Ever since Covid enforced the hasty adoption of remote working throughout the UK, there has been a huge increase in the number of firms hiring internationally and letting employees operate from anywhere in the world. Such policies, which have proved particularly attractive to gen Zers, have enabled these employers to trawl a broader talent pool and better serve customers located in different time zones.
But managing a widely distributed workforce presents several logistical challenges, especially the task of complying with a host of differing tax and labour laws. Applying consistent HR policies across borders is rarely straightforward either.
Lorna Ferrie is global compliance and HR manager at Mauve Group, a consultancy that helps employers to solve such problems. She reports that some firms have found that having a presence in certain countries is outweighed by the complexities and costs associated with employing people there, prompting them to curb or even scrap distributed working.
She cites the recent example of a medtech company that was operating in Australia and Europe but thinking about quitting several other jurisdictions. The business was “facing challenges managing local workers” because it didn’t have enough HR expertise in those territories.
“The management team’s concerns about non-compliance with complex local laws and the company’s lack of legal knowledge in those countries forced it to hire expensive lawyers in each location. But even doing that caused its own headaches,” recalls Ferrie, who adds that the firm has chosen to retain its presence in the countries concerned, despite such difficulties.
Legal requirements in different jurisdictions
Many organisations don’t feel equipped to handle the compliance challenges associated with having a highly distributed workforce, which makes them reluctant to adopt flexible working policies. This is hardly surprising, given that regulatory complexities can crop up as early as the recruitment stage.
“Different jurisdictions have differing requirements relating to the content and format of employment contracts, including important provisions such as notice periods and termination conditions,” notes Holly Insley, a partner specialising in employment law at Freshfields Bruckhaus Deringer. “There will be different requirements in relation to working hours and overtime pay, as well as varying laws on data protection and employee benefits such as pension provision, health insurance and severance pay.”
An international employer might try to take a consistent approach and use standard templates for all staff, wherever they’re located, but Insley warns that this won’t necessarily work in every jurisdiction.
If your customers are all over the world and need support in their time zones, regional management can be a great solution
The risk of non-compliance with local tax laws is another key concern for those managing a distributed workforce. If social security contributions are handled incorrectly, for instance, the ramifications for both employer and employee can be serious.
The challenge takes numerous forms, notes Lucy Delaney, managing director of the people and transformation practice at FTI Consulting. She says: “It could be an employer paying taxes in several countries for individuals; having to register for social security purposes abroad; potentially operating payroll in multiple countries for one employee; and even having to create a taxable presence overseas.”
Immigration law is another factor to consider when employing people in several countries, Insley notes. An employee working remotely from a territory in which they aren’t resident may require specific visas or work permits, for instance, while some jurisdictions apply constraints on remote working arrangements involving foreign nationals.
“Organisations must therefore ensure that they’re complying on an ongoing basis,” she says. “This can involve a significant amount of administration.”
Policies and partners to support distributed teams
Any employer that has established a work-from-abroad policy in recent years may find it worthwhile to review its provisions and check whether these are still fit for purpose.
Effective policies will include “clear communication protocols, data security measures and flexible working arrangements”, says Amanda Arrowsmith, people and transformation director at the Chartered Institute of Personnel and Development (CIPD). “These policies must also be well communicated and applied consistently at all levels of the organisation.”
So how can firms avoid the pitfalls and realise the benefits of having a distributed workforce? One option is to establish separate legal entities for your company in different markets and make them responsible for all local compliance matters. But this can be costly, which is why an increasing number of firms are partnering with so-called employers of record. These act as the legal employers of individual workers in countries where the hiring companies have no other presence.
An employer of record will provide the services of that employee exclusively to the hiring company while handling all of the administrative aspects of the employment relationship.
This approach offers clear benefits, says Kathleen Healy, another Freshfields partner who heads the firm’s people and reward practice in London. But she highlights some caveats, particularly in cases where an organisation is growing fast and using employers of record to hire and manage people in large numbers. These include issues concerning the granting of equity-based rewards, compliance with pension enrolment requirements and the management of internal investigations.
Ferrie, whose own firm offers an employer-of-record service, adds that not all providers are working to the same standards.
“As with any industry, there are good and bad operators in this market. Due diligence is therefore important,” she warns, noting that the best employers of record can bring substantial international experience to bear and have their own legal support team on hand to review complex cases.
How to manage employees in different countries
A key consideration for companies with distributed workforces is how much management responsibility they should devolve. It’s vital to have a central point of control to ensure as much consistency as possible, but the extent to which the burden should be shared from there will depend heavily on each firm’s unique circumstances, according to Ferrie.
Factors to take into account include the size and reach of the organisation, the suitability of the firm’s systems and processes in its various territories, the nature of the work and the level of autonomy required.
“If most of your employees are at head office, splitting into regional divisions may not be practical,” Ferrie says. “But, if your customers are all over the world and need support in their time zones, regional management can be a great solution.”
Whatever the arrangement, it’s important that distributed workforce policies are implemented consistently and benchmarked internationally to ensure fairness in areas such as pay and benefits.
The CIPD advises applying the same approach to reward across the organisation –mandating performance-related pay for all employees, for instance – but letting each overseas HR team decide how this will be implemented to ensure compliance with local laws.
Alternatively, says Arrowsmith, “you could decide on a set of general principles, such as paying a fair and liveable wage, and leave it to each local HR team to fill in the details”.
Do you need an external partner?
Delaney believes that most employers seeking to implement a distributed workforce model will need some kind of external support. In doing so, they must ensure that their chosen partners are familiar with their business model and can provide concise and pragmatic guidance whenever it’s required.
“An organisation shouldn’t get surrounded in red tape where that’s unnecessary, nor should it be obtaining advice from a provider that isn’t succinct, clear and actionable,” she says. “While some of the rules that firms encounter internationally are relatively straightforward, it’s often the practical details, such as the mechanics of payroll processing, that will trip them up.”
