Five things catch companies employing abroad: local labour law, worker misclassification, regulatory change, data protection, and payroll filings. Misclassification and data protection carry the largest penalties. GDPR alone allows fines of up to €20 million or 4% of global annual turnover, whichever is higher.
An Employer of Record moves most of that liability off your balance sheet by becoming the legal employer. Here is what each risk involves. Last updated September 2026.
| Risk | What it looks like | Who carries it with an EOR |
|---|---|---|
| Labour law | Notice, termination and contract terms differ by country | The EOR |
| Misclassification | Contractor treated as an employee in law | The EOR |
| Regulatory change | Rules amended, you did not notice | The EOR |
| Data protection | Employee data mishandled across borders | Shared, depending on the data |
| Payroll and tax | Late or incorrect filings | The EOR |
Expanding into a new market is rarely stopped by demand. It is stopped by the compliance layer underneath, where the penalties are financial and the reputational damage is harder to price.
Every country balances employer flexibility against worker protection differently, and the gap is wide.
US at-will employment permits immediate dismissal in most circumstances. Much of Europe and Latin America requires weeks or months of notice, statutory severance, and in some cases a documented process before termination is lawful at all.
Applying a home-country template abroad is the most common way companies discover this, usually during a dismissal.
Treating someone as a contractor when local law says they are an employee. The contract title does not decide it; the working relationship does.
The US Department of Labor sets out the federal position, and most countries apply a comparable control test. Penalties typically include back taxes, unpaid social contributions, the benefits the person should have received, and fines on top. In some jurisdictions the worker can also claim employment rights retrospectively.
We cover the tests and the warning signs in the risks of hiring global contractors.
Compliance is not a state you reach. Tax rates, employment rules and reporting requirements change with each budget cycle and often between them.
The UK's Employment Rights Act 2025 is a good illustration: a staged implementation across 2026 and 2027, with individual measures commencing on different dates and some already rescheduled. See what is in force and what is coming.
Tracking that across six countries is a job, not a task.
Employment means holding salary details, bank accounts, home addresses and often health information. Moving that across borders engages data protection law directly.
GDPR permits fines of up to €20 million or 4% of global annual turnover, whichever is higher. That last clause matters: for a large company the percentage is the binding figure.
Nor is it only Europe. Australia, Brazil, India, Japan and New Zealand all have their own regimes, and California's CCPA applies at state level in the US.
Late or incorrect filings attract penalties and interest, and in some jurisdictions personal liability for directors. Currency handling adds a second layer, since paying from a central account means employees receive a different amount each month.
More in common payroll processing challenges and how to pay a global workforce.
By being the legal employer. The obligations attach to the EOR rather than to you.
Contracts drafted to local standards, which is also the primary defence against misclassification.
Onboarding that satisfies local requirements, including right-to-work checks where they apply.
Payroll run with correct deductions and filings in each country.
Benefits enrolled to statutory minimums, which vary considerably. See the benefits worth offering.
Regulatory monitoring, so changes are applied rather than discovered.
Offboarding that follows local notice and severance rules, protecting both the individual and your position.
Country-by-country requirements are in CountryPedia.
Worth stating plainly. An EOR does not take on your corporate tax position, your commercial contracts, or your product compliance. It covers employment.
It also does not remove permanent establishment risk entirely. If your people in a country do things that create a taxable presence, such as concluding contracts on your behalf, that remains a question for your tax advisers.
We handle employment compliance across 214 countries and territories: contracts aligned to local law, regulatory changes tracked by in-country teams, and data handled to GDPR and equivalent standards.
Whether an EOR or your own entity is the right structure depends on headcount and whether you need to trade locally. The comparison is in EOR vs owned entity.
Talk to our team about the markets you are entering.
Worker misclassification and data protection carry the largest financial penalties. Labour law differences cause the most frequent problems, usually surfacing at termination when a home-country approach turns out to be unlawful locally.
Back taxes and social contributions for the full period, the benefits the person should have received, and fines. Some jurisdictions also allow the worker to claim employment rights retrospectively, including severance.
Up to €20 million or 4% of global annual turnover, whichever is higher. For large organisations the turnover percentage is usually the operative figure.
Employment compliance, yes: contracts, payroll, tax filings, statutory benefits and local employment law. It does not cover your corporate tax position, commercial contracts or product compliance, and permanent establishment risk depends on what your people actually do in-country.
Realistically, you delegate it. The volume of change across multiple jurisdictions exceeds what most in-house teams can track alongside their actual jobs, which is the main reason companies use an EOR rather than building the capability.
Often, because the employee's location determines which law applies rather than your office location. Someone working remotely from a country where you have no entity creates obligations there regardless of where they were hired.