The Payroll Officer’s Guide to Compliant, Global Employee Classification by Region

Global employee classification can be part of a wider strategy for achieving financial goals set by the CFO, protecting reputation and assisting in efficiently rolling out expansion plans.

To bring out that strategic potential, payroll officers need to be given more effective ways of easily and confidently maintaining accurate global employee classification by region when hiring employees in other countries.

Strategic Global Employee Classification

When the CEO announces major overseas expansion, that’s when things get real for payroll officers.

Out-of-date information or a lack of relevant understanding about employee classification can mean potential penalties, fines and back taxes for misclassifications.

The fast track to efficient, scalable global employee classification

When faced with global payroll expansion needs, an experienced Employer of Record partner with a global network of fully-owned employment entities can help payroll officers lighten the load easily and continually stay on top of global employee classification.

Here’s how Playroll can help payroll officers improve employee classification accuracy and process:

Step 1

Set up a Playroll account in seconds.

Minutes later you’ll be planning efficient, compliant global employee classification by region for global teams using Playroll’s Country Encyclopedia.

Step 2

Once you’ve confidently decided the right employee classification for each new (or relocated) employee, you can create and send auto-compliant work contracts in two simple steps to new or relocated employees.

Step 3

When everything’s in place Playroll takes legal responsibility for paying new and relocated employees accurately, continually and compliantly according to their newly allocated employee classification.

Nothing gets missed—we’ll automatically pay them what they’re owed, with the right tax deductions and contributions according to their classification.

Meanwhile, the payroll officer can simply monitor and manage global multinational payroll from a single dashboard.

Global Employee Classifications

Before diving into global employee worker rights and benefits per region, let’s recap the three main employee classifications you surely already know.

Full-time employees

These are the people with a minimum 35-hour working week, fixed salary and more work perks compared with freelancers and contractors (in most countries).

You know the drill—minimum wage, parental leave (maternity, paternity and adoption) paid vacation and sick pay, social safety net contributions, pension, statutory notice rights and all that good stuff.

Important: At-will employment that applies only in the U.S means organizations need to tread carefully when deciding to fire full-time employees overseas.

Part-time employees

You know how this goes—part-time classification means fewer hours, but with many of the same benefits as full-time employment, including a pro-rata salary equal to full employment.

Important: Part-time work classifications are common throughout the English-speaking world and many other countries, though be aware that it’s by no means a ubiquitous classification for employees—for example, in Eastern Europe it’s almost non-existent.

Freelancers & Contractors

Also known as the ‘gig economy’, the freelancer and contractors market can be a good option for globally expanding organizations seeking to keep costs low.

If you’re a Playroll client, you’ll have discovered that you can classify employees as full or part-time, to offer better work benefits, while making use of Playroll’s ready-made employer entities around the world to keep costs low in other ways.

Without an EoR partner like Playroll to enable cost-effective full-time and part-time employee classifications, many organizations may find themselves relying heavily on contractors and freelancers

This isn’t necessarily a bad thing, though it may make it harder to build a cohesive culture that promotes teamwork and long-term retention.

That said, it comes down to each individual. Just because someone is fully employed or under an office roof doesn’t guarantee loyalty or hard work. Many contractors choose to freelance for flexibility and work-life balance while remaining loyal, dedicated and responsible.

Things to Know About Employee Classification By Region

The UK

The UK now gives part-time workers statutory rights and protections, though they may still not have the same access to the full range of benefits as full-time employees.

The UK government gives detailed official advice on the statutory rights and benefits for part-time employees.

Contractor vs employees

In the UK freelancers may be deemed contractors or employees if they’re hired through a recruitment agency.

In certain industries, a special scheme can be leveraged for contractors, for example in construction.

Apprenticeships employee classifications in the UK

UK employees can be hired under an ‘apprenticeship’ classification that offers on-the-job training to graduates or employees starting out in a new career path.

Employers, however, aren’t obliged to offer the same rights and benefits as full-time employees depending on the specifics of the apprenticeship program.

Things to Know About Employee Classification By Region

The European Union

In the EU the Court of Justice of the European Union (CJEU) asserts that national courts are responsible for employee classification and whether or not contractors need to be treated as employees entitled to employment rights.

