Global Employment & Expansion 8 min

How to stay compliant with international employment laws as you scale a global team

Written by Sam Ross
Sam Ross

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Gallup estimates that there are 8 in 10 people working in a remote or hybrid model in 2022.

The high demand for remote working and flexible working arrangements in recent years is hardly surprising. Millennials — a generation that has come to prioritize convenience, the ability to travel, and maintain a good work-life balance — form the majority of the workforce today and have embraced the benefits of the remote working lifestyle. 

While tapping into global talent and hiring highly skilled candidates abroad can seem appealing to employers, international hiring can also be a challenging process. Compliance with country-specific labor rules and regulations can be tricky for even the most well-established businesses. Each country has its own employment laws around hiring, contracts, payroll, benefits, taxes, and terminations, which are complicated even more by evolving local labor laws. 

But you don’t have to stress because, in this article, we explain how you can stay compliant with international employment laws as you expand globally. 

Let’s begin by exploring some key areas.

Employment contracts 

Whether you’re hiring locally or globally, it’s essential to have all the paperwork ready and signed before your new employee’s first day on the job. At Remote, we highly discourage backdating employment agreements, as it puts compliance at risk. What’s more, in some countries it’s illegal. 

When you bring a new team member on board, you must also ensure that you select the right type of employment agreement. Keep in mind that the choice goes well beyond deciding between a part-time or full-time basis. An employment contract is a legal agreement outlining terms and conditions that regulate the relationship between the parties that sign it. The agreement also needs to reflect all the international and local labor law requirements and entitlements, such as proper employee benefits and probationary periods. 

While some overarching principles apply to multiple states (for instance, European Union member nations), how these are implemented in specific countries often varies and other laws completely vary on a per-country or jurisdiction basis. A great example is the right to use fixed-term contracts.

If you’re planning to hire employees in multiple countries, then the best way to manage compliance is by working with a partner like Remote. Our platform helps you onboard international employees quickly and easily. Importantly, it allows you to use compliant contract templates, which align with the job position and applicable jurisdiction or country-level labor laws.

Minimum wage 

The lowest remuneration that the employer is obliged to pay their employees is called the minimum wage. The majority of countries introduced minimum wages by the end of the 20th century. It differs between countries. 

If you hire in multiple countries, you must understand the current minimum wage for that country, ensure that the remuneration you offer is more than the required minimum, and keep track of any yearly updates to the minimum wage. If you don’t, you’ll have to face legal penalties. 

For example, in the UK, an employee can file a claim with the Employment Tribunal or raise a complaint to HMRC. The potential consequences are serious and range from bad publicity and back pay to the employee to possible criminal proceedings and a fine of up to £20,000.

Time-off and leave requirements

The minimum amount of paid annual leave that an employee is entitled to varies depending on the country or jurisdiction that they are in, and may also depend on the relevant collective bargaining agreement. 

In some cases, overarching principles come from the International Labour Office or EU law. For example, the ILO expects UN member states to guarantee paid time off for at least three weeks for a full year of work. Whereas, the Working Time Directive requires EU member states to guarantee paid time-off of at least four weeks for a full year of work. It is then up to individual countries or jurisdictions to reflect these rights in their own laws but they can be more generous in how they do so.

In addition to what is set out in individual employment agreements or employer policies, local laws often also dictate certain leave requirements. Such as the amount of notice that must be given before a period of annual leave is taken or that the employer has the ability to reject a request to take annual leave in certain situations.

Employees might also have the right to additional days off during national holidays, with some local laws going so far as to prohibit work on national holidays or requiring additional pay for any work done on such days. It is important to be aware of these nuances while managing a globally distributed workforce. Employees might also be entitled to time off due to illness and parental leave, among others. 

To take a deeper dive into paid leave entitlements across the globe, check out Remote’s Country Explorer page. 

Accurate employee classification

In terms of your international worker’s legal status, there are two main options you can choose from — bringing them on as employees or as independent contractors. Deciding on the right type of relationship is critical, as both of these arrangements are treated differently.

