5 International Human Resource Challenges Companies Face When Expanding Globally

Global expansion has plenty of perks, but also plenty of challenges, especially for Human Resources departments. It ultimately allows for more diverse talent to be found, but not without some necessary evolution and adaptation from HR teams. 

KnowledgeCity understands these difficulties first-hand, as we are a growing company with employees all around the globe. International compliance is a stiff task, but one worth taking seriously, as penalties can be high, with fines large enough to stop global expansion in its tracks. 

In 2020, for instance, two of the biggest companies on the planet failed to track their cookies without consent on their French websites and were handed fines totaling more than $160 million. These companies were Google and Amazon, and understanding that even businesses with large teams and regular global expansion can encounter compliance issues is important in preparing for your own international compliance challenges. 

Companies like Google and Amazon have enough clout to maintain a positive image after mistakes like those mentioned above, but smaller companies can have their reputations damaged in addition to the fines, making for difficulties in the future.

This article will take a look at five frequent noncompliance issues that arise when expanding globally, how to avoid them, and how to fix them if something does slip through the proverbial cracks:

  • Employee Payroll/Benefits
  • Taxation
  • Discrimination
  • Data Compliance
  • Change is the Only Constant
People sharking hands in an office

Employee Payroll/Benefits Issues

Just as the United States has federal, state, and local laws regarding minimum wage, overtime, PTO, etc., so too do other countries, and they can vary (sometimes greatly) from locale to locale. 

First, HR teams must ensure that all pay and benefits promised to a new employee are legal and fair as per laws in the given employee’s location. This includes a robust review of local labor laws (including hiring and firing practices) and adherence to break times, parental leave, and retirement plans.

Industry-dependent issues can also arise, and HR teams need to be in tune with local unions and Collective Bargaining Agreements that may exist where your team is thinking about making a new hire. Customs and religious practices also change drastically from country to country, and are often protected under local laws, so your team needs to plan for the specific needs and expectations of international hires.

Cost of living must also be considered, though this is more often an internal concern, rather than one of any governing bodies. Sometimes your team will find qualified talent who needs more compensation simply because of where they live. In the U.S., wage information is protected, but information leaks do happen. If you’re paying someone in one country more to do the same job as someone in yours, be ready to explain and justify cost of living differences. 

Taxation

Summarizing global business taxation in a few paragraphs is impossible, but knowing global compliance tax challenges to watch for as you grow is a little more workable.

Ask yourself these questions to identify where to focus:

  • What business is being conducted? Depending on whether you’ll have a sales office, a cloud-based legal entity, or a foreign partner will dictate what laws you’ll need to pay the most attention to.
  • How are you financing the foreign operation? Your source of funding for the expansion could mean different tax rules depending on location.
  • When will your potential foreign profits be taxed in the U.S.? There can be benefits related to when you file for taxes on money made, and forming an understanding within your industry allows for you to decide when you can legally claim your money in the most economically sound manner.
  • When will your potential foreign profits be taxed in their home country? There is potential for double and triple taxation when foreign entities are involved, and understanding these laws will give you the opportunity to stay compliant while potentially saving some money.
  • What are the repatriated tax rules? You may be able to save money while remaining compliant by bringing profit to the U.S. before or after using it to cover foreign work-related expenses.

All of these questions need to be asked and answered in the right manner, and here are three things to keep in mind when doing so:

  • Attention to detail: Your company may have a lot to lose if it’s expanding globally, and attention to detail regarding foreign local and federal taxation needs to be analyzed at the most granular level. Sales taxes can vary between products and services, property taxes must be evaluated on any brick-and-mortar facilities, and so do payroll taxes as mentioned above. 
  • Industry-specific: There is potential for a given industry to have different tax structures than the local “norm,” and these can often be overlooked.
  • Ever-changing: Even stateside, taxes change with every election cycle, and at the global level these changes can be even more frequent. Foreign entities should be regularly reviewed for changes in tax structure.

