Global hiring – AI, EORs and worker misclassification risks

Introduction

Robert Shore: Hello, and welcome to the Brightmine podcast, formerly known as the XpertHR podcast. Brightmine is a leading provider of people data, analytics and insight, offering employment law expertise, comprehensive HR resources and reward data to meet every HR and organisational challenge and opportunity. You can find us any time of the day or night at www.brightmine.com.

My name is Robert Shore, and today we’re going to be discussing some dos and don’ts when it comes to global hiring and associated subjects. Now, to do this I am delighted to be joined by Miranda Zolot, who is general counsel at Oyster. Welcome, Miranda.

Miranda Zolot: Hi, Robert. I’m so glad to be here today.

Robert Shore: To begin with, could you just tell us a little bit about your career to date and also what you do at Oyster, what Oyster does?

Miranda Zolot: Sure. I am an employment lawyer by trade. I have worked in firms and in different companies, and what I really love about employment law is to do it well you have to really get to know your customers or your clients and understand how their businesses work. And once you understand how their businesses work, then you can help them come up with solutions, solve problems, defend lawsuits, whatever it might be. So I love that about employment law.

The last decade I’ve spent at companies that help enable small and mid-sized businesses to do just that, first in the PEO industry and now in the EOR industry. Oyster is an EOR, which means we are a global company that hires workers on our payroll as our direct employees, and then we allow them to provide services to our customers.

What is an employer of record?

Robert Shore: Let me ask you there, EOR stands for…?

Miranda Zolot: Good question. I used a lot of acronyms right there. EOR is an employer of record, which means that Oyster is the technical employer of the employee, though the services that they’re providing are provided to a customer. So we help do that so that other customers who may not have the ability to hire in a particular country can still have employees there.

It helps folks expand quickly, it helps them scale operations, and it’s really been supercharged by the Covid pandemic, wherein all businesses that might not previously think of themselves as being in a position to hire and employ folks remotely found that that actually was possible for large parts of their workforce, and have post-pandemic decided to continue hiring in that fashion because of work-life balance for their workers, better access to talent, cost savings, whatever it might be. So we are in the business of helping folks do that, wherever in the world they might want to.

What is a professional employer organisation?

Robert Shore: Yeah. So this is very much on-trend, the things we’re discussing here today. There was another acronym you used there actually, which I’m just going to ask you to spell out for us, which is PEO.

Miranda Zolot: Yeah. So PEO is a professional employer organisation. And it is very different from EORs. So if you’ll allow me, I’ll take a minute to explain the difference because people get confused and then their expectations really are not met.

A PEO is a co-employment model. So the PEO and the customer would both, jointly, at the same time, employ a single employee. You would do that in instances where you as a customer don’t want to manage the HR backend or the performance management of individuals. You might do it for better insurance rates or workers’” comp rates in the US. So it’s a primarily US-based concept. And folks sort of say, like, “Oh, it’s a global PEO”, and I want to be really clear that’s not how EORs work. In an EOR the EOR is the sole, legal employer. There is no co-employment with the customer.

So that’s really important because that actually shields the customer from a lot of risks that they might have otherwise with that employee.

What is a globally distributed workforce?

Robert Shore: Wonderful. Great. So we’ve started. We’ve got EOR, we’ve got PEO. I wonder what we can throw in next. But we’re going to begin with another term, actually, which is really because the basis of what we’re discussing now is the idea of a globally distributed workforce. I thought it might just be useful to get you to sort of talk us through that and then we can talk in a bit more detail.

Miranda Zolot: And I think you’re using the current terminology, which is great. We used to talk about remote workers. And remote workers just really kind of means that they’re not in an office. That’s not what certainly Oyster is about, and that’s not the trend that we’re seeing around the globe. A distributed workforce means that you have individuals working in places other than a headquarters or large centre of that business. Now, a distributed worker could be working in their home. A distributed worker could be working in a co-working space. A distributed worker may be someone who travels constantly for work due to the nature of their job. But it really is how we think of the new workforce is not in a factory or in an office on one block in one country or one town, even. It’s really something that has expanded to these various workers. And a distributed workforce, I want to make clear, can include contractors also. It’s not just employment. It is a way of building your workforce through a bunch of different modalities in many different locations. And that can get complicated really quickly.

Key compliance issues for distributed workforces

Robert Shore: So, let’s dive into one of the big questions here, which is what major compliance considerations should all companies have on their radar at the moment? And again, thinking in the context of what you’ve already set up with the distributed workforce, what sort of things are coming up?

Miranda Zolot: There are some things that you would expect, the employment law compliance issues. And those are everything from, you know: Is this person an employee or a contractor? Are we paying them properly? Are we giving them the right vacation days? Are we paying them on the right schedule? Do they have the right kind of contract? So basic employment law rules need to be followed in each of the jurisdictions that you are working in.