If you decide to work with a contractor, make sure that the day-to-day relationship doesn’t bear any resemblance to regular employment. These commonly include imposing control over how the individual carries out the work, when they do it, where they do it, having them as an integrated part of your workforce, and paying them a regular salary. 

If the authorities find that your workers are in fact ‘employees’, they might not only re-classify them as employees, but you may also be issued hefty fines for misclassification and back pay to your employees. Even if you’ve made an honest mistake, authorities might not treat it as an extenuating circumstance. In recent years, many countries across the globe have tightened their laws. This comes as a response to violations from companies deliberately turning to contractor arrangements to avoid costs like employee taxes and statutory benefits. 

The good news is you can easily assess your company’s risk by using Remote’s free employee misclassification risk calculator. Our experts can also help you assign the right worker classification status to avoid potential threats in the future.

danger thin ice sign

The consequences of misclassifying employees as contractors

When you employ international workers, you typically pay your team in one of two ways: as contractors or as full-time employees. Misclassify someone as a contractor who should be an employee, and your company could face stiff fines and penalties.

Benefits management

When you hire employees internationally, one of the areas you’ll have to address is benefits management — especially statutory entitlements. These must be provided by employers to full-time employees. Contractors are exempt from them. 

Among others, statutory benefits include health insurance, sick leave, paid vacation, maternity/paternity leave, etc. While putting together your benefits package, you will first need to make sure it includes those which are required by law. Bear in mind that statutory benefits are the bare minimum that you have to offer employees, and global benefits vary by country. 

However, due to the competitive nature of the global marketplace, many companies come up with additional perks such as free gym memberships, unlimited time off, private life insurance, etc. to attract the most talented individuals. Both statutory benefits and extra perks must be accounted for in your global payroll. 

Lawful termination

Some clauses in the employment contract include requirements around the termination of employment that must be complied with, such as serving the required notice period. 

However, in addition to the requirements set out in the contract itself, the laws of a particular country or jurisdiction will also impose additional requirements to terminate an employee lawfully. These may include higher minimum notice period requirements, specific requirements that are needed for lawful terminations, and/or a specific process that must be followed in advance. 

It is important not just to consider the termination requirements mentioned in the employment contract. Generally, the employer should keep in mind that the laws of a country take precedence over anything that is contractually agreed upon.

Global payroll compliance 

Global payroll compliance means you have to follow the rules and regulations in every country you hire. Employers who don’t abide by the law, might not only be subject to penalties but might even be forced to stop operations in the country. 

In short, global payroll compliance involves: 

  • Making sure that wages, including overtime, are correctly calculated and paid on time

  • Withholding and settling the right amount of payroll tax from the worker’s wages 

  • Correctly classifying workers to avoid the misclassification risk

  • Completing and submitting relevant tax forms within their due dates. 

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Managing your global payroll can be a daunting prospect. Learn how to coordinate and scale it with ease in this in-depth guide.

The hidden dangers of permanent establishment

While the introduction of remote work has made hiring international talent particularly attractive, many countries still require permanent establishment from any company present on the market. Below, we discuss what it is and how you can avoid registering your business in your employees’ countries of residence. 

What is permanent establishment? 

Permanent establishment is a term used by tax authorities to describe companies with an ongoing presence in the country. If they find your business ‘established enough’ to qualify for a local company status, you’ll be billed corporate taxes the same way as any local entity. This means your company would have to pay taxes both in your actual country of registration and in the local market. 

There are four main criteria tax authorities use to deem you eligible for permanent establishment:

  • You have an office or another fixed place of business

  • You have been offering your services on the market on an ongoing basis (with or without an office)

  • You’ve hired a local worker who generates revenue on your behalf

  • You operate a construction site or installation project.

Any business that decides to hire a remote team member outside its own country faces the risk of permanent establishment. While some countries are stricter than others, the general rule is that the more workers you hire, the higher the threat.

You can learn more about each of these conditions in our article on navigating permanent establishment risk for a remote workforce

How can you minimize permanent establishment risk?

Avoiding permanent establishment can prove challenging, especially if you have employees in multiple markets. As each country has its own regulations, some of the steps you take to avoid permanent establishment might not be sufficient in all countries.