Discrimination

The nonprofit Council on Foreign Relations (CFR) recently placed the United States very highly on their workplace equality study, but not quite at the top. With that in mind, using the United States’ anti-discrimination laws and regulations as starting references is a fine plan, but like everything else on this list, a deep dive into a foreign area’s local laws regarding discriminatory hiring processes is paramount. 

Some areas of the globe do not have anti-discrimination laws in place, but hiring in these areas does have the potential for backlash, especially if lower wages are also part of the conversation. Lowering your own company standards is rarely a good move from an image standpoint, and a tainted reputation can often cause even more damage than a noncompliance fine. 

Additionally, an inclusive and diverse workspace is also one of the top things millennial and Gen X employees look for, so adhering to strict anti-discrimination practices in your company (even when it may not be required by a specific foreign locale) can help you stay desirable for future hires both foreign and domestic. Here are some demographics that both U.S. and foreign laws protect with anti-discriminatory hiring laws:

  • Race
  • Gender identity
  • Sexual orientation
  • Age
  • Migrant status
  • Indigenous status
  • Religion
  • Disabilities

Data Compliance

The $160 million worth of fines levied to Google and Amazon were results of failed data compliance. In such a rapidly growing industry (Big Data is expected to be worth $274 billion this year, up from $189 billion just 2 years ago), regular attention to data compliance could be even more important than staying on top of taxation laws and anti-discriminiation laws, as the former is much more likely to change without warning than the latter two.

While the data industry is not quite in its infancy anymore, it can still feel like uncharted territory. Changes in compliance rules are frequent, but last year, the European Union created the biggest regulatory set of rules relative to data, called the GDPR – General Data Protection Regulation. The GDPR has become a strong indicator of the direction the rest of the planet will likely take with legal regulations surrounding big data.

In addition to the legal factors, experiencing a major data breach can get your company blacklisted overnight. Data compliance laws exist to protect people’s information, both personal and financial, and failure to comply with U.S. and foreign data regulations can be a death sentence for a young company.

Change Is the Only Constant

A repeated point in this article has been to remain cognizant of the frequent changes that take place in global compliance. Data laws are the most frequently changing due to the sheer vastness of the capabilities, but local and federal laws pertaining to hiring, payroll, wages, time off, and things of the like aren’t only talked about in the United States. 

Luckily, as data and global business capabilities grow, so has technology to help keep HR teams in line with international compliance rules and regulations. 

Many companies already use some form of compliance software, such as IBM OpenPages, but not all of these are created with global business in mind. Just as you need to take great care and attention to determining legislation in a new area of business, you should also determine what kind of compliance software is available there, and if it is compatible with international business heading towards the U.S. (most are). 

When choosing a good Government, Risk, and Compliance (GRC) software tool, consider the following:

  • Integration: Does this software allow for you to import and export usable data to other analysis programs used within your business? Integration capability is crucial for international business. 
  • Auditing: No different than the taxes themselves, auditing processes change from country to country, and ensuring your GRC software can be used to quickly answer any questions auditors might have saves everyone involved time, money, and stress, not to mention the possibility of your software not being able to answer an auditor’s questions.
  • User interface: When conducting business internationally, cultural norms are often overlooked, and what is easy-to-use for the stateside layperson may not be for a well-qualified foreign employee. Usability is very important when choosing a tool, as individuals from all over the globe will be responsible for inputting relevant data on a regular basis to ensure compliance. 
  • Databasing: Data can help streamline every aspect of your business, and GRC procedures are no exception. If you have the resources to analyze data, be sure to choose a program that allows those team members to maximize your efficiency. 
  • Value: Pricing varies greatly depending on your company’s size and needs. GRC software deserves a look almost as deep as business legalities in a new country.

Time to Expand?

If compliance is the only box you have checked in your business plan to expand internationally, it’s probably not quite time to do so. However, understanding compliance relative to global expansion is a necessity that can save your company considerable time and money. Both fines and reputation damage can be fatal to a company if compliance lines are crossed, so it’s certainly a good first box to check. 

KnowledgeCity can help your expansion two-fold, as we are a global company ourselves, and provide robust training to other companies on topics all over the HR map, including those relative to global growth. 

Take a look at all of our HR course offerings here!

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