A Comprehensive Guide to Global Labor Law Compliance
As a regular citizen, you deal with compliance on a daily basis, even if you are not conscious of it. When you follow the traffic lights or stand at a distance from train doors after a subway announcement, you are complying with traffic laws and public safety regulations.
Compliance essentially refers to the various ways a business ensures that they are sticking to both their internal compliance framework as well as other international laws that apply to their industry. International employment compliance refers to how companies adhere to the international labor standards set by the countries themselves, as well as the International Labor Organization.
What are International Labor Standards?
The international labor laws were introduced by the International Labor Organization (ILO) and are ratified by most individual countries. Once a state agrees to these standards, it is bound to adopt and implement them as domestic law.
The ILO aims to create better opportunities for men and women to become employed and receive an income. The 8 basic conventions contained in the ‘Declaration on Fundamental Principles and Rights at Work’ include:
The right of employees to free association and collective bargaining
The conventions include:
- Freedom of Association and Protection of the Right to Organize Convention, 1948
- Right to Organize and Collective Bargaining Convention, 1951
Ban on compulsory or forced labor
The conventions include:
- Forced Labor Convention, 1930
- Abolition of Forced Labor Convention, 1957
Ban on child labor before end of mandatory school
The conventions include:
- Minimum Age Convention, 1973
- Worst Forms of Child Labor Convention, 1999
Ban on unjust discrimination among employees
The conventions include:
- Equal Remuneration Convention, 1951
- Discrimination (Employment and Occupation) Convention, 1958
Even in countries that are formal signatories to the international labor standards, there may be considerable variations in compliance. If you are looking for global expansion of your business, it is crucial to be aware of the reputational risks associated with operating in different countries. Make sure that the countries where you are operating comply with international labor standards.
How are International Labor Principles Relevant to Business?
Other than the international labor standards, here are some other general principles that need to be considered in each country where you expand:
- Written employee contracts
- Adherence to the minimum wage
- Submission of payroll taxes
- Rules regarding employee termination
- Employee benefits
When a country signs up for the international labor laws, it sets the structure for its implementation on a national front. Here is why international labor law compliance is important for businesses:
- In this age of globalization, there is a rise in investment, trade, production, and business expansion on an international level.
- Globalization has an impact on rules and regulations pertaining to workers in different countries. Adherence to international labor laws prevents businesses from exploiting workers by setting the lowest possible wages.
- Workers across all sectors of the economy are affected by globalization and international competition.
- The rewards of globalization tend to get unequally distributed among countries, where many continue to suffer from unemployment, income disparity, and poverty. International labor laws aim to rectify the imbalance so that the benefits of globalization can be experienced by all countries.
3 Ways to Ensure Compliance
You may choose to expand your business to a different country in order to:
- Tap into a brand-new customer base.
- Have an opportunity to diversify to increase revenue.
- Gain a competitive advantage by operating where your competitors have not yet arrived, a first movers’ advantage.
- Gain access to a wider pool of talent in terms of employees.
- Improve your business’s reputation and establish international credibility.
It can be risky to hire employees in these new countries, especially if you are not well-versed in the global labor law. Here are the top three ways to ensure compliance with the international employment law:
Understand the Laws
It is vital to understand the labor laws that specifically apply to your business. There are applicability variations in how a law could influence your company.
In order to ensure the smooth functioning of your business in a foreign country, it is crucial to understand the state, federal, as well as international labor laws. It is best to familiarize yourself with the requirements by visiting the relevant agencies or exploring their websites.
Form a Checklist
It can be helpful to compile a checklist of all the compliance requirements that your company needs to fulfill. Make sure you include all relevant local, federal, as well as international law aspects.
Having a list will enable you better determine which further actions will help your business remain compliant. If there are some recurring tasks, such as annual notices, ensure that one of your employees is in charge of maintaining a calendar and making sure that work is always completed by the deadlines.
Maintain an Employee Handbook
An employee handbook can prove to be a valuable addition to your compliance toolkit. It can be used to convey important information to your employees regarding their rights and benefits. Moreover, it can reduce misunderstandings that may result in employee lawsuits.
A useful tip is to create an updated schedule to make sure that the handbook reflects the company’s current policies of your business. It is also good practice to ask each staff member to sign when they receive the handbook or any updated versions of it.
When you plan to expand to a country where you have never operated before, it is crucial to set up an in-country entity and register with the national authorities.
