Compliance Challenges When Managing a Global Contingent Workforce

Managing compliance for a contingent workforce—whether we’re talking independent contractors or employees indirectly hired through Employer of Record (EOR) services—poses unique challenges for businesses, especially those scaling operations across borders. Companies leveraging this model face compliance risks tied to worker classification, data privacy, labor laws, and operational scaling.

Compliance requirements typically differ between jurisdictions and worker types. Independent contractors typically manage their own taxes, but companies are responsible for correctly classifying these workers and making sure their contracts comply with local regulations. For EOR workers, businesses must adhere to payroll and benefits laws while the EOR handles the legal employment relationship. This complexity makes compliance a critical focus for companies aiming to scale globally with contingent labor.

Key compliance challenges for a global contingent workforce

There are several key challenges businesses encounter whilst managing global compliance for a contingent workforce. Let’s break them down.

Worker misclassification

In 2022, documents revealed that one of the world's largest suppliers of shoes and apparel, Nike, had reportedly misclassified thousands of workers, resulting in a potential fine of over $530 million (USD). Misclassification is a real problem that is costly, and often headline-making. But what does worker misclassification mean?

Worker misclassification is when employees are misclassified as independent contractors. This is often a mistake, however, some companies use it to evade taxes and other costs associated with hiring permanent employees.The consequences of worker misclassification are serious, ranging from fines and back taxes to lawsuits and significant reputational damage.

Companies often struggle with classification because the criteria vary across countries and regions. For instance:

• In the U.S., the IRS and state laws define specific tests for determining worker classification.
• In the EU, classification rules depend on employment relationships and local labor laws.

Getting it wrong can cost companies millions, as we've seen in high-profile, headline-making cases.

For businesses managing a large contingent workforce, especially across multiple regions, manual classification processes increase the risk of errors. Scaling operations without clear classification tools amplifies these risks.

Deel’s Misclassification Assessment is a handy tool that helps classify workers based on local regulations and law case research. Our tool is trusted by hundreds of businesses worldwide and has an accuracy of over 90%.

Tax compliance

While tax compliance may not seem like something you should worry about when dealing with contingent workers, there are some considerations that are worth pointing out.

For independent contractors, tax compliance is typically the responsibility of the worker, so companies hiring contractors at scale have less direct tax liability. However, companies must ensure that their contracts and payments comply with local labor laws to avoid misclassification risks. Additionally, in some countries, wage and hour laws can apply to contractors, requiring businesses to adhere to minimum wage requirements, overtime rules, or timely payment obligations. These regulations add another layer of complexity when managing a large-scale contractor workforce across borders.

Tax compliance becomes more of a consideration for businesses when managing EOR workers (full-time employees hired through an Employer of Record). In these cases, companies must adhere to local tax laws, including payroll taxes, social security contributions, and sometimes VAT requirements. Each country has its own regulations, and failing to meet even one obligation can lead to financial penalties and reputational damage.

A recent high-profile case of tax non-compliance is Google, which faced significant challenges after failing to meet tax obligations in France. As a result, the company agreed to pay over $1 billion (USD) to French authorities to settle allegations of tax fraud.

To help you manage international tax compliance, Deel offers a global payroll service, handling tax calculations, contributions, and filing in line with local laws in over 150 countries. Our goal is to simplify tax management and ensure your company stays compliant across borders.

Data protection and privacy

As businesses grow internationally, they must comply with data production laws that are unique to each jurisdiction. This includes the General Data Protection Regulation (GDPR) in the EU and various other national and regional privacy regulations. These laws provide strict criteria for how personal data is managed. The purpose is to protect individuals' right to the protection of their personal data.

The challenge here is that when expanding out to multiple countries, businesses must ensure compliance in each of the countries they are operating in, otherwise they could incur significant damages. Staying on top of data protection laws across multiple countries is complex, time-consuming, and costly when not managed correctly.

Take the case of Meta’s 2023 GDPR breach. The global company was fined a record-breaking €1.2 billion (EUR) for failing to comply with GDPR on cross-border data protection.

At Deel, we know that global data protection and privacy regulations can feel overwhelming. But they don’t have to be. Our systems are carefully designed to comply with global data protection regulations, like GDPR. Techniques such as end-to-end encryption, multi-factor authentication (MFA), and automated updates all ensure top-level security.

Find out more about Deel’s enterprise-grade security and data protection.

Keeping up with changing regulations

Understanding labor laws for contract workers worldwide can feel complex and challenging, particularly when they are constantly changing. Each country has its own regulations around contingent workers, and frequent updates can be hard to keep up with, leading to accidental non-compliance. The risk? Costly legal disputes and damage to the reputation of your business.

In a recent high-profile case, Chanel was penalized for failing to keep up with minimum wage laws in the UK. The luxury fashion brand failed to pay a total of £70,413.59 (GBP) to 250 workers in the Croydon distribution center. As a result, the company was ordered to pay the money owed and risked a fine of up to £20,000. This serves as a reminder that even the most prestigious of companies are not immune to labor law violations.

