5 Ways An Employer of Record Protects Companies From Legal Risks
Author:
Clarisa Wong
Published:
July 26, 2024
Last Update:
October 23, 2024
Amidst the bustling arena of modern business, global companies today are confronted with a web of constantly shifting employment laws and regulations. From the intricacies of hiring to the nuances of tax compliance, the legal challenges of managing a workforce can be overwhelming.
It is common knowledge today that organisational global ambitions are notably met with demanding current challenges. For one, understanding legal compliance when seeking to hire internationally is still one of the biggest blockers that organisations face nowadays.
Nearly 3 in 4 global companies acknowledge that deciphering foreign employment and tax laws ranks among the most pressing challenges they face when hiring and managing international talent. It is essential to navigate this landscape with precision, as missteps can lead to staggering penalties – with fines reaching into the tens or even hundreds of thousands of dollars, depending on the country.1
Hiring internationally comes with global challenges
According to the HR Research Institute Research Report and Infographic 2022, 3 out of 10 organisations state that they grapple to keep pace with the ever-evolving landscape of HR compliance. Common challenges include the expanding array of federal and state regulations, shifting interpretations of laws, and technology that struggles to keep up with these rapid changes.2
When expanding into international markets, global companies face a myriad of challenges that can complicate the hiring process. The challenges below are 3 key obstacles that organisations often encounter when hiring abroad; highlighting the complexities of HR employment law, tax obligations, and employment documentation:
- Complex and varying employment law compliance: Every country has its unique employment laws and regulations, often varying greatly from one jurisdiction to another. For global companies, navigating these disparities and ensuring compliance can be daunting, especially without the guidance of local expertise.
- Tax and social security obligations: Countries impose distinct requirements for tax withholdings, social security contributions, and various payroll obligations. Mishandling these responsibilities can lead to significant financial penalties and legal liabilities.
- Employment contracts and documentation: It is crucial to ensure that employment contracts and related documentation adhere to local laws. Failure to maintain adequate or compliant documentation can result in legal disputes and complications.
Given the formidable challenges that lie ahead, it is vital for companies to seek effective HR solutions and partnerships – such as an Employer of Record – that can help them navigate these legal hurdles. By doing so, organisations can not only mitigate risks but also thrive in the fast-paced global economy.
We’re here to help you on your journey to hire, manage and pay.
What does an Employer of Record cover in terms of legal and regulatory compliance aspects?
A survey by Atlas and People Matters acknowledged that 49% of its respondents pinpointed in-country compliance as the primary obstacle to their global aspirations, with nearly half considering it a significant roadblock to their global expansion. As a result, this prompted many organisations to turn to Employer of Record services as a flexible solution for accessing a global talent pool. Additionally, over half (52%) of companies surveyed by Atlas admitted to struggling with finding the right talent when entering new geographic markets.3
Meanwhile, People Matter reported that a majority of employers are looking for a service provider or partner to engage and hire the best talent – with only 35% of the companies said that they would invest their own capital and time in hiring borderless, international talent.4
An Employer of Record partner is a great solution to help companies navigate the complexities of legal and regulatory compliance intricacies, as it covers the following key compliance aspects for organisations:
- Local labour laws adherence
Managing employment contracts in compliance with local labour laws and regulations is essential for any organisation. An Employer of Record helps with drafting and overseeing agreements that outline probation periods, job descriptions, and terms of employment.
Additionally, an Employer of Record ensures adherence to local labour standards – which encompass minimum wage, working hours, overtime pay, rest periods, and holiday entitlements. Furthermore, when applicable, an Employer of Record navigates and complies with collective bargaining agreements, which can include engaging and managing worker agreements.
- Work permits and visas management
Effective management of work permits and visas is crucial for expatriates and foreign workers, and the application process often requires timely and accurate submissions to facilitate their relocation.
An Employer of Record ensures that all necessary documentation is in order and that employees possess the legal right to work in the host country. It also helps to handle the renewals and extensions of work permits and visas diligently, thus guaranteeing continuous compliance with local regulations.
- Regulatory filings and reporting
An Employer of Record ensures that statutory reporting requirements are completed for compliance – and these include filing annual returns, tax declarations, and other mandatory reports with local authorities. Companies can rely on Employer of Record to provide support during audits conducted by government agencies to ensure that all employment practices and records align with local regulations.
Furthermore, an Employer of Record will monitor and implement changes in local labour laws and regulations – allowing the organisation to remain compliant with the latest legal requirements.
5 ways an Employer of Record helps companies avoid legal risks
As companies expand to thrive in today’s interconnected global market, navigating the intricate landscape of employment laws and regulations can be a daunting task when venturing into new territories.
The potential for legal risks looms large – but partnering with an Employer of Record can provide a strategic advantage. An Employer of Record not only simplifies the hiring process but also serves as a crucial line of defence against compliance challenges.
Here are 5 key ways an Employer of Record protects your company from legal pitfalls – ensuring a smoother path to international expansion while safeguarding your interests:
- Ensuring compliance with local regulations: As an employer, you can rely on the Employer of Record to navigate the complexities of local employment laws, tax codes, and labour regulations. This helps your company avoid legal issues such as fines and penalties for non-compliance; ensuring that all employment practices are legally sound.
- Managing employee documentation: The Employer of Record takes care of all necessary employment documentation, including contracts, work permits, and visas. This means you don’t have to worry about whether these documents meet local legal requirements, reducing the risk of legal disputes and ensuring smooth operations.
- Preventing worker misclassification: Misclassifying employees as independent contractors can lead to severe legal consequences. By using an Employer of Record, you can ensure that workers are correctly classified according to local laws – avoiding fines, back taxes, and potential legal action.
- Handling employee terminations legally: Terminating an employee can be legally challenging. An Employer of Record partner manages the termination process in compliance with local labour laws – including providing proper notice, severance pay, and documentation. This helps protect your company from wrongful termination claims and related legal issues.
- Minimising payroll and tax errors: Payroll processing and tax filing can be complex and error-prone. The Employer of Record manages these tasks, ensuring accuracy and compliance with local tax laws. This reduces the risk of payroll errors that could result in legal penalties or financial liabilities for your company.
By partnering with a trusted Employer of Record partner, you can propel your business forward while deftly mitigating legal risks and ensuring adherence to all employment laws and regulations – making sure that you achieve your global ambitions and success at the same time.
Looking for the right Employer of Record partner that gives you the peace of mind in HR compliance laws management? Trust AYP Employer of Record to assist you to scale higher and further in your business – book a demo with us here today for more details!
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