Now, if you are cross-Europe then maybe you have some sort of semblance of order because the EU holds some of those things together, but even within the EU each country has its own way of actually implementing the various Directives. So you can’t assume that, you know, even those within the EU are the same. Of course, in the United States one state could be wildly different than the one right next door to it. So you do need to have some awareness of those particularities for each distributed worker.

Compliance questions HR should be asking

Robert Shore: If, say, you’re working in HR and you’re thinking about a workforce where you’ve got people working across borders in particular, are there some useful questions you can ask yourself when trying to decide, you know, whether you’re being compliant, thinking about different jurisdictions, the different rules and laws in different places?

Miranda Zolot: Yes. And they start…I mean, they start from even when you’re posting a job. So things that you’ll see trending and that everyone should think about is salary and pay transparency. You need to be aware where you might need to share the salary, not only of the position that you’re hiring for but for all of those within your organisation. This is very country-specific.

You also need to be thinking about things like data privacy. Data privacy is not necessarily an employment issue but you are going to be absorbing personal information from your employees. The business that you’re running may have a lot of data privacy and information security concerns, so you need to kind of think about that. Are you hiring in a country that you cannot comply with those regulations?

I would say you should think about AI and ESG as a, like, asterisk. Those are, you know, things specific to public companies or missiondriven companies maybe that are using AI. There are a lot of laws being proliferated right now, a lot of questions being asked about that.

And then an obvious one perhaps is those that are in a regulated industry. You really need to think about licensing. And even from an HR perspective you need to think, you know, you would be attuned to the fact that you’re probably hiring these individuals but what is required for licensing may be different. But definitely as folks that are hiring, you need to think about AI in your hiring process, you need to think about salary transparency.

And you actually need to think about compensation strategy, which is sort of a different animal. But you can assume that even if your workers are distributed they will be talking about their salaries. They’re allowed by law. I mean, it’s kind of a shift from 20, 30 years to now. Like, everyone can talk about salary. You’re supposed to be very open about salary, for all of the right reasons, but it can have some real cultural repercussions if not done right. So you really need to think about what that looks like for your company.

And trying to harmonise that stuff can be hard, so a lot of times folks just try to decide, like, “How can I either be the most friendly?” and maybe you provide folks rights that they wouldn’t have in other places, or you kind of say, like, “Okay, well, we’re going to take a slightly more risky position and say, like, ‘Where do most of our folks reside? And let’s use that jurisdiction’s laws and regulations to kind of sculpt our hiring process and our employment process and our salary process.’”

So there are those sorts of things that you need to kind of be thinking about from a hiring perspective.

Is there a compliance checklist for globally distributed workforces?

Robert Shore: Yeah. No, I think that’s a really useful checklist. And so, once you’ve got
beyond that, the challenges of managing compliance for a globally
distributed workforce – is there a sort of checklist for that?

Miranda Zolot: I would say the checklist, have a process. It is really hard because law is changing even in, you know, various things that you might have thought were settled are changing all the time. And if you’re trying to manage multiple jurisdictions, that can get overwhelming really quickly. So I would say that it is important to create a process or use a system or use experts.

So those are kind of three different options depending on where you are in your lifecycle to make sure that you’re proactively approaching these. And so if you are a small shop, you don’t have a lot of resources, you can set up something as sort of low-tech as like a Google tickler that has the country that you’re in and employment. And you can have news articles delivered to you on a weekly basis. You can make sure that you are signed up to some of those helpful law firm articles around the globe or the consulting companies that do give really good updates. Find those sorts of resources and make sure that you’re checking them, make time to read them because that’s really important for folks that are kind of on that lower end of, like, resource spectrum. I would say if you can have a compliance management system that actually gives you a tickler and maybe goes out and pulls those things, that’s a much kind of higher-level thing.

But then kind of in the middle is use experts. There are folks around in your network — they may be attorneys, they may be peers at other companies, professional networks, it may be a vendor like Oyster — on whom you can rely to provide you these updates and/or make sure that these experts or partners are doing this work for you. If you’re using a third party for payroll, make sure that they are in your contract, for instance, it says that they have to provide you due notice and that they’re required to make these updates and provide you education and training. Because, you know, these companies that are out there helping you should actually help you.

Worker misclassification risks

Robert Shore: You mentioned contractors earlier and so I thought we should hit one of the main themes of this, which is the sort of thing around misclassification risks, the difference between full-time employees and contractors, and how to manage that. And also again, thinking of it from that global perspective, of course again in different jurisdictions the rules of classification are different as well, aren’t they? So I mean, could you sort of run us through again what your basic checklist should be, and then what variations you might have in mind?