Deel's Compliance Hub is a tool to help you adapt to changing global workforce compliance regulations. It works by actively monitoring, flagging, and providing regulatory updates and insights on global compliance.

Real-world consequences of workforce related non-compliance

Ignoring compliance for a contingent workforce isn’t just a minor oversight—it can lead to significant financial, legal, and reputational damage.

Companies that fail to meet local and international regulations risk significant consequences. Let's take a look at these consequences and how they directly impact your operations, employee trust, and brand perception.

Financial penalties

Non-compliance with laws and regulations can incur large fines, causing significant financial damage. Both Google and Nike (referenced earlier) learned this lesson the hard way.

Businesses also risk tax audits, which can uncover unpaid taxes or lead to back payments for wages, overtime, or benefits. These liabilities often come with added interest and legal fees, compounding the financial damage.

Legal disputes

If contingent workers feel that their rights have been violated due to non-compliance, legal disputes can arise. Companies that misclassify their workers, fail to pay overtime, or ignore other legal protections could find themselves in the midst of a lawsuit. This will not only become a financial burden but also slows down everyday business operations.

An example of this is when FedEx became involved in a lengthy legal battle with thousands of US-based drivers who were classified as independent contractors but argued that they were entitled to protections meant for employees. Eventually, after years of litigation, the company agreed to pay out $228 million (USD).

Reputational damage

Reputational damage is one of the deeper consequences of non-compliance, particularly at a time when consumers, investors, and potential employees are all increasingly prioritizing ethical business practices.

Take Cognizant, for example. In 2019, this global IT services company, faced reputational challenges due to its handling of contingent workers. Investigations revealed that content moderators, employed through contingent arrangements, were subjected to poor working conditions, including exposure to graphic content without adequate mental health support. This led to widespread criticism and raised concerns about the company's commitment to worker welfare.

Best practices for staying compliant while scaling globally

Staying compliant while scaling globally with a contingent workforce is crucial. As your company grows and expands internationally, navigating compliance becomes increasingly challenging. The good news is that with the right tools and help, global compliance can be effectively managed. Here are some considerations.

Leverage centralized platforms to track compliance globally

Juggling laws and regulations across multiple countries can be a daunting experience. A centralized platform can simplify procedures by providing a comprehensive solution for all compliance-related activities.

Deel offers a unified platform with everything in one place, so you can access real-time data on worker classification, tax obligations, payroll, and more, without the need for multiple platforms.

Find out more about our automated compliance system.

Conduct regular audits of worker classification, contracts, and payroll processes

Compliance is an ongoing effort that requires constant monitoring. Laws and regulations on worker classification, contracts, and payroll are regularly updated, and if you’re working with a contingent workforce in multiple countries, it can quickly become a lot to manage.

With Deel's Misclassification Assessment tool, you can regularly review your employees' classification, ensuring they are correctly categorized as employees or contractors based on local requirements.

Additionally, our Global Payroll solutions can be used to automate the payroll process and ensure your tax and benefits contributions are always accurate and timely, regardless of where your workers are based.

Use localized expertise to navigate region-specific challenges

As mentioned, every country has its own set of constantly changing laws and regulations, and what works in one region might not be applicable in another. Figuring out these complexities is made much simpler with the help of a local expert.

At Deel, we have a network of in-country experts to provide up-to-date knowledge of regional regulations. These teams have a deep understanding of local nuances, from labor laws in the EU to tax laws in the US, and beyond.

Automate compliance tracking to ensure updates are applied quickly

Compliance is a moving target and manual processes leave room for errors and delays, which could lead to missed deadlines and non-compliance.

Deel's Compliance Monitor is a user-friendly software that allows you to view and be notified of compliance updates in your chosen locations. Ultimately, this reduces compliance risks and vulnerabilities, so you can sit back while the compliance monitoring system monitors and flags compliance updates, delivering information when it is needed.

How Deel simplifies global compliance management

Don't let the complexities of global compliance for contingent workers stop you from growing your business. At Deel, we empower you to expand internationally with confidence by providing the systems you need to stay compliant.

Here are some key tools for tracking the compliance of global freelancers and other contingent workers:

• Compliance hub: Keep track of regulatory updates in real time and mitigate compliance risks with our centralized platform that alerts you to any changes in the legal landscape.
• Worker classifier: Ensure your contractors are properly classified according to local laws with Deel’s automated worker classification tool, reducing the risk of costly misclassification issues.
• Localized contracts: Our platform provides country-specific contract templates that meet local legal requirements, so you can rest assured that your agreements are always compliant.
• **Global payroll: **Deel’s integrated payroll system automates tax calculations, benefits, and deductions, ensuring that your global payroll processes are accurate, timely, and compliant across every region.

Ready to tackle global compliance for a contingent workforce? Book a demo with Deel today.