Learn | Stop Losing Sleep: Real Compliance Nightmares Companies Face and How to Put Them to Bed

 Learn | Stop Losing Sleep: Real Compliance Nightmares Companies Face and How to Put Them to Bed

Real Compliance Nightmares Companies Face and How to Put Them to Bed

“Companies hiring globally can benefit from exploring the latest time-saving and cost-efficient technologies relating to taxation compliance, as well as quickly understanding and adjusting to new regulations.” — Barbara Mangan, Global Audit and Compliance Manager, Globalization Partners

If you’re hiring a remote candidate within the borders of your country of origin – that’s a simple task. However, adding an international team member and creating a truly global workforce can spawn compliance nightmares.

These tricky situations were discussed on the first day of Globalization Partners’ 2021 edition of the annual PANGEO conference. The panel was moderated by Barbara Mangan, Global Audit and Compliance Manager at Globalization Partners, and Alastair Kendrick, Director at AK Employment Tax Services Limited.

“Employers need to really work with a reliable partner who understands the tax/HR implications of sending people to different countries.” — Alastair Kendrick, Director at AK Employment Tax Services Limited 

Throughout his career, Kendrick has worked with a considerable number of employers who have had to deal with the compliance and tax requirements of global mobility. He and Mangan discussed some common questions and concerns that arise when adding an international team member and creating a truly global team. We gathered the top learnings from their discussion.

How can companies meet complex global tax and statutory reporting obligations, and what are the risks involved? 

Kendrick and Mangan agreed that many employers will consider sending employees to other countries without thinking through the implications. This is a concern because there may be significant risks involved in this decision, as well as added costs, such as income tax and social security in different countries. Moreover, compliant benefit packages, pensions, and medical coverage need to be considered, as these vary from country to country. 

The two experts recognized that, with the best intentions, employers will also normally consider keeping the worker tax neutral. To do this, the company needs to work out what legislation applies in that particular country, because missing the mark on local tax laws or miscalculating them puts companies at risk of fines for noncompliance. 

What tax consequences might companies face if employees want to move back to their home countries and work their long term? 

A huge factor in how employment will work post-migration is whether or not an employer has a place of business in the particular country to which an employee wants to move. Kendrick explained, “What we are beginning to see and hear is that employees are looking for an employer of choice who will be flexible. The market is such that they will move elsewhere if that flexibility does not exist in their existing employment arrangement.”

Mangan noted that employers need to realize that moving employees to a new location requires a fair amount of planning and preparation. The responsibility rests squarely on the company to decide how it will help the employees it transfers — and determine which team members to keep employing if they move to their home country. Ultimately, the risk is the company’s, and any noncompliance issues can incur fines to the employer.

The most important aspect the speakers highlighted was that, in many countries, an employee cannot work in another market without their employer having a place of business in the country itself. Globally mobilizing your workforce can result in steep penalties if not dealt with legally and compliantly.

How can companies avoid worker misclassification when evaluating the possibilities of hiring employees or contractors?

Kendrick and Mangan talked about how both employees and contractors can play key roles in fast-growing international companies. However, it’s critical to classify them properly. 

If, according to the local labor law, someone should be an employee, but is classified as a contractor, the employer can be liable, and even risk their intellectual property. In order to avoid fines, cut risk, maintain compliance, and stay on the right side of international law, companies can consult experts to make sure they are classifying workers properly based on the labor and tax laws of the country where they are expanding. 

“It is very sensible for an employer to partner with a specialist in the particular jurisdictions that the workers are going to be sent to.” — Alastair Kendrick, Director at AK Employment Tax Services Limited 

At the end of their session, Kendrick and Mangan discussed how many companies are dealing with requests from employees who want to relocate to different countries. The discussion in such scenarios is often whether the employee should be engaged on a local, compliant contract or enter a seconded contract. While many companies may rush into arrangements that send their employees to other countries — without thinking through what is best for the worker and employer — there are specific tax benefits that apply in a secondment, such as a 24 month work limit. 

Depending on the country of residence, there may be social security benefits differing from one option to another. In any case, an employer sending employees to other markets should seek help from a global employment specialist before the assignment commences. 

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