Miranda Zolot: Sure. So this is an actual…I mean, this is one that’s evolving right now. I mean, there’s over 2 billion workers around the globe that are…the new term is “informally employed.” So those workers lack bargaining power, arguably protection of employment laws. So the governments around the globe are cracking down on folks that are misclassifying workers. The DoL in the US reintroduced a multi-factor test in March. Also the EU Platform Worker Directive established a new framework for determining employment status. So this is actively happening around the globe.

So the problem is that there is no bright-line test. Not a single country out there has provided a clean idea or list of things that a company can look at to determine whether or not their worker is an employee or a contractor. So the things that I would encourage you to think about that are common among all of these countries are a handful of things.

One: Understand and be really clear about the actual scope of the work that the contractor is going to be doing. This is really important because we used to rely on contracts to do this, to set out what the scope was, and a lot of times lawyers were negotiating about the scopes of work. The governments are telling us, and the courts are telling us, is what’s on the paper doesn’t matter. What matters is the actual reality of what’s happening with this contractor. So you really need to understand that, what this person is doing for your business.

The second thing is make sure that, in that actuality of what’s happening, you are not controlling the day-to-day execution of that work. A contractor is an independent contractor for a reason. They’re supposed to be able to use their freedom of operation as an independent business themselves to decide when, where and how they are doing things. That doesn’t mean that if they have a deliverable of Friday they can give it to you next Tuesday. But it does mean that they could do it Thursday at 11:30pm and still meet the contract. And you have to be okay with that. So you really need to be careful about the day-to-day execution.

The next piece is the means and tools. This is a little different because this goes to technology. It’s really easy to give someone a laptop that’s already preloaded with your corporate information and say, “Hey, take care of this for me and I want you to continue on this project.” Well, even if it’s a temporary scope, that looks a lot more just like a temporary employee instead of a contractor. You have to have a really strong business reason to provide that individual equipment, access to your systems and invitations to meetings that are not business-critical for the scope of work that they’re supposed to be doing. If you have your contractors come in on happy hours, not a good idea. If you have contractors with your email @mycompany.com, not a good idea. This is why you’ll see people with badges. In fact, when everyone was in the office you would have badges and the background would be a different colour to signify the contractor. And, culturally, contractors don’t love that ’cause it certainly pulls them out as different. But that’s kind of the point.

And I guess the last piece I would say is you really shouldn’t be using a contractor to do business-critical work. And by “business-critical work” I don’t mean if your house has a leak it is critical for you to have someone in there to stop the leak. That’s an adjacent thing that doesn’t go to the purpose of your business. If you have a contractor who is your primary salesperson, perhaps, who has authority to sign on behalf of the company, or someone that’s responsible for leading a multi-year initiative or transformation plan, that gets really tricky. You should think to yourself, kind of a quick gut-check, if your contractor got sick tomorrow and couldn’t come to work, it would be fine if a sub was sent instead. And if that works, if that feels right, then this person is probably a contractor.

Worker classification across jurisdictions

Robert Shore: In terms of the working in different jurisdictions, what sort of variations have you found in your work that can take you by surprise as well, that possibly just reinforce some of those points?

Miranda Zolot: Yeah. So what I would say is, it actually can be very different in jurisdictions because one of the kind of, like, dirty secrets about contractors is that I personally believe – me as Miranda, not the GC of Oyster – I do believe that one of the reasons that countries are cracking down on this is they are losing out tax revenue. And they’re losing out healthcare subsidies. When an employer employs someone directly, they are paying into taxes, the employee’s taxes are being withheld, you’re paying into the social systems, you’re paying into the pensions. And all of that is done without fail because you have to do that to be a going concern in that location. When you have a contractor, the business isn’t withholding, the business isn’t submitting the social contributions, the pensions. You’re relying on the individual to do that. And that is a much more difficult way to collect money.

So, what you will find is in countries where they have decided or elected to make contracting a profession, let’s say, things are different. And it’s much easier to hire contractors. And what do I mean by “profession”? There’s a lot of countries where contractors register. They file regular reports with the government. They file regular contributions. All contractors do it, and the governments of those countries encourage contracting because it’s kind of a win-win for everybody. So you do find, like I said, that there are some countries that are very pro-contractor. And those are great places to hire people. Other places, it’s almost like impossible to do. So there are other places that are so focused on the traditional worker model that it’s just so difficult to find people that want to be contractors because they know they don’t get those rights.

So what I would say is that the definition of what is a contractor doesn’t change very much, but how a government chooses to either enable or try to prohibit contractors as a legal construct is where you’re going to find the differences.

The impact of AI

Robert Shore: That’s a really fascinating area. And of course you also mentioned another area that’s on everybody’s mind at the moment, which is AI. And also GDPR. Can you tell us a little about what you’re seeing in terms of legislative change in relation to AI? I realise it’s a very complicated area, so I’m certainly not asking you to sort of tell us with precision what’s happening everywhere! What does everybody have to prepare for there? And again, thinking trans-nationally across jurisdictions.

