When it comes to global expansion and international hiring, a multinational company (MNC) is bound to the labor laws of each country it operates in. Frameworks for labor law can vary greatly nation to nation and keeping pace with the regulations in just one country can be a cumbersome undertaking for any HR department – let alone in multiple jurisdictions!
Beyond a country’s national labor framework, there are further regulations an MNC may be bound to. So, what do you watch for? Here are four additional compliance considerations MNCs should account for when building and managing a cross-border team:
Territories, provinces, states and cities
Most countries have a national labor code that establishes the ‘law of the land’ in the arena of employment. However, this is often just a baseline as there are sometimes additional obligations within territories, provinces, states and cities which can directly impact a company’s bottom line.
For example, each city in China enforces a different rate for the statutory housing fund contribution. In many countries, such as Brazil and the United States, the minimum wage varies from state to state. This wage can also be increased in some cities. Parental leave allowances may also vary in different parts of a country, such as in Canada where each province maintains its own regulations.
Varying provisions like these can make it difficult for MNCs to compliantly hire and build teams in different regions of a country.
Before embarking on the global expansion journey, an MNC should be fully aware of any free trade agreements or political unions the target country is party to. These unions may have implications for HR, even if specific provisions are not explicitly outlined in the country’s national labor code.
For example, workers in the European Union (EU) are entitled to certain rights and conditions, such as protocols for redundancies, fixed-term contracts, working hours and company transfers. Companies in the EU are also tied to the General Data Protection Regulation (GDPR), which impacts the way they handle employee data.
Sometimes, an economic union may actually enhance global expansion prospects for an MNC, as is the case with the recently passed Regional Comprehensive Economic Partnership (RCEP). This landmark agreement will incrementally reduce cross-border trade costs and raise standards for intellectual property (IP) protection across the zone in upcoming years.
Free trade zones
MNCs are often attracted to free trade zones (FTZ) or special economic zones (SEZs), as goods coming from these areas can be transacted without the usual duties and customs requirements. While these zones are known for promoting domestic and foreign investment, it should be noted that they often maintain their own legal framework for labor and operations.
For instance, there are more than 40 FTZs in the United Arab Emirates (UAE), including the Abu Dhabi Global Market (ADGM) and the Dubai International Financial Centre (DIFC). These zones each have entirely distinct legal systems, with their own employment legislation that replaces the UAE Labor Law. The main differences relate to the employment of foreign and UAE nationals, payment of wages, health, safety and the termination of a contract.
Industries and worker categories
MNCs may also need to consider the industry they’re operating in as well as the categories of workers they’re employing, as these factors may subject them to different requirements. Many times, varying provisions are set by collective bargaining agreements or by separate clauses or amendments within the labor law framework.
For example, a collective bargaining agreement signed in 2022 in Germany revises working hours for employees in the banking industry and also outlines provisions for incremental salary increases. In Australia, there are different minimum wages set for worker categories, such as apprentices, junior level employees and individuals with disabilities. In Pakistan, there are distinct operating labor laws for workers in manual labor and white-collar workers.
The EOR hiring model decodes global hiring
Nobody ever said global expansion and international hiring would be easy. But it also doesn’t have to be difficult!
The Employer of Record (EOR) hiring model can help alleviate the complexities of regulatory compliance in global expansion, saving time, money and hassles in international hiring. The EOR, as the official employer of the worker, is responsible for following the jurisdiction’s labor code as well as any other provisions in terms of economic unions, SEZs, CBAs and industry-specific regulations.
By partnering with an EOR, companies can decode international hiring and tap into the best talent for the job – regardless of where they are in the world!