International expansion is often associated with increasing product or service diversity and business revenue growth beyond the company’s home market.
You might be considering a global expansion plan to Southeast Asia, with 8 out of 10 people among the 700 million population who have made one online transaction in the past year.
While you might be excited to start your borderless hiring approach, what are the common global expansion mistakes often overlooked?
1.Misclassifying Employees and Independent Contractors
Worker misclassification is against Labor law. One example is hiring a temporary worker as an independent contractor to work on a short-term yet intensive project.
An employee might be misclassified as an independent contractor if hired on a project basis according to a service agreement for a time-intensive project requiring them to devote their full time to the company and indirectly prohibiting them from working with other clients.
In such instances, a “forced entrepreneur relationship” is established as contractors are governed by a service agreement and not protected by an employment contract.
Classifying workers as contractors allows employers to avoid filing taxes. Under section 248 of the tax code in the Philippines, a penalty equivalent to 25% of the amount due in addition to the tax required will be charged to the employer who fails to file the tax.
Check whether you are hiring “fake freelancers” as full-time remote employees.
2. An Offer Letter without Understanding the Local Laws
If your headquarter operates in the United States, you might use the same letter offer template across the entire organization, regardless of where the employees are employed. However, this might lead to possible disputes between you and your employees.
For instance, a 13th-month salary is optional in the US, UK, and most of the Middle east countries. But when your company expands to certain countries like the Philippines where a 13th-month bonus is mandatory by law, an offer letter from your human resources without stating it might be an offense.
Paying employees in the Philippines a 13-month salary before 24th December each year is compulsory. The amount must NOT be less than 1/12 of an employer’s total basic salary in a year (2). Employers are also required to file a compliance report to the department of Labor NOT later than 15th January every year.
3. Without a Sustainable Hiring Plan
The technology industry is one of the industries that is expanding fast. Similarly, the turnover rates are the highest among other sectors, with computer games comprising 15.5%, Internet at 14.9%, and 13.3% for computer software industries (3).
Among the tech professionals, user experience designers had the highest turnover at 23.3%, followed by data analysts and software engineers at 21.7%.
Possible reasons for the high turnover are attributed to tech companies’ rapid innovation and change requirements when new technologies evolve. Companies must continually adapt and restructure their talents according to the skill sets required.
Top talents are also more likely to hop on new opportunities if the industry gets even more competitive. In such a rapidly changing industry, companies can tap into the expertise of an EOR solution provider who can speedily hire and onboard employees from a vast talent pool.
4. Ignoring Employee Engagement
One common mistake contributing to the high turnover rate is without taking proactive actions in retention plans.
According to Investopedia’s findings, it can take up to 6 months or even more for a company to break even on its new hire’s return on investment (ROI) (4).
Generally, a new hire can only contribute 25% of their capacity in the first month of joining. A replacement can cost 1.5 to 3 times the resigned employee’s salary, taking the time to source, hire, and provide complete training.
Remotely working employees might feel isolated in a fast-paced working environment, and the lack of security in such a volatile market could reinforce talents to seek alternative career options. Strengthening connection and engagement is vital in such working conditions.
Check out the 5 areas of human-centric metrics suggested by Gartner for an effective employee engagement plan.
5. Risk of Micromanaging Your Employees
According to Gallup research with more than 7,000 US employees, one in two had left their jobs due to their superior at some point.
In a fast-paced and highly result-oriented company, constant monitoring to ensure employees are contributing and productive, particularly in a remote setting, can make employees feel untrusted and unempowered, further aggravating employee stress and mental health in the long term.
When managers micromanage, conflicting energies develop, making team building and motivation impossible. Here is a checklist to check whether you are micromanaging your team. What are the 5 types of toxic leadership behaviors?
6. Ignoring the Complexity and Latest In-Country Regulations
Labor laws vary across countries, such as minimum wage requirements could change annually according to government regulations.
In Malaysia, paying employees “retrenchment or unemployment insurance” (also known as employment insurance) is mandatory. Any employer who fails to pay EIS would be penalized RM 10,000 and /or less than 2 years of imprisonment.
While in Thailand, paying workmen’s compensation fund is mandatory as a form of insurance scheme that provides worker compensation in the event of work-related injuries and illnesses. The contribution rate is based on the employee’s risk of work and the company’s accident records.
Partnering with a local expert, such as a legal employer (EOR), who can share your full employment legal liability will mitigate your risk and ensure a smooth expansion to a country you are unfamiliar with.
7. Without a Global Payroll Solution
Borderless hiring from multiple countries would only be possible with a sustainable global payroll solution.
An automated payroll management system can reduce nearly 70 to 80% of repetitive tasks. How to evaluate whether you should relook into your current payroll system?
Here are the 10 key criteria of a sustainable and effective global payroll solution:
- Compliance: With both local and international law requirements.
- Scalability: Able to adapt and change according to business needs.
- Integration: Able to integrate with attendance, benefits, leaves, and HR reports.
- Accuracy: Handle complex tax calculations for authority submission.
- Security: Equipped with enhanced security features to prevent data leakage.
- Flexibility: Able to accommodate multi-currency, payment methods, and paid-out schedules.
- Reporting: Able to generate detailed reports with payroll data, Labor costs, and compliance.
- User-friendly: Easy to access with self-service enabled.
- Customer support: With a self-service help center accessible and available 24/7.
- Cost-effectiveness: Cost-effective, transparent, and no hidden cost.
Get your personalized plan and learn what an EOR can provide.
To date, AYP has impacted 500,000 lives to access HR technology more conveniently, including automated compliance, digital onboarding, and payroll in more than 130 currencies.
Follow us on AYP’s LinkedIn page for more upcoming blogs!
1. How To Optimise Your Workforce Management with HR Analytics
2. Game-Changing HR Technology For Business
3. Making the Global Mark: Cost-Saving Employment Tips for Company Expansion