That being said, there are two main ways in which you can keep yourself in the clear. First, you can pre-empt any re-classification actions from authorities and register your own legal entity. This will only work, however, if you have the funds and operational capabilities to genuinely maintain a foreign branch. The second solution is partnering up with an international hiring partner, which is much more time and cost-effective.

Watch permanent establishment risk: debunking the myths webinar

[Webinar Recording] Permanent establishment risk: Debunking the myths

In this permanent establishment webinar and insightful Q&A, we lay out the foundations of permanent establishment and how to mitigate the risks if you are building a global team. 

Options for managing compliance during global expansion

If you’re planning to operate internationally, then there are a few “set-up” options you can choose from to increase legal compliance. 

Setting up a legal entity is one of your options. While it can help you make the most of your presence in other markets, it’s a rather expensive and time-consuming endeavor. It can take up to a year to open it and cost anywhere between $25k and $100k. And since there are other alternatives, which we discuss below, you should really think it through before setting up your own legal entity. 

PEO versus EOR

To hire international staff, companies can decide to work with a professional employer organization (PEO) or an employer of record (EOR). While both of them will simplify global employment, there are a few key differences between these global hiring partners. 

Both PEOs and EORs help you manage local payroll, statutory benefits, and taxes. However, an EOR lets you employ workers without owning a local entity. They act as the sole employer. They’re entirely responsible for staying compliant with local tax and labor regulations, giving you peace of mind. 

Meanwhile, a PEO lets you enter a “co-employment” relationship. This means that both you and the PEO simultaneously act as the employer. While the PEO can take plenty of ongoing tasks like payroll off your plate, you must still register a local entity in the country. As a result, you’ll still have set up costs and won’t be able to fully delegate staying compliant with the law.

With that in mind, who might benefit from working with a PEO vs. EOR the most? When it comes to the former, it might make the most sense if you’ve already registered a local entity and only need help with ongoing payroll support. Meanwhile, an EOR is ideal if:

  • You don’t want to spend time or money on opening a foreign branch

  • You don’t have the time to wait weeks on end to finalize the business registration process, and

  • Your existing HR and finance team lacks local market expertise.

To learn more about both of these international employment options, read our dedicated PEO vs. EOR article.

How to choose the right global employment partner 

Opting for a global employment solutions provider can be a great way to grow internationally, all the while staying compliant with employment laws — provided that you select the right one. If you make the wrong choice, you’ll be at risk of losing money, harming your reputation, and potentially running into legal issues. 

A credible employer of record like Remote will help you with salary simulations, onboarding and offboarding of your employees, payroll approvals, benefits, and local taxes — which you can manage within a single platform. We’ll ensure data security and compliance, as well as IP protection. 

How the EOR of your choice handles your business is also an important criterion. Since your employees are your biggest asset, you should make sure they get a positive experience, irrespective of their location. A good EOR will make employee experience their top priority — making sure all workers feel appreciated and part of the team. 

How to pay international employees compliantly

Keep in mind that whenever you hire an employee in a new location, you’ll have to familiarize yourself with local labor laws that will impact the payment process. Otherwise, you might run into compliance issues. 

If you want to get a rough idea of how much it’s going to cost you to hire employees internationally, take a look at our employee cost calculator

The easy way to scale global employment and stay globally compliant

Getting international employment law right is a complex process, given the number of factors and areas you need to cover. These include:

  • Correct employee and contractor classification

  • Compliance with local employment laws

  • Payroll and tax compliance

  • Benefits management

  • Avoiding permanent establishment risk

You have different options to manage global compliance while operating internationally. Establish your own legal entity in every country you hire in, (which is both expensive and time-consuming), hire contractors, or work with a PEO or EOR like Remote. 

As it’s hard to predict your employment plans for many years ahead, the best choice you can make is to go with an employer of record. Our global HR services will help you with all your payroll and labor law compliance needs. Perhaps, best of all, you won’t have to register a business in any of the markets you hire in!

