Report: Compliance Challenges Mount for Global HR Organizations

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Feb 3, 2020

As businesses expand internationally, they must be fully primed for the workplace challenges and complexities they will encounter.

The regional differences in recruitment, compensation, benefits, and discipline, just to name a few human resource issues, are intimidating, according to TMF Group’s “Building a Workforce:  The new HR and Payroll report” from the 2019 Global Business Complexity Index. Specialists in 76 jurisdictions were surveyed about how difficult it is to operate in their business environments.

Key findings from the report

The report focused in on a few key findings, including:

1. Having a local entity is critical. Hiring staff before formally establishing a local legal entity is especially tricky – particularly in Europe, the Middle East, and Africa (EMEA), where it is seen as either “complex” or “extremely complex” in most jurisdictions. Once established, hiring workers from abroad remains difficult globally, in fact, almost twice as hard as employing someone from within your home jurisdiction.

2. The convergence in the field of compensation and benefits. Nearly nine out of 10 jurisdictions surveyed now have a minimum wage; 87% offer paid maternity leave, and 84% offer paid time off. But some elements of employee compensation have marked regional differences. For example, shared parental leave is required in 63% of jurisdictions across the Americas, but just 33% in the Asia-Pacific (APAC) region. Meanwhile, APAC leads the way in pension provision: a fund must be offered in 79% of its jurisdictions, compared to 63% in the Americas and 50% in EMEA.

3. Nearly half deal with regular regulatory payroll changes. Almost half (45%) of jurisdictions surveyed reported that payroll legislation is subject to frequent change. The problem is particularly acute in EMEA (frequent changes occur in 55% of jurisdictions) – although relatively stable in APAC (36%). Three-quarters of jurisdictions globally require companies to submit employees’ payroll data to the government at least once a month.

4. Differences in firing poor performers. There is a vast disparity in the speed at which employers can fire underperforming staff. In the Americas, 52% of jurisdictions allow businesses to terminate employment contracts in less than a day. In APAC, this figure is just 8% and in EMEA 6%.

Differences vary, particularly at the country level

In addition to hiring, firing, and paying employees, the Complexity report also measured accounting and tax challenges and overall regulatory regimes. You might be surprised to learn who was No. 1. It wasn’t China, which is routinely cited in a host of business surveys as having one of the most complicated business environments because of a host of economic, political, and cultural factors.

The most complex jurisdiction was Greece. A big reason why is complying with a dizzying array of labor laws that change frequently. For example, mandated benefits include Christmas and Easter bonuses, life insurance, transportation allowance, and tax breaks for staff who are married or have children. Greece also makes it difficult to employ workers from outside the European Union because government authorities are reluctant to provide work permits.

The report also found what some might call quirky HR country distinctions:

  • Brazil: Employment rights remain strong, and workers have a good chance of winning against employers in court disputes. Instead of firing employees for wrongdoing, companies often choose to grant severance payments. This can discourage employees from performing well during their notice period.
  • Slovakia: The Slovak Labor Code complies with European Union standards, but workers are entitled to benefits that few other European countries mandate. These include dental insurance and transportation allowance, benefits legally required in only 5% and 16% of jurisdictions respectively.
  • Turkey: Since June 2018, companies with ten or more employees have been required to register for a private pension scheme. However, employees can withdraw from them after two months – and frequently do. This means companies can bear the administrative burden of setting up and dismantling pension funds for new employees.

Globally integrated, locally customized

To compete successfully in diverse markets, international firms have to manage people locally, reflecting local culture, local labor markets, and the needs of local business units. And this task falls to the HR department, which seeks to achieve both global integration and local responsiveness.

Many firms have responded to this challenge with technological solutions, by systemizing and automating various aspects of HR. They have created global standards, platforms, and service centers.

But, while technology can help in countless ways, employees can be turned off by the inhuman side of human resources. Employees are not machines. No matter where they are located, they want to feel connected, appreciated, rewarded, and be treated with respect and dignity. For this reason, good HR needs to retain the human touch – understanding and supporting the needs of employees locally and when possible, managing face-to-face contact, meetings, and discussions.