EOR

Global HR Compliance: Challenges & How to Overcome Them

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Global HR Compliance: Challenges & How to Overcome Them
Written by
Mayank Bhutoria,
Co-Founder
June 27, 2024

Key Takeaways

  • Non-compliance with labor, employment, and data protection laws can lead to significant financial penalties, legal actions, and reputational damage. 
  • Proper compliance mitigates legal risks, promotes ethical conduct, and fosters positive relationships with employees and regulatory authorities.
  • Companies face various HR compliance issues, including employee misclassification, violating compensation laws, workplace safety, discrimination, data protection, and benefits administration.
  • To ensure global HR compliance, businesses should conduct regular compliance audits, stay updated on local laws, implement clear policies, provide compliance training, and use EOR platforms like Gloroots.

Non-compliance with laws and regulations can have severe consequences for businesses. For example, the average cost of violating data protection regulations can amount to $14.82 million annually.  

The case is no different when it comes to labor and employment laws and regulations. Failing to comply can lead to hefty fines, penalties, and settlement costs, as well as loss of stakeholder trust and reputational damage, ultimately putting the company’s growth and profitability at stake.

As companies expand into foreign markets and hire employees from multiple countries, ensuring HR compliance globally has become crucial for business continuity and growth.

Ensuring global HR compliance mitigates legal risks and creates a positive work environment. Your employees will feel more protected with HR laws designed to safeguard their rights and ensure fair treatment.

In this article, we’ll explore the importance of global HR compliance,  common challenges organizations face, and strategies for maintaining compliance excellence in this changing regulatory environment.

What Is Global HR Compliance?

Global HR compliance ensures that an organization’s HR practices and policies adhere to the legal and ethical standards in local labor laws in different jurisdictions. It encompasses all HR processes, including recruitment, onboarding, leave policies, payroll, benefits, and termination.

Global HR compliance requires regular review and updates of HR policies and procedures because labor and employment laws in different countries are constantly evolving.

Global HR compliance is crucial for organizations to mitigate risks, promote a culture of ethical conduct, and build positive relationships with employees and regulatory authorities across different geographies.

Types of Global HR Compliance

Global HR Compliance comprises three key aspects: statutory, regulatory and contractual.

1. Statutory compliance

This refers to complying with labor law legislation set by a country’s governing bodies at the local, state, and federal levels. These labor and employment laws cover various aspects, including minimum wages, tax deductions, minimum working age, working hours, and mandatory employee benefits.  

Non-compliance with these statutes can expose organizations to legal risks, financial penalties, and reputation damage. To mitigate risks and maintain stability, organizations must ensure their HR policies and procedures align with current laws.

2. Regulatory compliance

This involves adhering to the rules and guidelines set by regulatory bodies overseeing certain industries or sectors within a region or country. For example, the Health and Safety Executive in the U.K. and the Occupational Safety and Health Administration in the U.S. lay down specific mandates for a safe work environment and prevention of accidents or health hazards. Regulatory compliance helps organizations retain operational licenses, avoid sanctions, and operate ethically and responsibly.

3. Contractual compliance

Contractual compliance involves adhering to the terms and conditions outlined in employment contracts, ensuring the fulfilment of obligations to employees.  

Non-compliance with contractual obligations can result in employee claims and legal action, financial penalties, and reputational damage. 

Companies are free to include any terms and conditions in their contractual agreements as long as they do not violate any legal and regulatory requirements in the respective jurisdictions. 

What Compliance Challenges Arise When Hiring Globally? 

HR compliance issues may arise anywhere in the employee lifecycle from hiring to retirement or termination. Here are some of the common HR compliance issues,

1. Employee misclassification

Classifying permanent employees as independent contractors affects their pay, tax responsibilities, rights, and benefits. Employee misclassification occurs when a company incorrectly labels a worker as an independent contractor instead of an employee, or vice versa. This misclassification deprives workers of the compensation and protections they are legally entitled to.

In the United States, the Fair Labor Standards Act (FLSA) provides guidelines for classifying workers. Misclassification leads to significant risks that include legal penalties and cause reputational damage. In a recent report, Uber and Lyft were accused of dodging over $266 million in benefit contributions by misclassifying drivers as independent contractors. 

The report states that this misclassification allowed these companies to evade the employee's payments into the state’s employee protection programs including employee compensation, unemployment insurance, and paid family leave. This situation highlights the financial implications that arise from worker misclassification.

How to mitigate the risks of employee misclassification?

  • Regularly review the country’s legislation and consult with legal experts to ensure worker classification is compliant with the current laws
  • Develop and implement clear policies regarding worker classification and provide training for the HR management on proper classification procedures.
  • Conduct regular audits to identify and correct any misclassifications

2. Violating compensation laws

Compensation laws govern various types of employee remuneration, including minimum wages, gratuity, 13th-month pay, and annual bonuses. Each type ensures fair compensation for employees and is subject to specific legal requirements in different countries. 

