legal considerations
  • article
28/05/2024

Cross-Border IT Staff Augmentation: Mitigating Administrative Challenges

Advancements in technology and the surge in remote work have made it easier for organizations to work with talent across the globe. Yet, what legal challenges can companies face when hiring staff from other countries?

Paulina Twarogal

Content Specialist

Agata Tomasik

Head of Outsourcing, Board Member

Advancements in technology and the surge in remote work have made it easier for organizations to work with talent across the globe. This ability to work from anywhere has opened doors for both individuals seeking opportunities beyond their borders and companies looking to tap into a global talent pool. This trend has the potential to reshape the future of work, but it also comes with important considerations… What legal challenges and issues can companies face when hiring staff from other countries to fill in the gaps in their existing workforce?

Legal and compliance considerations in cross-border staff augmentation

Cross-border staff augmentation introduces a fascinating new layer to talent acquisition. Who would have thought that hiring skilled specialists from the other side of the world would be so accessible one day? Yet, along with exciting opportunities come legal complexities. Companies must navigate a range of issues that fall under the umbrella of international employment laws.

International employment laws

Understanding international employment laws becomes crucial for operating legally on a global scale. They encompass a set of regulations specific to different countries, often with comparisons drawn between territories. The core purpose of these standards is to safeguard employee well-being, support job security, and ultimately enhance the overall employment landscape.

The United Nations (U.N.) plays a crucial role in supervising global employment practices through the International Labour Organization (ILO). This governing body sets standards in its 187 member states. The ILO aims to promote social justice by encouraging cooperation among workers, employers, and governments. Member countries agree to these standards and are responsible for incorporating them into their own laws. This creates a more consistent approach to fair labor practices worldwide.

The International Labour Organization sets some important rules for fair working conditions around the world. But that’s not all. Different regions can also have their own additional employment laws. For example, the European Union has its own set of labor laws that apply to all its member countries. There’s also the North American Agreement on Labor Cooperation outlining labor standards between the U.S., Canada, and Mexico.

Therefore, no matter where your organization is based, it’s important to comply with the labor laws of each country you do business in. So, when hiring staff from abroad, you need to follow both domestic and the worker’s home country’s regulations. While maintaining cross-border compliance in this context might be challenging, it’s non-negotiable.

Failing to comply can lead to delays in onboarding staff, disruptions in workflow,  potential issues with work authorization, and legal repercussions. All of this can significantly impact the success of your cross-border staff augmentation strategy.

Thus, to ensure ongoing compliance, companies can leverage the valuable expertise of legal and tax specialists who stay up-to-date on international employment laws. These professionals can provide clear guidance on the specific regulations applicable to each country involved. 

Employment laws and regulations

cross-border staff augmentation

One of the biggest legal challenges of employing across borders is dealing with different rules in each country. As mentioned above, every country has its own set of labor laws and work policies. The main differences are typically found in the following areas.

Minimum wage and benefits

One important way to protect workers is through a minimum wage. This is the lowest legal amount an employer can pay their employees in a specific location. It’s important to follow the minimum wage rules where your workers are located. Here are a few things to keep in mind:

  • Minimum wage can differ depending on the country, region, or even city. For example, it’s $14.33 in the UK, $5.73 in Poland, and $7.25 in the United States. In some US states, the minimum wage is even higher than the national average.
  • In some cases, minimum wage might also vary by the type of job or the employee’s experience level.

As for the benefits, they’re a great way to attract and retain top talent for your business. However, they come in two types

  • Statutory (basic benefits required by law),
  • Supplementary (at the employer’s discretion). 

So, when having cross-border employees, you need to know precisely what benefits are mandatory in their location. Only then can you select some additional benefits to attract the best talent.

Working hours and overtime

You should also think about the work schedule and overtime policy. For instance, in Germany, a typical workweek is 40 hours. The country’s labor laws also ensure that employees have at least 11 hours of rest between workdays. Overtime is only allowed if it’s specified in the employee’s contract. And there are limits on how much overtime can be paid, which vary depending on the region. 

In Spain, full-time employees also work a standard 40-hour week. There’s a limit on daily working hours; employees cannot exceed 9 hours per day unless a specific agreement allows otherwise. Overtime is permitted but with a yearly limit of 80 hours.

Paid time off

When it comes to paid time off, again, the laws can vary massively. For example, in the UK, employees are entitled to 28 days of paid vacation, while their colleagues in Germany receive 20 days. Poland also offers 20 days but with an increase to 26 days for employees with more than 10 years of experience. 

Many countries require employers to offer some form of sick leave for their employees, but not all of this leave is paid. In some places, your workers might be entitled to several weeks of paid sick leave, while in others, they might not receive any paid leave at all. And… You should also know who covers what expenses. In Australia, for instance, employers are fully responsible for sick pay, while in France, it’s the government’s duty. In Germany, on the other hand, it’s a mix of both.

Such discrepancies can cause tension within multinational organizations. Ultimately, they might lead to feelings of dissatisfaction among employees who receive fewer paid leave days compared to their counterparts in other countries.

Probation period

European countries handle probationary periods differently than countries like the USA or Canada, where a company’s probation period can range from 3 to 6 months. In Europe, probation periods typically last up to 3 months. However, there are countries that prohibit it; let’s take Belgium as an example here.

