As businesses expand internationally, managing compliance for a global workforce becomes increasingly complex. Whether hiring independent contractors or utilizing Employer of Record (EOR) services, companies must navigate a myriad of labor laws, tax regulations, and data privacy requirements across various jurisdictions. Non-compliance can lead to financial penalties, legal disputes, and reputational damage, making it a critical priority for any company scaling its operations globally.
A 2024 report by Alight Solutions revealed that over 53% of surveyed companies incurred payroll penalties in the last five years due to non-compliance.
Additionally, with the rise of EOR services, understanding how to remain compliant while managing a distributed workforce has become more essential than ever.
While independent contractors typically manage their own tax obligations, companies must ensure proper worker classification and that contracts align with local labor laws. Conversely, EOR services offer a compliant way to hire full-time international employees, as the EOR assumes legal responsibility for employment, payroll, and benefits administration. However, businesses using EOR services must still understand their compliance obligations to mitigate risks effectively.
This article explores the key compliance challenges companies face, the potential consequences of non-compliance, best practices for maintaining compliance, and how TechRemote can simplify global compliance management.
Table of contents
1. Key compliance challenges
2.The potential consequences of non-compliance
3.Best practices for staying compliant while scaling internationally
Key compliance challenges
Expanding into international markets opens up opportunities for businesses, but it also brings complex compliance challenges. Labor laws, tax regulations, and data protection rules vary across jurisdictions, requiring businesses to be vigilant to avoid legal, financial, and reputational risks. Below are the most significant compliance challenges companies face when hiring globally.
Worker misclassification
One of the biggest compliance risks when hiring globally is misclassifying workers, incorrectly categorizing an employee as an independent contractor or vice versa.
- Employees: Entitled to benefits such as paid leave, health insurance, retirement contributions, and social security. Employers must withhold payroll taxes and comply with labor protections.
- Independent Contractors: Work on a contractual basis without employer-provided benefits. They handle their own tax contributions and work with multiple clients.
Properly classifying workers as employees or independent contractors is a significant compliance risk for global companies. Misclassification can lead to substantial penalties, back taxes, and legal action.
In January 2024, the U.S. Department of Labor published a final rule regarding employee or independent contractor classification under the Fair Labor Standards Act, emphasizing the importance of correct worker classification.
Employer of Record (EOR) services help companies mitigate misclassification risks by ensuring that workers are employed under local labor laws, with the EOR managing compliance.
Why misclassification is a problem
Many companies misclassify employees as independent contractors to reduce costs associated with payroll taxes, benefits, and compliance obligations. However, this can lead to severe legal and financial consequences:
Fines & back taxes: Governments are cracking down on misclassification to recover unpaid taxes and social security contributions.
Lawsuits & compensation claims: Misclassified workers may file claims demanding employee status, benefits, and back wages.
Operational disruptions: Non-compliance can lead to audits, legal battles, and reputational damage, delaying business growth.
Examples of misclassification crackdowns
- Uber & Lyft (2023-2024): Faced multi-million-dollar lawsuits in California for misclassifying drivers as independent contractors. The legal battle resulted in stricter labor laws affecting gig economy businesses.
- European Union’s Platform Work Directive (2024): Could reclassify over 5.5 million gig workers as employees, requiring platforms to provide benefits like paid leave and unemployment insurance.
How to stay compliant:
- Use Employer of Record (EOR) Services: An EOR legally hires employees on behalf of the company, ensuring compliance with local labor laws.
- Conduct Worker Classification Audits: Regularly review contracts and employment terms to ensure compliance with evolving laws.
- Understand Local Regulations: Worker classification rules differ by country, what qualifies as an independent contractor in the U.S. may not be valid in Germany or Brazil.
Tax compliance & payroll regulations
Each country has unique tax laws concerning payroll, employer contributions, and income tax withholding. Companies hiring internationally must ensure compliance with:
- Country-specific tax rates and reporting requirements.
- Mandatory employer contributions (social security, pensions, healthcare).
- Complex payroll regulations that vary by jurisdiction.
Data protection & privacy laws
With the increase in remote work and digital hiring, protecting employee data has become a major compliance challenge. Different countries enforce strict data privacy regulations, such as:
- General Data Protection Regulation (GDPR) in Europe: Requires companies to protect personal employee data and obtain consent before processing.