In India, the Payment of Gratuity Act, of 1972, mandates that employers provide gratuity to employees who have completed at least five years of service upon their resignation, retirement, or death. In the Philippines, the 13th month of pay is mandated by Presidential Decree 851, which requires all private-sector employers to provide this benefit to their employees. An example of a violation is seen in the Philippines where some companies fail to provide the mandatory 13th-month pay, leading to legal actions and compliance orders issued by the Department of Labor and Employment (DOLE). Non-compliant companies may face garnishment of their accounts and other legal consequences to ensure employees receive their entitled compensation.

How to mitigate the risks of violating compensation laws?

  • Always research and stay updated on the compensation laws in each jurisdiction where your company operates. This includes understanding minimum wage requirements, overtime regulations, pay equity laws
  • Regularly review and update payroll systems to reflect current minimum wage laws. This can be done using global payroll automation software. These SaaS-based platforms can be seamlessly updated to reflect regulatory changes, ensuring compliance with local laws. Additionally, they guarantee accurate salary calculations, correct disbursements, and timely payments, streamlining the payroll process across different regions.
  • Educate HR and payroll staff about the local legal requirements for various types of compensation.
  • Conduct periodic compensation practices audits to proactively identify and rectify non-compliance issues.

3. Workplace disasters 

Workplace disasters include a broad range of events that cause risk to the employees’ health, safety and well-being. These can include accidents, chemical exposures, fires, structural collapses, and more. Each country has its laws and regulations to ensure the health and safety of workers.

For example in the United States, the Occupational Safety and Health Administration (OSHA) sets standards for hazard communication, respiratory protection, and fall prevention. Similarly, the United Kingdom's Health and Safety Executive (HSE) mandates risk assessments and safety training to prevent workplace accidents. Australia's Work Health and Safety Act (WHS) emphasizes consultation and cooperation between employers and employees to maintain a safe work environment.

How to mitigate the risk of workplace disasters?

  • Conduct regular risk assessments to identify and mitigate hazards
  • Implement comprehensive safety programs for all employees
  • Develop and practice emergency response plans to ensure swift an effective action in crisis situations.

4. Discrimination

Several U.S. laws regulate discrimination in hiring including the Fair Labor Standards Act (FLSA), Title VII of the Civil Rights Act of 1964, and the American Disabilities Act (ADA) of 1990. The Equality Act of 2010, Disability Discrimination Act of 1995 in the UK, the Sex Discrimination Act of 1984, Racial Discrimination Act of 1975 in Australia all prohibit discrimination based on race, color, religion, sex, origin, or disabilities in all areas of public life including employment. These laws aim to create a fair and equitable workplace where all employees have equal opportunities and are protected from bias and discriminatory practices. 

How to mitigate the risk of discrimination?

  • Implement comprehensive anti-discriminatory policies that prohibit discrimination and promote diversity and inclusion within the company
  • Provide mandatory training for all the employees and management on recognizing and preventing discrimination
  • Create secure and accessible channels for employees to report discrimination and ensure prompt action is taken on the complaints against the violators.

5. Data Protection and Privacy Risks

Employees’ personal and employment information  such as job applications, resumes, tax forms, bank information, information should be maintained properly with sufficient security. It must be accessible only by authorized individuals within your organization.

Data protection and privacy laws vary by jurisdiction and encompass much more than cybersecurity. In Europe, the General Data Protection Regulation (GDPR) governs data protection and privacy, while the California Consumer Privacy Act (CCPA) sets similar standards in California. 

Data breaches can lead to severe consequences, including identity theft, financial fraud, and legal liabilities for the organization. For example, Amazon was fined €32 million ($34.8 million) for monitoring employee performance through scanners by France's National Commission on Informatics and Liberty (CNIL) for excessive surveillance of its workers, which violated GDPR principles.

How to mitigate the data protection and privacy risks?

  • Encrypt all stored and transmitted employee data to prevent unauthorized access to employees’ personal and health-related information.
  • Perform regular audits and risk assessments of HR systems and databases to identify vulnerabilities and ensure compliance with data protection regulations.
  • Educate employees about the importance of safeguarding sensitive information, including best practices for password management and recognizing phishing attempts.

6. Violating Benefits laws

Various benefits laws protect employees’ rights and ensure they receive essential benefits. The key benefits include maternity leave, paid sick leave, employer insurance and social security contributions. 

In Australia, for example, the Fair Work Act 2009 provides guidelines for various employee benefits including paid sick leave and paternal leave, while the Superannuation Guarantee Act 1992 mandates that employers contribute to their employees' superannuation retirement funds, ensuring employees have financial support in retirement. 

In May 2024, a worker in Ireland won a case against his employer for breaching the Sick Leave Act and was awarded €1,400. The Workplace Relations Commission (WRC) ruled that the employer had violated the worker's rights by disciplining him for taking statutory sick leave. 