When you have an in-country entity before hiring employees, you will be granted a local taxpayer ID in order to get the paperwork done for establishing an in-country payroll. This implies meticulous planning as it is an investment that requires substantial upfront expenses, time, and resources.
Conduct a Discrimination Self-Audit
You are probably well-aware of how discriminatory work policies can lead to expensive employee grievances.
According to ILO Convention no. 111, any distinction or preference made on the basis of sex, color, race, political opinion, religion, social origin, or natural extraction has the “effect of nullifying or impairing equality of opportunity and treatment in employment or occupation.”
Conduct a self-analysis of whether your company is complying with the laws regarding discrimination. First, recognize the anti-discrimination laws applicable to your business, then check whether your business practices are in line.
Create Employee Agreement
Whenever you are hiring staff on a full-time or part-time basis, always draft an employee agreement to legalize the employment relationship.
An employee contract not only protects the rights of your staff members but also highlights your rights as an employer. Make sure that the agreement is comprehensive enough to offer adequate protection to both parties while acknowledging all the statutorily required clauses and language.
Risks Associated With Labor Law Compliance
Global labor law compliance is vital for setting up your business in a new country. Without sufficient knowledge, you may run into compliance traps that may cost you dearly. Here are common compliance issues:
Categorizing Employees Incorrectly
Surprisingly, it can be hard to define exactly who can be considered an employee. For instance, as an employer, you may incorrectly classify workers as exempt, and end up neglecting their overtime wages.
Another common misclassification is when employees are mistakenly classified as independent contractors, interns, or seasonal workers. This can prevent those staff members from receiving the benefits they are entitled to. Moreover, if employees are not categorized correctly, employers can be vulnerable to costly penalties or litigation.
Minimum Wage Regulations
Local and federal wages in a country are typically not standardized, as they can differ according to zip code, county, city, company size, industry, and even based on whether health benefits are provided by a business.
Moreover, the minimum wage criteria can increase without much notice at any time of the year. Make sure you monitor the changes in the minimum wage in order to maintain compliance.
Leaves of Absence
For a business, it is important to keep track of time-off liabilities. As a business owner, you must be well-acquainted with local and global leave laws and ensure you have policies in place to take care of leave requests.
Some states and localities have distinct family and medical leave rules as well, while some local laws may allow staff members to take time off in certain situations, such as leave for taking care of a newborn or for parents to attend school events.
The variations in the leave policies can make it complex for businesses to stay up-to-date. It is vital to understand the legal claims regarding interference and discrimination when handling employee leaves.
Mistakes in global labor law compliance can result in expensive complications. Whether it is about paying mobile workers, changes in overtime policies, or noting down data for compliance audits, there is potential for errors everywhere.
Timekeeping regulations can differ by location or employee type, making it hard to standardize procedures. Even companies with several thousand employees have quite a few systems to manage global time.
Benefits of International Labor Standards
In this era of globalization, international labor standards have become increasingly important. Here are the benefits that they entail:
Conducive to human development
The primary objective of international labor law is to encourage human development. It argues against the notion of labor being considered a commodity or an inanimate object.
According to the International Labor Organization, economic development includes job creation and forming working conditions where people can work freely and safely. In other words, economic development is not encouraged for its own sake, but for the betterment of the lives of people.
The world community is trying to ensure globalization by working on global legal instruments on finance, trade, human rights, and labor. The ILO plays a part by ensuring that economic growth and development are aligned with creating decent working conditions.
The tripartite structure of ILO ensures that the standards are the rules and regulations are supported by governments, employers, and employees. Therefore, the international labor standards contain the basic minimum social standards which all players in the global economy agree with.
The global social standards are aimed at ensuring justice in the global economy. It helps employers and governments refrain from lowering labor standards for a better competitive environment as that is not beneficial in the long run.
Lowered labor standards can lead to the perpetuation of low-skilled, low-wage, and high-turnover industries and prevent stable, high-skilled employment while slowing down the economic growth of trade partners.
Safety Net for Economic Performances
Economic crises can even impact fast-growing economies. Events such as the Asian financial crisis in 1997 and the 2008 recession showed how economic growth can quickly plummet due to currency devaluations and plunging market prices.
One of the major reasons for these eventualities was the underdeveloped social protection system in countries. Risks to benefits such as health insurance and unemployment were not considered. The framework of the international labor standards is designed to prevent such situations.
When you consider expansion to a different country, it is important to not only ensure global labor compliance, but also adherence to local and federal labor laws. For more insight on expanding to different markets around the globe, click here to explore our website.