The importance of managing global compliance

A well-managed global compliance program is essential to smooth international business operations.

For businesses with a presence in multiple countries, navigating global regulatory compliance requirements is crucial to maintaining seamless operations.

In this article, we'll discuss the essentials of global compliance, highlight its importance, and offer practical strategies for companies to manage it effectively, ensuring precision and accountability across all their international activities.

What is global compliance?

Global compliance is when an entity with a permanent establishment in a country must adhere to all local laws and regulations. This can include data protection regulations, anti-corruption laws, employee rights and health and safety regulations.

What are the most common areas of global compliance regulations?

Tax and social security compliance requirements

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 their home and host country.

In some situations, the organisation may not have the resources to run payroll in some of its jurisdictions if, for example, it does not have a local entity set up.

Immigration laws

These are used to enforce regulations regarding the period of time employees are allowed to live in and perform business activities within the host country.

For employees who have 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 violate 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 without a work permit.

Employment law

Laws surrounding employee protection often involve a set of minimum employee entitlements such as annual leave, maternity or paternity leave, benefits, equal opportunity laws, and termination procedures to protect against unfair dismissal and minimum wage.

What factors affect global compliance?

Limited jurisdictional knowledge

Mastering the laws that govern a new jurisdiction can be a significant roadblock for the HR and compliance teams of companies entering new markets. Companies often overlook the differences in legal systems between countries, and this is made even more difficult when they are not yet familiar with the language, culture, and business processes of their 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 company's risk of non-compliance.

Evolving regulatory rules

One of the most taxing aspects of maintaining compliance is the pace at which different laws and regulations are updated. This can be especially challenging for global regulatory 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 update their policies accordingly, or they risk facing non-compliance charges.

Constrained resources

For companies that are newly embarking on their international expansion journey, it is common to find themselves in situations with under-resourced in-house teams and 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 management tools. This is especially true for businesses with multiple locations. Let us consider the consequences of compliance failures.

Fines and penalties

Non-compliance, whether accidental or otherwise, can result in hefty penalties, especially when coupled with 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 regulations and wind up paying financial penalties.

In many cases, taxpayers will overpay in areas where they have no liability to protect themselves from facing the risks of failing to comply with regulations.

Imprisonment

In the UK for example, failing to comply with health and safety laws is considered a criminal offence. This is because companies have a standard law duty to ensure a safe working environment for their employees.

In breach of this law, you can be fined up to £20,000, while anything that might involve the endangerment of human lives can result in hefty fines or imprisonment.

Breach of contract

Compliance is often part of contractual agreements, and failure to fulfil this aspect can result in a breach of contract. The consequences vary in severity and, in worst-case scenarios, can involve costly monetary damage to the offending party. Other consequences might involve a court reformation of the contract or termination of the contract.

Reputational damage

Non-compliance can also damage a business’s reputation and affect its ability to retain customers and further business relationships.

As it is becoming increasingly normalised for companies to carefully study the safety and track record of potential foreign business partners, business decision-makers must perform their due diligence to avoid reputational damage brought on by non-compliance.

Loss of licenses

Failure to comply with regulations and standards can result in 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 unfaltering attention to detail. This is further intensified within global compliance when different jurisdictions have various and sometimes opposing approaches to regulatory standards.

While there is no one-size-fits-all solution to managing global compliance obligations, existing standards and principles can be applied to ensure accuracy.

Enforce transparent communication of compliance procedures

International organisations often have various internal structures, which can differ between departments and even between offices in different locales. Regulatory differences and cultural practices can lead to communication breakdowns. Business leaders must ensure compliance practices and messages are effectively communicated.

For example, perform regular compliance training to ensure that all employers receive updated information about compliance risks and policies. To ensure relevance, adapt these sessions to offices in different locales.

Periodic surveys are an effective tool for gaining insight into employees' knowledge of the compliance issues that affect them. They also help communicate the message that the company is interested in assisting them in navigating any issues they may encounter.

Educate yourself on local standards that govern each jurisdiction

Doing your due diligence on 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 vary between jurisdictions and must be well integrated into your organisation's SOPs.

Conduct regular risk assessments

Risk management is at the forefront of global compliance. A big part of an effective global compliance program is identifying the areas that pose the highest risk to your company.

This allows you to allocate the right resources to resolve these 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 complaints.

Manage your global compliance processes 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 solutions provider like Airswift will help eliminate this risk and give you the peace of mind you need.

As part of our Employer of Record (EOR) service network, our compliance solutions can be personalised to fit your organisation's needs. This includes ensuring compliance in all areas and locales you operate in.

Airswift will act as the legal Employer of Record to manage the payroll needs of companies that plan to expand into new locations but aren’t ready to establish their own entity.

Contact us to learn more about our solutions and how we can tailor our services to suit your current and future needs.