How to mitigate the risk of violating benefit laws?

  • Regularly update company policies in consultation with legal experts and ensure compliance
  • Provide clear information about the benefits applicable to employees in company policies.
  • Establish procedures for handling benefits claims and disputes to ensure fair and lawful treatment of employees. 
  • Utilize global HR management systems, such as Gloroots, which can be tailored to ensure compliance with local laws and regulations.

Best Practices To Ensure Global HR Compliance

Ensuring global HR compliance is essential for avoiding legal pitfalls, maintaining a productive workforce, and safeguarding the company's reputation. By adopting best practices and utilizing advanced HR management systems, organizations can streamline their operations and stay aligned with the diverse regulatory landscapes in which they operate. Here are some key strategies to achieve and maintain global HR compliance.

q. Prepare a well-informed compliance audit strategy

Preparing a well-informed audit strategy is important for ensuring compliance with global HR regulations. The audit strategy is to articulate the audit context that includes identifying the countries involved, specific laws and regulations to be audited and the types of employment policies and agreements to be reviewed. 

The scope should also include the specific employment law challenges to be addressed, such as health and safety, wage and hour, and worker data privacy. The audit process should be carefully planned, including decisions on how to handle local HR staff that fail to respond adequately and how to handle local management hostile to the audit.

2. Stay abreast of global HR compliance

Employment laws evolve constantly due to various reasons, such as economic shifts, public policy advocacy, and changes in government. 

For example, India with assistance from the International Labour Organization is planning to replace its minimum wage system by 2025, due to rising inflation. Similarly, the International Labor Organization (ILO) has been actively working to improve labor standards globally, leading to regular updates in employment laws across countries. 

HR professionals must stay informed of these changes and adapt their company policies accordingly to avoid potential legal risks.

Below are resources that will help you keep up with global HR compliance changes.

  1. Monitor Labor Ministry updates: Regularly check official government websites and labor ministry announcements for changes to employment laws and regulations.
  2. Use HR resources: Sites like SHRM and their country-specific subdomains provide valuable insights and updates on global HR compliance.
  3. Follow international organizations: Stay informed about updates from institutions like the Europen Commission Labour Law (EU) and the International Labour Organization (ILO), which play significant roles in shaping global labor standards.
  4. Subscribe to compliance newsletters: Services like Gloroots offer newsletters and country-specific pages that provide timely updates on HR compliance issues.

3. Document global HR policies

Document organizational policies and procedures online and/or in an employee handbook to help everyone stay on the same page and make workforce management easier. These policies should encompass various aspects of HR management to address legal requirements, cultural sensitivities, and organizational standards consistently.  The key areas to cover include the following:

  • Leave policy
  • Payment schedules
  • Paid time off
  • Compensation and benefits
  • Antidiscrimination and harassment policies
  • Workplace health and safety
  • Written internal employment policies, rules and agreements
  • Employee relations and conflict resolution
  • Procedures for filing complaints

Review this official documentation of your company with your legal team to ensure that it adheres to all the applicable laws and regulations of each jurisdiction.

4. Provide compliance training and continuous development

Organizing training sessions for local HR teams on HR compliance can help your company and employees stay on top of the ever-changing laws and regulations. Here are the benefits of taking the HR compliance training sessions.

  • HR professionals will be able to identify potential gaps in compliance and will be able to take proactive measures to mitigate risks. 
  • These training sessions will also help standardize HR practices across different geographies ensuring consistency and fairness in the decision-making process
  • Employee conflicts and issues can be handled effectively by well-trained HR professionals. 

Achieve Global HR Compliance With Gloroots

At Gloroots, we’ve made global HR compliance simple across 150+ countries! We help your organization stay compliant with the local labor laws, tax regulations, and employment standards of each jurisdiction without any hassle. 

Payroll Compliance

Employers can pay employees compliantly on our platform in a single click. Our payroll experts will ensure compliance with payroll requirements by ensuring payrolling adheres to the latest local regulations, including minimum wage laws, overtime pay, and salary deductions. This guarantees accurate and timely salary disbursements, reducing the risk of non-compliance penalties.

Tax Compliance

Gloroots handles complex tax regulations for your employees and ensures that all tax calculations, withholdings, and filings are conducted in accordance with local laws. This includes managing social security contributions, income tax, and other statutory deductions, thereby minimizing the risk of legal issues and financial penalties.

Benefits Administration

You can also disburse benefits in compliance with local benefits requirements, managing everything from health insurance and retirement plans to leave entitlements and other statutory benefits. We help your organization provide competitive and compliant benefits packages to your global workforce.

With Gloroots’ user-friendly platform and comprehensive features, we empower businesses to focus on growth while we handle the complexities of Global HR compliance management. Experience the ease of global compliance with Gloroots – book a demo today!

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