- California Consumer Privacy Act (CCPA) in the USA: Grants employees the right to access and delete their personal information.
- Lei Geral de Proteção de Dados (LGPD) in Brazil: Mandates strict data collection and security protocols.
Ensuring compliance with these varying regulations is essential to avoid significant fines and maintain trust with employees and customers.
Keeping up with changing regulations
Employment and tax laws are continually evolving, requiring companies to stay updated on legal changes in each country they operate.
For example, in 2024, the U.S. Department of Labor updated its guidelines on worker classification, affecting companies hiring independent contractors.
Staying compliant across multiple regions is resource-intensive, which is why many businesses rely on EOR providers to handle regulatory updates and compliance tracking.
The potential consequences of non-compliance
Failing to comply with international labor, tax, and data privacy laws can lead to serious repercussions for businesses.
Companies that fail to comply with local employment regulations may face significant financial penalties. For instance, in 2024, U.S. financial regulators accounted for 95% of the $4.6 billion in penalties worldwide, highlighting the substantial fines associated with non-compliance.
Employees who feel misclassified or unfairly treated may take legal action, leading to lengthy and costly lawsuits. Companies may be required to pay back wages, benefits, and social security contributions, as well as cover legal costs and settlement fees.
Non-compliance can damage a company’s brand and trustworthiness:
- Negative media coverage can impact public perception.
- Investors may withdraw funding due to legal and compliance risks.
- Clients may hesitate to work with a company known for labor law violations.
A strong global compliance strategy helps businesses avoid these risks while maintaining credibility.
Best Practices for staying compliant while scaling internationally
Expanding a business internationally brings tremendous growth opportunities, but it also introduces complex regulatory challenges that can pose serious risks if not properly managed. To successfully navigate compliance across multiple countries, companies must adopt proactive and strategic compliance practices that ensure adherence to local laws, mitigate financial penalties, and protect their reputation.
Below are the best practices for staying compliant while scaling internationally:
Use centralized compliance platforms
Managing compliance manually across multiple countries is inefficient. A centralized compliance platform helps businesses:
Track employment laws, tax updates, and labor regulations in real time.
Automate payroll compliance and tax filings to reduce errors.
Store contracts, tax documents, and HR policies securely.
A Deloitte survey found that 72% of multinational companies use automation to ensure compliance.
💡 Solution: TechRemote’s EOR platform provides compliance tracking, payroll management, and regulatory updates in one system.
Conduct regular compliance audits
Employment laws frequently change, making regular audits essential to prevent penalties.
Review worker classifications to avoid misclassification lawsuits.
Check payroll compliance to ensure accurate tax withholdings and filings.
Verify data protection policies to align with GDPR, CCPA, and LGPD regulations.
💡 Solution: Conduct bi-annual audits to detect compliance risks early.
Leverage localized expertise
Each country has unique labor laws, tax systems, and employee protections. Relying only on an internal HR team increases risks.
Use in-country legal experts to ensure compliant hiring and payroll.
Adapt employment contracts to align with local labor laws.
Understand regional benefits and termination policies to avoid disputes.
France mandates a 35-hour workweek and strict termination rules. A U.S. company without local legal support faced $500,000 in fines for wrongful terminations.
💡 Solution: TechRemote’s EOR service provides localized legal expertise to ensure compliance worldwide.
Automate compliance tracking
Labor laws and tax regulations change frequently, requiring businesses to update policies in real time.
Automate tax and payroll adjustments to comply with changing regulations.
Use AI-driven compliance tools to track worker classification laws.
Receive alerts on new labor policies to stay ahead of legal risks.
In 2024, the U.S. Department of Labor redefined independent contractor rules, causing misclassification fines exceeding $2 million.
💡 Solution: TechRemote automates compliance tracking, keeping businesses compliant as laws evolve.
Compliance is key to global expansion
Expanding globally requires proactive compliance management to prevent legal, financial, and reputational risks. By implementing centralized tracking, regular audits, local expertise, automation, and training, businesses can stay compliant and scale with confidence.
TechRemote’s EOR platform simplifies global compliance with automated payroll, real-time legal updates, and localized HR support.
Want to scale globally without compliance headaches? Book a demo with TechRemote today!
