A well managed global compliance program is essential to smooth international business operations
For organisations operating across multiple international locations, global compliance is a significant factor that must be considered to ensure your business runs as smoothly as possible.
In this article, we explain what it entails, why it’s important and how companies can manage it to ensure accuracy and accountability for all their global operations.
What is global compliance?
Global compliance refers to a situation in which an entity adheres to all of the local laws and regulations that govern the country in which they operate.
What are the most common areas of global compliance regulations?
Tax and social security compliance
Most jurisdictions have laws surrounding tax and social security withholding requirements for employees.
This can be even more complex when organisations have various international employees scattered around various locales where they might be subject to the tax withholding requirements of both home and host country.
In some situations, the organisation may not have the resources to run payroll in some of their jurisdictions if for example, they do not have a local entity set up.
These are used to enforce regulation surrounding the period of time employees are allowed to live in and perform business activities within the host country.
For employees that are required to spend an extended amount of time in the host country, a work permit sponsorship from the local legal entity must be applied for in compliance with local immigration laws.
Companies can be found to be in violation of immigration laws if for example:
The employee overstays their limit in the host country
There is no official legal entity in the host country to sponsor work permits
The employee performs business activities in the host country for an extended period of time without a work permit.
Laws surrounding employee protection often involve a set of minimum employee entitlements such as annual leave, maternity or paternity leave, benefits, equal opportunity laws, termination procedures to protect against unfair dismissal and minimum wage.
What factors affect global compliance?
Limited jurisdictional knowledge
For companies entering new markets, mastering the laws that govern a new jurisdiction is a significant road bump. Companies often overlook the differences in legal systems between countries and this is made even more difficult when you are not yet familiar with the language, culture and business processes of your new location.
Disorganised information systems
It is not uncommon for teams based in different locations to store their data in separate systems and run things independently from one another. This lack of transparency and integration between internal systems can lead to discrepancies and increase the risk of non-compliance for the company.
Evolving regulatory rules
One of the most taxing aspects of maintaining compliance is the pace in which different laws and regulations are updated. This can be especially challenging for global compliance where businesses often have entities in multiple territories.
Decision makers, compliance officers and HR leaders within the company must keep track of the latest legal developments and make their updates accordingly or risk facing non-compliance charges.
For companies that are newly embarking on their international expansion journey, it is common to find themselves in situations with in-house teams that are under-resourced and with limited expertise needed to manage the various facets of global compliance.
Consequences of global non-compliance
One of the most important aspects of global compliance is having the right tools to manage it. This is especially so for businesses with multiple locations. Let us take a moment to consider the consequences businesses may face if they fail to do so.
Fines and Penalties
Non-compliance, whether accidental or otherwise can reap hefty penalties, especially when coupled the additional legal costs that might ensue for more serious cases.
For example, a study conducted by BDO reported that in Serbia, many companies misunderstand the tax regulation and wind-up paying penalties as a result.
In many cases, taxpayers will overpay in areas where they have no liability simply to protect themselves from facing the risks of failing to comply with regulation.
In the UK, failing to comply with health & safety laws is regarded as a criminal offence as companies have a common law duty to ensure a safe working environment for their employees.
Being in breach of this law incur fines of up to £20,000 while anything that might involve the endangerment of human lives can produce unlimited fines or imprisonment.
Breach of contract
Compliance Is often part of contractual agreements and failure to fulfill this aspect can result in a breach of contract. The consequences vary in severity and in worse case scenarios, can involve costly monetary damage to the offending party. Other consequences might involve a reformation of the contract by a court or termination of the contract.
Non-compliance can also hurt a business’ reputation and affect its ability to retain customers and further any other business relationships.
As it is becoming increasingly normalised for companies to carefully study the safety and track record of potential foreign business partners, it Is crucial for business decision makers to perform their due diligence to avoid reputational damage brought on by non-compliance.
Revocation of licenses
Failing to comply with regulation and standards can lead to companies losing their license to operate in a foreign territory.
In the United States for example, this can occur due to failure to pay property taxes, a change in the structure occupied for business purposes or if the business is conducted in a manner that is found to be a nuisance to the public’s health, safety and welfare.
How to create an effective global compliance program
Due to the evolving nature of regulatory systems, compliance management can be a complex topic that requires an unfaltering attention to detail. This is further intensified within the context of global compliance when different jurisdictions various and sometimes opposing approaches to regulatory standards.
While there is not one-size-fits-all solution to managing global compliance, there are existing standards and principles that can be applied to ensure to its accuracy.
Enforce transparent communication of compliance procedures
Multinational organisations often come with various internal structures. These can differ between departments all the way to up to offices in different locales. From regulation to cultural practices, these situations can cause breakdowns in communication and business leaders must do what it takes to ensure that compliance practices and messages are communicated effectively.
For example, perform regular compliance training to ensure that all employers are receiving updated information surrounding compliance risks and policies. These sessions can be adapted to offices in different locales to ensure relevance.
Periodic surveys are an effective tool to gaining insight into an employee’s knowledge of the compliance issues that affect them and also helps to communicate the message that the company are interested in helping them navigate through any issues they may encounter.
Educate yourself on local standards that govern each jurisdiction
Doing your due diligence of local knowledge for different jurisdictions is endemic to effective global compliance management. This runs the gamut of policies from internal policies and practices to federal and state laws including donations, corporate sponsorships, healthcare, employee safety, taxes and licensing.
Local standards often very between jurisdiction and must be be well integrated into your organisations SOPs.
Conduct regular risk assessments
Risk management is at the forefront of global compliance and a big part of an effective global compliance program is being able to identify the areas that pose the highest risk to your company.
This allows you to allocate the right resources to action on these potential problems. A yearly assessment should be performed to stay up-to-date on changes in industry standards, especially for multinational companies.
A formal assessment profile might include employee claims, audit results, compliance policies in each risk area and compliance complaints.
Manage your global compliance with trustworthy third-party solutions
Even the most thorough compliance efforts can be subject to potential risks. This is heightened for companies that operate in multiple regions across the globe.
Working with a global compliance solution like Airswift and help to eliminate this risk and provide you with the peace of mind you need. Part of our Global Employment and Mobility network, our compliance solutions can be personalised to fit your organisation's needs to ensure that compliance in all areas and locales you operate in is aligned with the latest regulatory standards.
Airswift can even act as the legal Employer of Record to manage the payroll needs for companies that are planning to expand into new locations but aren’t ready to establish their own entity.
Contact us to learn more about our solutions and find out how we can tailor our services to suit your current and future needs.
This post was written by: Leanna Seah, Content Marketing Coordinator