Remote, ranked as the #1 multi-country payroll provider on G2, can help you with:

  • Onboarding and offboarding of your employees compliantly

  • Contract and benefits management 

  • Local employment law compliance

  • Invoice and salary payments

  • Tax compliance 

Working with Remote is the easiest, fastest, and most secure way to manage global compliance. Get started today!

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Global Employment Law FAQs

What are international employment laws?

Every company has to follow a set of international employment laws that regulate the rights and duties of employees, employers, trade unions, and governments in the workplace. While public international laws concern countries or states, private international laws focus on businesses and individuals. 

What are the different governing bodies responsible for international employment law?

There are different governing bodies responsible for setting international employment laws, including the United Nations Agency — International Labor Organization (ILO) and the European Union. The ILO has outlined 189 conventions that UN member states are expected to ratify. Countries must adopt and enforce these conventions as part of their domestic law.

Alongside relevant clauses specified by the UN, member states of the European Union are expected to follow an additional set of conventions and regulations. 

Despite signing up for various international labor standards, some countries fail to stay compliant. For this reason, before deciding to operate in a foreign country, it’s worth looking into their compliance with international labor laws to avoid putting your business reputation at risk. 

What does the freedom of association in the workplace and collective bargaining mean?

The freedom to associate and bargain collectively is part of the standards set forward by the ILO. While the right to freely associate was already included as part of the Universal Declaration of Human Rights (UDHR), the ILO supplemented it with clauses that would better reflect the worker-employer relationship.

Both of these rights support workers in their communication with the hiring party. In particular, they allow workers to gather, discuss goals and ongoing issues, and collectively advocate for their objectives. These include, but are not limited to, demanding statutory employee benefits, closing pay gaps, and ensuring compliance with health and safety regulations. Under this international employment law, employees can then enter negotiations and, ultimately, seek to sign a collective agreement that solves the problem at hand.

It’s worth knowing that in most countries across the globe, i.e., those that are part of the “free and open society”, the right to associate and bargain collectively is held in high esteem by employers. This stems from the fact that worker unions have proven to change entire societies, as is the case of democratic transitions in the former Eastern Bloc.

What are some international employment laws that address workplace discrimination?

The above-mentioned UDHR treats protection from workplace discrimination as one of the basic human rights. Employees can require action on behalf of their employers if they feel that either they or any other workers are being treated unequally. This might include events of unfair treatment based on religion, country of birth, ethnicity, disability, sexual orientation, or race.

Some of the most critical international employment laws that address workplace discrimination include:

  • The International Covenant on Civil and Political Rights

  • The Convention on the Elimination of All Forms of Discrimination against Women

  • The International Covenant on Economic, Social, and Cultural Rights 

  • The International Convention on the Elimination of All Forms of Racial Discrimination.

All of these treaties have been signed and brought into force by the United Nations General Assembly between the mid-1960s and early 1980s.

What are the international laws forbidding compulsory labor?

The International Labor Organization forbids compulsory labor, i.e., work or service that an individual hasn’t agreed to perform voluntarily. It does, however, observe certain exemptions. It does not apply to the following instances: 

  • When work, service, or relief is needed due to an accident, shipwreck, flooding, or other misfortunes. It also applies to banditry, looting, public disturbance, or judicial execution.  

  • When work results from a joint interest performed under an agreement that members of the Fokonolona (a decision-making community in Madagascar) freely entered into.

  • When work results from legislative provisions such as compulsory military service. 

  • When work is done as a punishment for a conviction, provided that it’s supervised and controlled by local authorities and that it serves the public interest. 

What are the international laws forbidding child labor?

While the ILO is a strong advocate of child labor laws that ban children from working, the effectiveness of these policies is hard to measure. Even though the number of working children has lowered over the past 15 years, it is still a strong cause for concern. 

Naturally, there are countries like the USA that have put in place child labor laws in the form of the Fair Labor Standards Act of 1938 (FLSA), which:

  • Prevents the employment of minors under the age of 14 in occupations apart from agriculture.

  • Regulates the hours and types of work, which can be done by children younger than 16 years old.

  • Forbids the employment of minors under 18 in hazardous occupations. 

Unfortunately, in many countries, especially developing ones, the issue of child labor remains rampant.

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