Artificial Intelligence (AI) has reached a critical milestone with the recent adoption of the AI Act by the Council of the European Union. This landmark legislation aims to balance innovation with protecting fundamental rights, such as privacy and democracy. The AI Act was passed in May of 2024 and will go into effect over a 24-month transitional period.
The news is timely: a third of European businesses have embraced AI, according to data from Amazon. This represents a 32% growth rate since last year. This growth trajectory, if sustained, may add €600 billion in gross value added (GVA) to the European economy by 2030.
The goal of the AI Act is to harmonize AI regulations and ensure ethical AI development across the EU. It is critical for international employers hiring in the region to understand the implications of these regulations. In this blog post, we outline the top considerations for how the AI Act will impact hiring and HR management in the EU.
Top considerations for employers
- Scope and Global Reach: The AI Act affects providers and users of AI systems, including those abroad if outputs are used within the EU. Any AI system impacting EU citizens, regardless of origin, must comply with the Act.
- Compliance Across Borders: International employers must navigate EU and domestic regulations, ensuring AI Act alignment to maintain seamless operations across multiple jurisdictions.
- Classification by Risk: The AI Act categorizes AI systems into prohibited, high-risk and limited/minimal risk, each with distinct compliance requirements. Employers must identify and comply with the relevant category for their AI systems.
- Hiring and Workforce Management: The AI Act mandates transparency and non-discrimination in AI systems used for recruitment, performance evaluation and workplace surveillance. Employers must ensure these systems respect privacy rights.
- High-Risk Systems Obligations: High-risk AI systems, including those in employment and biometric identification, require risk management, transparency and regular audits to ensure compliance.
- Prohibited AI Systems: AI systems that manipulate behavior, exploit vulnerabilities or use certain biometric categorizations are banned. Employers must avoid using these systems to prevent severe penalties.
- Data Privacy and Protection: The AI Act complements the General Data Protection Regulation (GDPR), emphasizing robust data governance. Employers must use anonymized data where possible and establish clear data processing agreements with third-party AI providers.
- Internal Policies and Training: Employers should develop internal policies and training programs to ensure all employees understand and comply with the AI Act. This includes regular updates on regulatory changes.
- Penalties and Financial Impact: Non-compliance can result in fines ranging from 1.5% to 7% of total worldwide annual turnover. Employers must prioritize compliance to avoid these substantial penalties and safeguard their financial stability.
- Reputational and Ethical Considerations: Beyond direct financial penalties, non-compliance can harm an employer’s reputation and trust with employees and customers. Adhering to the AI Act enhances an employer’s reputation as responsible and ethical.
Action steps for international employers
To navigate the complexities of the AI Act, international employers should:
- Conduct Audits: Review all current and planned AI systems to ensure they comply with the new regulations.
- Implement Education and Training: Educate employees about the AI Act and its implications for daily operations.
- Engage Legal Experts: Consult with legal experts to understand and implement necessary changes to AI practices.
- Develop Transparent Practices: Ensure transparency in how AI systems are used, particularly in hiring and employee management.
- Establish Robust Data Governance: Strengthen data governance frameworks to align with both the AI Act and GDPR.
An Employer of Record (EOR) can help maintain AI compliance
We expect the Act to evolve over time as it adjusts to new developments, technologies and challenges. Navigating the dynamic nature of AI regulations, especially within the EU, can be daunting for international employers. An Employer of Record (EOR) partner can be an invaluable asset, ensuring compliance with the AI Act and other regulations.
An effective EOR handles the administrative and legal aspects of HR, leveraging advanced, compliant technology to enhance efficiency and communication. By partnering with an EOR, you can ensure your AI systems and workforce management practices comply with the AI Act’s requirements. This ranges from risk management and transparency to data privacy and protection.
GoGlobal, for example, uses its proprietary HR platform, BlueOcean, to help clients onboard and manage HR processes seamlessly. This platform ensures compliance with local regulations, supports effective communication and provides a positive employee experience.
Hiring through an EOR brings several advantages: it ensures regulatory compliance, enhances workforce management and supports expansion strategies. EORs also facilitate global employee benefits, optimizing operations across multiple jurisdictions.
This strategic approach mitigates risks and improves talent engagement, positioning your company as a global leader. With the help of an EOR, international companies can focus on growth and innovation. At the same time, they enjoy peace of mind knowing their operations adhere to the latest AI regulations.
Looking ahead: more developments in AI
Almost half of the world’s jobs are expected to be disrupted by AI, according to International Monetary Fund (IMF) projections. We will continue to cover developments in AI and other technologies impacting global hiring and operations. Stay tuned for our next blog post “Preserve Workplace Trust in the Age of AI.”
Contact us today to learn more about how an Employer of Record (EOR) solution can help you maintain compliance with AI regulations and other local employment laws.