowing them to engage local talent without the associated legal complexities or the need to establish a foreign subsidiary as a preliminary step when entering a new international market.
EOR providers operate established entities in numerous countries worldwide, enabling them to legally engage and pay employees to provide services to your company.
2. Invalid employment agreements
While manually drafting contracts may suffice for local hiring, crafting tailored agreements encompassing various aspects such as work hours, breaks, payment terms, termination conditions, severance pay, statutory benefits, and bonuses when hiring across multiple global jurisdictions presents a more intricate challenge.
Companies can simplify the process of creating internationally compliant employment contracts using a global HR platform with a built-in contract generation workflow that guides you through each aspect of the contract, providing specific directions per country requirements. Hence, you get it right from the start every time.
Look for a global HR platform with intuitive contract workflow that supports localized contract creation during the new hires’ onboarding process. Ideally, you should also have the option to add additional contract elements like company-supplied equipment, workspace memberships, healthcare coverage, and stock options to keep everything stored in a single place.
Lastly, to ensure the contracts adhere to the latest compliance standards, your provider should have local legal experts review and update the templates at least quarterly. When it comes to storing documents and sensitive employee data, you want your provider to adhere to the highest global security standards.
Companies that desire more short-term arrangements and greater flexibility when exploring new cross-border markets can hire international contractors. However, creating contractor agreements that comply with classification laws across jurisdictions can be challenging.
If the work agreement doesn’t accurately define the relationship, use the correct terminology, or comply with local laws impacting contractors, your company could face allegations of misclassification, resulting in tax violation fines, federal law violation fines, and reputational damage.
Companies can help manage misclassification risks by ensuring that every contractor agreement complies with that jurisdiction’s unique laws and regulations. To simplify the process of creating internationally compliant contractor agreements, use a global HR platform with a built-in contractor agreement generation workflow.
For most businesses, global hiring platform's contract generation tools and advanced compliance features are a must when hiring contractors locally and abroad.
4. Worker ineligibility
Hiring or relocating employees without the proper work authorization or documentation is another common cross-border compliance issue that can result in company fines and penalties.
As an employer, you are responsible for verifying the employee’s legal status, running background checks, and ensuring they have the correct visas and work permits to begin employment in the country or jurisdiction they intend to operate from.
Companies can streamline eligibility verification and set the worker up to work compliantly using a global HR platform with built-in eligibility verification, background checks, and visa and immigration support.
5. Missing confidential information, intellectual property, and DPA agreements
The collaborative nature of idea development opens the door to potential risks associated with intellectual property theft and infringements. These risks become even more difficult to prevent when expanding globally since countries have varying laws and regulations governing intellectual property (IP) and confidentiality. Companies can protect their intellectual property using a global HR platform with built-in IP and data protection agreements (DPA).
IP and DPAs are legal records which define what personal data workers get exposed to and can access. It also details how the business will protect, manage, and use it. Not having a properly signed agreement can result in fines of up to 4% of the company’s annual revenue.
For companies with customers residing in the EEA, Switzerland, and the UK, it’s a regulatory requirement to ensure signed DPAs are in place to stay compliant with GDPR and privacy laws.
6. Data security violations and poor document maintenance
Data breaches and ever-tightening data protection laws and regulations globally are common compliance concerns for companies operating across borders. Failure to level up on information security compliance can result in fines and reputation damage if sensitive data is leaked or lost.
Similarly to vulnerable information, missing documentation can lead to some sticky compliance challenges and raise red flags when the company goes through due diligence and audits.
Companies can help protect their sensitive data and documentation using a global HR platform with secure cloud-based HR platforms that uphold globally recognized data security standards.
When choosing a software, look for the globally recognized compliance framework ISCO2700 and is SOC2 certified. In addition, when your company onboards a new hire, you should be able to request them to enter their personal information, such as date of birth, Social Security Number (SSN), banking information, and certain medical records directly via the self-serve platform. This approach helps to prevent the passing around of sensitive data and limits access control and user authentication to the individual.
7. Payroll and tax compliance violations
Payroll and tax compliance are among the most significant challenges for companies looking to expand across borders. Depending on where you hire, there are different in-country bank account laws, banking currencies, payment schedules, tax withholding, and filing laws to abide by.
Some companies use payroll software to track working hours and overtime and calculate payments. However, most payroll software does not integrate with existing HR systems, is built for single geographies, and can’t be used to pay contractors. To pay international workers or contractors, you must adopt additional software or outsource to local payroll service providers.
To avoid juggling multiple softwares, look for a solution where global payroll is built into the HR platform, centralizing data on a single platform. This approach provides a secure and holistic view of your workforce’s information, making payroll automation and tax withholding easy.
Run your company compliantly with Deel
Cross-border compliance is critical to a company’s expansion goals. Taking control of compliance as soon as possible will ensure you safeguard your business, avoid costly mistakes, and prevent you from stifling your company’s success.
With Deel on your side, you can avoid non-compliance from day one. The platform has everything you need to help you prevent permanent establishment, hire compliantly, avoid misclassification, comply with international employment laws, protect your intellectual property and confidential data, and pay employees and contractors compliantly worldwide.
Sounds like the solution you’re looking for? Book a demo today to see how Deel can help you anticipate and overcome any compliance hurdles that come your way.