As your company starts hiring global, it’s likely that there’s a lot of excitement in the air. It’s natural to focus solely on the positive outcomes of global expansion, but this could be to the detriment of your overall strategy. You want to fill skill set gaps and onboard talented workers as quickly as possible so that you can continue your business operations or go to market sooner.
However, you should not overlook the potential consequences of an ill-prepared global expansion plan. Any one of the below repercussions could have a far-reaching impact on your business success.
1. Penalties and Fines
Companies risk potentially devastating fines for noncompliance with local labor laws. These fines are often calculated by individual violation, meaning that they could quickly spiral as your global team becomes larger. Company owners may also be held personally liable.
Individual countries have their own agencies dedicated to monitoring and enforcing labor law compliance. Violations often lead to civil fines, criminal penalties, back pay to employees, seizure of earnings made, interest charges and more. These can cost employers potentially hundreds of thousands of dollars.
Here are just a few examples:
- US employers pay a $2,050 penalty for each violation of minimum wage and overtime laws. Companies that violate child labor standards may be charged $13,072 per violation. In 2020, Chipotle Mexican Grill was fined nearly $1.4 million for an estimated 13,000 Massachusetts child labor law violations from 2015 to 2019.
- In Australia, the Fair Work Act regulates minimum entitlements, working arrangements, and fairness and discrimination in the workplace. In the past year, the Fair Work Ombudsman litigated 37 cases resulting in penalties of nearly $4 million.
- In the UK, failure to conduct right to work checks can lead to civil penalties of up to €20,000 per illegal worker, or an unlimited criminal fine.
These are just the tip of the iceberg. Other penalties apply to legal breaches pertaining to taxes, workplace safety, worker classification and more. Plus, in the event of a lawsuit, companies may have to pay attorney fees and punitive damages.
In some cases, labor law violations have personal consequences that extend far beyond monetary penalties. If the government believes there to be a willful, or intentional, violation of the law, the company’s owners could face prison sentences. Often, it is up to the court’s discretion to determine the scale of intent in each case.
For example, evading US federal employment taxes is a felony and punishable by up to five years in prison. In the UK, failure to perform right to work checks and the resulting illegal employment of workers carries a prison sentence of up to five years. Diligent recordkeeping is one way to prevent these missteps.
3. Reputational Harm
No business owner wants negative press. Yet, that is often the consequence for companies that don’t comply with regulations. Especially if your business is new, the public’s image of your brand is critical to the company’s success. Civil and legal enforcement actions are often a matter of public record and can be the subject of press and social media coverage. Stories of labor law violations can tarnish your business’s reputation, deterring otherwise loyal customers.
Job seekers may also be alienated by a company’s recklessness. Your employer brand may suffer and push valuable talent into rival organizations, which are perceived as honest and responsible. Most people are wary of organizations that have avoided paying employees or provided inadequate leave. It rarely matters to them how unintentional the violation may have been.
4. Loss of Business Opportunities
Ultimately, noncompliance can hurt your business’s bottom line and potential for success in existing and new markets. Business closure is possible in serious cases, but there are other less obvious factors that cause harm.
Along with the loss of customers and talent, noncompliance may also dissuade potential partners or investors. Many will avoid taking the risk of working with a company that has broken labor laws.
Fines and penalties also reduce the funding you have for other business operations. Plus, the time spent grappling with a lawsuit is lost productivity in other areas of your business. If the violations are serious enough to ruin your company’s success in a new market, you’ve now lost everything you invested into that venture.
In some countries, noncompliance with employment immigration laws may exclude businesses from government contracts or disqualify them from the ability to sponsor migrants. If these contracts are large sources of revenue or your business relies on foreign talent, the future of your company is at risk.
A Source of Global Business Intelligence Can Protect You
The key to avoiding the negative repercussions of hasty global expansion is having a wealth of knowledge at your disposal. Businesses that feel pressure to move quickly on global expansion and hiring may be discouraged at the amount of time it takes to consult third-party lawyers and consultants. That’s why you need a global business intelligence and compliance platform to be your go-to source of accurate and up-to-date labor law and compliance information. It will ensure you are empowered to move forward with your global business strategy in the most time-efficient, prepared manner possible. Contact us here to learn more.
About Elements Global Services:
Elements Global Services is a global tech firm, focused on software that is built to go beyond country borders and simplify a company’s ability to Expand their Business, Onboard Employees, Manage Compliance and Pay Globally. Visit elementsgs.com or LinkedIn for more information.