How compliant is your offshore hiring?

The global hiring landscape has evolved rapidly, corresponding to the spread of globalisation over the last three decades. This has allowed employers to source talent from offshore markets to support their growth needs. While this remains a great opportunity, companies need to be aware of certain risks, in particular those stemming from potential legal non-compliance. Labour laws differ from country to country, and they are subject to change. Globally minded businesses need to stay abreast of these developments to avoid oversight and possible legal complications.             

The risks companies face 

Meeting global compliance requirements can be a taxing effort, but one which should not be avoided. When hiring employees abroad, here are the major risks stemming from non-compliant hiring.

• Misclassifying overseas workers. Just as with local hiring, when firms hire offshore they work with different types of workers which can include full-time, part-time, or locum basis of work. Additionally, incorrectly classifying a permanent employee as a contractor, or vice versa, can lead to costly tax penalties.
• Incorrect or delayed payroll contributions. Errors in executing payroll in a timely fashion, or in making the required contributions to local authorities (such as a pension fund) can lead to penalties, in addition to the potential loss of credibility in the offshore jurisdiction.  
• Incomplete adherence to local labour laws. Every country’s legal system has its own set of labour laws to protect the rights of workers. These can be vary considerably, translating into variable regulations for employers. Therefore, form a company’s perspective, a sound understanding of all relevant labour laws is essential.  
• Contravening data privacy laws. Any data leaks or security breaches by employees in offshore locations could potentially lead to legal liability for a company. Privacy laws can vary across countries and geographies, such as those pertaining to personal data, which adds an extra layer of risk.

Staying compliant when hiring offshore 

For successful offshore hiring, every employer must have robust global compliance policies in place to guide its hiring and employee engagement procedures. We suggest some broad approaches that should be included in these policies, with the qualification that companies need to adjust them based on the legal requirements of a particular jurisdiction.

• Ensure accurate classification of workers. Employers must determine the appropriate disclosure requirements regarding the exact nature of the contract agreement signed with a worker in a particular country. They also need to understand the tax and other financial obligations emanating from how a worker is categorised. Training the relevant hiring managers on appropriate classification is therefore important.
• Understand country-specific labour laws. How companies can hire or fire employees can differ significantly across geographies. For example, in the US, at-will agreements are fairly common whereby employers can terminate employees without prior warning or cause. Other countries, such as France, protect employees against such dismissals. It is in the interest of firms to conduct thorough research on the labour laws of all offshore markets where they currently hire, or plan to hire from in the future.
• Make accurate and timely payroll disbursements. Since many payroll providers within an employer’s home country do not provide coverage to overseas workers, employers should consider partnering with offshore payroll providers to ensure timely and accurate payments. This also covers other employee contributions such as retirement plans, holiday bonuses, and health insurance, as well as ensuring the necessary tax compliance. 
• Ensure data and IP protection. When hiring the services of offshore vendors, every employer must do due diligence before entering into an agreement. Non-disclosure agreements should be signed whenever any confidential data is shared. Other steps include being well-versed with the legal framework applicable to IP rights in the vendor’s jurisdiction, and limiting server and data access according to need.

The potential risks from non-compliance in hiring practices are serious, and mitigating them requires the investment of time and resources.  While some companies prefer to do this in-house, Bettersource offers its knowledge of offshore recruitment to clients who prefer to engage experts in this area. With recruitment operations and legal experts in offshore markets, we help clients take advantage of the global talent pool while guarding against potential risks.