Termination and notice period

Some locations might require employers to provide a longer notice period to employees before termination, while others might have stricter regulations on the reasons for dismissal. Several factors influence the amount of notice an employer must provide before terminating an employee’s contract, including:

  • The mandatory notice period in the employee’s country of residence
  • Type of contract
  • Length of the employee’s service
  • Whether the employee is still in their probationary period

In France, it’s 1 month for non-executives and 3 months for executives. In Hungary, it’s 15 days, while in the USA, there’s no officially stipulated notice period.

Tax obligations

cross-border staff augmentation

Managing payroll taxes for domestic employees can be complex, but it becomes a significant challenge when you have a global workforce. Imagine the routine tasks you perform for local employees—filing reports, making quarterly payments, calculating withholdings, and issuing year-end tax documents. 

Now, multiply that complexity by the number of countries your international employees reside in, each with unique tax laws. Here’s a crucial factor: tax residency. An employee’s tax residency determines which country has the primary right to tax their income earned while working remotely. This can be their home country or the host country.

There are three key players in international taxation:

Home country: This is your company’s headquarters location, and it has the authority to tax your global income.

Host country: This refers to any country where your employees work or where your company operates a branch. Just like your home country, the host country can also tax your company’s income. This may involve registering with the local tax authority and withholding income tax from your employee’s salary based on their host country’s tax regulations.

Tax treaties: Individuals working remotely from another country might face taxation in both their home country and the country where the work is done. To avoid double taxation, countries may have agreements in place. These treaties typically specify which country has the primary right to tax the income. 

Worker classification

Those who perform business tasks can generally fall into two categories: employees and independent contractors. A key difference lies in how taxes are handled. Independent contractors are responsible for paying their own taxes, while employers withhold taxes from employee paychecks. 

So, without a deep understanding of these regulations, navigating international payroll taxes becomes a minefield of potential non-compliance. This can lead to hefty sanctions and fines for your business. 

Data protection and privacy regulations

cross-border staff augmentation

The changing landscape of data security and privacy laws creates a real headache for businesses. Regulatory bodies around the world are constantly evolving their guidelines in response to emerging threats. This leaves companies with the difficult task of staying on top of these complex rules.

This becomes even more challenging when operating across borders. Different regions, like North America and Europe, have varying regulations, particularly when it comes to sensitive data like fingerprints and facial scans.

What laws govern international data transfers?

Data sovereignty compliance ensures companies follow the data protection laws set by different countries. These laws act as safeguards for people’s personal information, ensuring it’s handled securely and with their consent. Here are some key examples.

The European Union’s General Data Protection Regulation (GDPR) 

GDPR makes companies responsible for safeguarding the personal data and privacy of EU citizens. While it might seem like this only applies to businesses within the EU, that’s not always the case. Even if your company operates outside of Europe, you might still need to comply with GDPR if you handle the personal information of EU citizens.

The GDPR imposes fines of up to 4% of the global turnover on businesses operating within the European Union for violations. Since February 2022, authorities have imposed around 1,000 fines for GDPR breaches. These include instances of non-compliance, insufficient compliance, and lack of a valid legal basis for data processing, among other issues. 

Other regulations across borders:

These laws set rules for how companies around the world handle personal information of their employees.

  • China: The Personal Information Protection Law (PIPL) 
  • Canada: Personal Information Protection and Electronic Documents Act (PIPEDA) 
  • Japan: The Personal Information Protection Act (APPI)
  • USA (State Laws): While there’s no single federal law, some US states, like California with its CCPA (California Consumer Privacy Act), have their own data protection laws. For example, CCPA permits citizens to claim up to $750 for each data breach.

Intellectual property rights

Ensuring intellectual property (IP) protection across borders becomes a significant challenge due to the lack of harmony in international laws. Different countries have their own rules for patents, trademarks, copyrights, and trade secrets. All of this makes it difficult for businesses operating in multiple regions. Additionally, language barriers, cultural variations, and different enforcement levels further complicate the process of safeguarding IP assets across borders.

Still, it’s crucial to iron out who owns the intellectual property rights before starting any project. This means all parties involved need to agree on who owns the work being created and whether it can be used for commercial purposes. It’s especially important in the tech industry. In the first half of 2023, a whopping 42% of all IP rights cases involved tech businesses. This statistic highlights the need for clear guidelines and agreements at the outset, so everyone knows who owns what and avoids disputes later on.

Work permits and visas 

One aspect frequently overlooked in today’s flexible work environment is whether an employee is allowed to work in a given country at all. Employers typically bear legal responsibility for verifying their employees’ right to work and maintaining proper documentation to support this. Non-compliance with immigration regulations can result in criminal charges, fines, and audits by local immigration authorities. Consequences like these could also result in employers being flagged for future visa or work permit applications in that country. This might hinder their ability to access that market in the future.

There’s also a common misconception that a business visa allows employees to work in the host country. However, such visas usually only permit activities like attending meetings or training—not establishing a permanent work base. 

How can you deal with all of this?  

Cross-border employment brings many advantages, like flexibility and access to a wider talent pool. However, it involves understanding various laws and ensuring compliance. Since it can be difficult to do it on your own, consider partnering with a legal professional specializing in international employment law. They can guide you through the intricacies of various jurisdictions, ensuring compliance and mitigating risk. In this case, partnering with an Employer of Record services provider might help you with the headache of dealing with legal aspects of cross-border staff augmentation. 

At Neontri, we understand such challenges and can help you cope with them effectively.  From payroll and taxes to benefits and employee relations, we handle it all. Explore our user-friendly EOR solutions and focus on what matters most—growing your business.

 

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Agata Tomasik
Board Member
Head of Outsourcing
agata.tomasik@neontri.com

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