That said, the CJEU also asserts that the classification of independent contractors under national law does not prevent a person from being classified
as an employee under European Union law.

As you can see, things get pretty messy pretty quickly overseas. Your Playroll dashboard contains a Country Encyclopedia where you can keep on top of employee classification regulations worldwide.

France

France drafted new employment legislation in 2017 to create what’s known as “portage” companies.

This essentially means the portage company can form a work agreement with freelance contractors with similar benefits of full employment while maintaining the flexibility of their ‘contractor’ status.

Italy

In Italy, payroll officers and HR teams will need to stay on the right side of some pretty strict limitations on the use of agency contractors.

In Italy, contractors must not exceed more than 1% of a company’s total number of permanent employees.

Companies are also forbidden to replace on-strike employees and cannot replace a group dismissal of other workers who did the same or similar jobs.

Spain

No matter which employee classification, every employee you take on in Spain must have a contract drafted by their employer.

Also, you’ll need to reference the Statute of Independent Contractors implemented legally in July 2007.

Other things to know for EU employee classification

In certain EU countries (Netherlands, France, Germany) and in Eastern Europe, the difference between a contractor and an employee gets blurry as each country will have different interpretations.

The right classification will also depend on the nature of the relationship between the two parties, so make sure to go granular with your research, or use Playoll’s Country Encyclopedia found in your Playroll dashboard to plan ahead.

Things to Know About Employee Classification By Region

The U.S

In the U.S there are certain factors (for which details can be found in the ‘ABC test’) that employment tribunals will consider for deciding if an employee can be classified as a contractor.

These factors include:

• whether or not the work is performed outside the usual course of the employer’s business,
• If the employee carries out a trade or has a business in that line of work,
• Whether the employer has control over the employee.

The ABC test applies in states such as Massachusetts, later adopted also in California from 2018.

Things to Know About Employee Classification By Region

Latin America

In Latin America, employee classification differs significantly. Almost every Latin American country treats employees as having some kind of relationship of employment, whether they’re full-time, part-time or private contractors.

Mexico

In Mexico, the law classifies employees depending on how their employees services are administered with each Mexican county having its own specific regulations.

This can make it incredibly tricky to hire or relocate teams across Mexico. Lean on Playroll as your EoR partner and we can help lighten the load to keep you auto-compliant.

Mexican employment law also specifies that contractors are not subject to subordination, and so are not entitled to employment benefits.

Colombia, Venezuela, Argentina and Brazil

In Colombia, Venezuela, Argentina and Brazil it’s different. These countries treat hiring a contractor the same as hiring an employee—contractors should be given all the same work benefits.

Things to Know About Employee Classification By Region

Asia Pacific

There are no hard-and-fast rules that cover all of Asia Pacific when it comes to employee classification. Your Playroll dashboard contains Country Encyclopedia Insights that can give you deeper information. Here we'll cover the main things to know.

China

In China, independent contractors are treated as exclusive corporate entities requiring a specific legal employment contract.

That said, the Chinese Government regards an employee working under a company’s rules as an employee.

Australia

Part-time employees in Australia are entitled to all the same work perks and benefits as full-time employees but on a pro-rata basis.

Employment agreements between employers and workers are subject to greater regulatory requirements compared with contractors.

Employers must offer eligible employees a choice of a super fund to meet their superannuation obligations.

This includes providing eligible employees with a Superannuation standard choice form within 28 days of their start date, or face.

For more info, review the Australian Government’s information on Super Guarantee penalties.

The Philippines

In the Philippines, contractors must register with the Bureau of Internal Revenue before commencing work.

India

The Indian government forbids companies operating in the country from controlling independent contractors and agreements must be drafted as legally enforceable contracts.

Take the Time Cost and Complexity Out of Global Employee Classification

As you can see from all the above, ‘ifs’ and ‘buts’ of employee classification by region, there’s a lot to think about, get your head around and manage.

Thanks to on-the-ground experts across global regions Playroll’s Country Encyclopedia Insights (found in your Playroll dashboard) provides all the up-to-date employee classification legislation you need to accurately and cost-effectively classify growing global teams.