Miranda Zolot: Yeah. So I think there are a couple of things about AI that, you know, everyone has an awareness of, like, basic challenges with generative AI. And that is hallucinations, that’s bias, things like that. What is really challenging, and I think will be continuing to be a challenge for companies, is that you have to understand how you’re using AI. That’s probably fine. You’ll probably figure that out. You have to be able to be very clear in your marketing, in your websites, about how you use AI.

But the real trick is with the third parties. This is coming up a lot in HR for hiring platforms. When you have a recruiting platform or a talent acquisition platform that does sorting, that’s algorithmic, you have to be really careful of what’s feeding those algorithms. How are they sorting? Have you checked if there’s bias? What is your mitigation strategy for those that you are maybe concerned about? Do you have awareness into not only…so talent acquisition is a great one that everyone, I think, is starting to kind of worry about, but you may have AI in other providers that you’re using that you don’t know how that’s being used as well.

We are actively dealing with fraud all the time, and AI…as a business, and I think most businesses are, while not necessarily an HR function you will find that people from a hiring perspective…we have people sort of like cloning our job descriptions and getting people to apply for jobs with us that are not us. So it’s like the next level of phishing, vishing. And this all becomes easier with AI. For folks that are doing a lot of hiring, you need to be aware that people will see that, and they use it as a way to get people’s personal identification.

So you did ask about GDPR. And so AI is a really tricky way to steal information. And so that is something that you have to figure out how to combat. I certainly don’t have all the answers to that. I think we’re doing a lot more, at least from our perspective, trying to verify applicants in different ways. It requires us doing more actual face-to-face verification or Zoom-to-Zoom verification. And if you’re trying to do that at scale it can get really heavy and hard. But I think that those sorts of things are going to be more important because we’re finding that you can sort of fake some of the identification platforms and it becomes a little bit more tricky. But people are trying to steal personal data and the personal data is everywhere.

What we’ve found with some of our customers is that due to the nature of the work they’re doing and the data that they house or that they use, or that their customers use, they have contractual restrictions on where that data can travel. So if you are an EU-based company, you’ve contractually agreed to keep all of your data in the EU, and you have an employee who wants to work from Singapore, you may not be able to employ that person if they have to access data from the EU and pull it to…if their job requires access to that data. So it’s really interesting. You would not think that those customer contracts would really play into where you’re hiring a particular position but as people sort of throw their net wider to find talent, these are the kind of things that are kind of the next-level consideration that you need to think about for particular positions.

Who should your partners be?

Robert Shore: I’m putting myself in the position of a HR professional and I’m thinking, “Right, this sounds very complicated in relation to GDPR and AI in particular.” So in trying to manage that, who should you be working with? If, within a business you’re supposed to have some sort of oversight on this, but actually who should your partners be?

Miranda Zolot: Yeah. I would say, like, this is where partners really matter. If you can afford to hire law firms and consultancies to do this work, they know the rules. They’re going to be able to help you. I think for a lot of small and mid-sized businesses that’s not practical. I do think this is where partnering with these, I think, employment enablers like PEOs, like EORs, can help you. And you’ll see that we, as kind of a category, are working really hard to help you. Oyster has a free misclassification analyser. Anyone can go on there, put in a job description and the country, and try to establish what is the risk level for that hire. And then, you know, we have a product that allows you, “Okay, well if this looks okay,” we’ll actually help protect you against misclassification if that does come up later on. So understanding that these things are hard. The industry’s trying to help. They’re trying to provide partnerships. And EORs are a great place if you’re looking internationally. Contracting, if you’re contracting well — and by “well” I mean properly — that’s a great place to start. It’s generally a low-cost way to expand into a new network and it’s a really valid way to test a market. You just have to be really careful about what that contractor’s doing.

But do talk to payroll companies, do talk to EORs and PEOs because they will be your partners, and in the cases of EORs take on a lot of that liability as well. Which is helpful for customers that are just trying to grow and don’t really have the capability or even the understanding of what that risk might be.

Robert Shore: That’s wonderful. I think that we began with PEOs and EORs and I think we’ve sort of come full circle. So perhaps this is a good place to draw the conversation to a close this time. I hope we will speak again on this. But, Miranda, thank you so much for your time today. Anybody interested in the subject further, we will have lots of material on our website that you can look at. Otherwise I wish you a very good day.

Miranda Zolot: Thanks, Robert. It’s been lovely.

Robert Shore: Thank you so much.

This transcript was prepared for the Brightmine HR & Compliance Centre, formerly XpertHR tools and resources, by Callisto Connect.