As companies expand their operations globally, they need to be aware of the various laws and regulations regarding worker classification and compensation. Depending on the country, these laws can vary significantly. Failure to comply with these laws can result in hefty fines and penalties. Here’s what you need to know to ensure your global workforce is compliant.
What is worker classification, and why is it important to companies operating globally?
Worker classification is the process of determining whether a worker is an employee or an independent contractor (for the most part). This determination is important because it affects how the worker will be paid. For example, employees typically require certain benefits and tax withholdings, while independent contractors do not.
The United States IRS explains the difference like this: “A business might pay an independent contractor and an employee for the same or similar work, but there are key legal differences between the two. It is critical for business owners to correctly determine whether the people providing services are employees or independent contractors.”
In general, there are many factors that go into determining whether a worker is an employee or an independent contractor. Some of these factors include:
- The level of control the company has over the worker’s work schedule and duties
- Whether the worker is performing work that is essential to the company’s business operations
- How much control the employer has of the financial parts of the worker’s job
- The length of the employer-worker relationship
When classifying workers on a global scale, companies need to be aware of the various laws and regulations that apply in different countries.
How do the worker classification laws vary from country to country?
The laws and regulations regarding worker classification can vary significantly from country to country. There is no one-size-fits-all approach to distinguishing between employees and contractors across the globe. Some countries also have different definitions for what constitutes an employee and an independent contractor.
Also, worker classification isn’t the only area of concern for HR leaders wanting to be compliant hiring around the globe. Here are some of the areas where a global workforce could pose risks to your organization due to specific laws and regulations in different countries:
- Liability insurance requirements
- Background checks
- Client-specific Non-Disclosure Agreements (NDAs)
- Termination specifications
- Document collection and verification
- Data breaches and cybersecurity
It’s important to note that these laws can change over time, so it’s important to keep up-to-date on any changes that may affect your company’s compliance status. One way to stay up-to-date is to use a global EOR that has an AI-driven classification engine, such as GreenLight. GreenLight’s classification engine is constantly updated with the latest legal requirements and can help ensure that your company is mitigating specific compliance risks.
What are some of the consequences for companies that fail to comply with these laws?
There can be a number of consequences for companies that fail to comply with worker classification laws. Depending on the country, these consequences can include hefty fines and penalties. In some cases, companies may even be required to pay back wages to misclassified workers.
In the United States, for example, the Department of Labor has a process for finding and investigating companies that they believe are misclassifying workers. If the Department of Labor finds that a company has willfully misclassified workers, the company may be subject to civil and criminal penalties. Check out this list of the biggest misclassification litigations last year. Many settlements are well into seven figures.
There are also many tax implications when hiring a global workforce. Click here to learn 3 Things You Need to Know About Taxes and Global Expansion.
How can companies ensure they are complying with the correct laws in each country they operate in?
There are many ways to stay compliant with these ever-changing laws, but one surefire way is by using GreenLight. We’re the world’s first intelligent worker classification and payroll platform making it safe and simple to hire, manage, and pay freelancers and independent workers all over the world, currently operating in 23 countries and growing rapidly. We keep up-to-date on current labor laws, our API makes signing contracts seamless, and our AI-driven classification engine mitigates the risk of misclassification. Schedule a demo today.