International Employment Issues Your Company Needs to be Aware of
Posted on Oct 01, 21 by Dee Coakley
For years employees have been clamouring for more opportunities to work from home; to work overseas; to live a more flexible and balanced life. Now, Covid-19 has proved the ultimate stress test for remote working. And remote working has passed the test. We can create, communicate and collaborate from anywhere, it turns out.
However, when it comes to being legally employed to do so, things become a lot trickier. While it may often feel like we are one globalised world, we are still a highly localised world as far as international employment goes. Regulations and laws are fragmented, even in seemingly united unions (such as the US States, Canadian provinces, or EU member countries, to name but a few). This creates many international employment issues for companies to deal with.
I started Boundless after I had experienced considerable challenges in managing employment for geographically distributed teams at a previous company I was the COO for. I still remember all the things that kept me up at night initially. Employing them the right way turned out to be far more complicated than I had ever imagined. If you find yourself in a similar position now, I know exactly how you feel.
Fast forward to more than three years after that experience, and I have learned a great deal about the most pressing international employment issues and how they can be solved. Let's dive right in.
So why does international employment come with so many issues?
Because the moment you cross a state line or a country border, (mostly) everything around employment changes, and you have to forget a lot of what you know. I will give you two examples.
Are you based in the US and expanding in Europe? Forget about employment-at-will. There are stringent termination procedures, which sometimes, as is the case with The Netherlands, may require you to get the consent of a court.
Or are you based in Canada and hiring into France, Germany, or Spain? If you want to put a restrictive covenant, be prepared to pay the former employee 30 to 50% of their salary for the duration of the covenant.
This is just the tip of the iceberg of international employment issues…
If you are hiring internationally, you will have to consider international payroll. However, before you do that, you will need to look into a host of country-specific items starting with the need (or not) for corporate presence and the process for registering as an employer. You will then need to decide whether to run payroll in-house or outsource it (you should outsource at least until employee 250, here is why).
Next, you have to consider another particularity of international payroll: local net salaries. The same gross salary will equal a different net wage in other countries. Part of that is because of foreign currencies; however, it mainly has to do with local employee and employer taxes, allowances, contributions, and tax credits variations. If an employee is relocating, you will have to address this.
This is particularly important for employees who are relocating. I would recommend doing your homework and making the gross to net (capping the company cost at its current level) and net to gross (keeping the employee at the same level of take-home pay) calculations. If you are a company that practices the philosophy of equal pay for equal work, you will need to put some thought into harmonisation.
Another important aspect of international payroll is that remuneration comes with different requirements in different jurisdictions. Primarily this covers minimum wage and pay frequency. Still, there are some more specific cases, such as the cap on bonuses for people in financial services that is in place in The Netherlands (can't be more than 20% of fixed salary). As you can see the topic of payroll should be on the top of your agenda as you try to resolve international employment issues.
You must ensure compliance with the local tax regulations for every state or country where you have employees. As mentioned above, you have to register for (and pay) employer taxes in every country where an employee resides. Those vary significantly (the global average is 15.3%). You must then register each employee with the relevant tax and social security authorities to deduct all contributions.
The percentage of taxes you will have to deduct from employees varies significantly. For example, on a salary of €79,470, a single employee with no dependents or special tax regime may be charged as low as 9.9% in Singapore (conditions apply) and 12.9% in Bulgaria or as high as 46.6% in Portugal and 46.2% in South Korea.
On top of the income and social security taxes, many countries have additional taxes that may surprise you. Brazil, for example, has over 60 different taxes, and every federate unit within the country can enact more tax rules. Moreover, many tax rules are unclear and are subject to widely different interpretations by tax and social security authorities. Navigating all that tax complexity will be a big challenge for you.
Other examples of taxes include Germany, where practising Catholic, Protestant, and Jewish employees may pay what is known as a church tax; Portugal, where employees who earn above €80,882 pay a progressive solidarity tax; Italy, where residents pay regional and town taxes.
You will have to subtract these taxes from employee payroll and file them with the relevant authority or organisation. If you don't, as their employer, you may be charged with tax evasion or fraud.
Employment rights and obligations
Each jurisdiction has specific employment laws that stipulate precisely what the rules are to employ someone there. Those cover both employer obligations and employee rights and extend to all corners of employment: employment conditions, protections, work hours, probation and notice periods, redundancy, employment terminations, and many others.
However, other governing bodies also specify employer obligations and employee rights in many countries, aside from employment laws. In France, for example, aside from written law, employment rights and obligations are provided by case law, collective bargaining agreements, collective company agreements, company's internal regulations (mandatory for companies that employ 20+ employees), and unilateral decisions of the employer or customary practices.
Furthermore, some countries' laws stipulate the need to create a Works Council, which governs certain aspects of employment. The Works Councils will often need to be informed or consulted on several employment issues, especially disciplinary ones. Failing to do that may result in companies paying fines and penalties as high as €187,515 in Spain.
Most countries will have provisions about data protection, whistleblower protection, protection from discrimination, a right to a healthy and safe work environment, a written payslip or the ability to join a union, etc. In addition, several countries will give employees the right to request flexible work (United Kingdom, New Zealand, Australia, Germany, and others).
As stated in the opening of this article, most countries will have very watertight protections against dismissal and corresponding elaborate termination procedures that companies will need to follow. Failing to do that can see employees raise complaints with authorities, courts, and tribunals.
Most countries will have provisions against discrimination, but a number are taking that a step further, particularly regarding equal pay. An example is the Philippines, which has created a comprehensive women's rights law known as the Magna Carta for Women. It aims to eliminate discrimination against women and ensure equality between men and women in all sectors of life, including the workplace and therefore pay.
If you are interested in learning more, we pay special attention to employee rights both in our very detailed country guides as well as on the blog. The information there can help you deal with many of these international employment issues.
Every country has particular regulations around employment contracts. The first thing to explore will be the type of contracts permitted in the country, whether a contract is mandatory, and what language it needs to be in. In addition, in some countries, you will have to notify governmental authorities about a new contract signing (France, Spain, Italy).
An important thing to keep in mind is that while the contract outlines what an employee does, where they will be doing it from, the expectations, etc., it will always carry less weight than the employment rules in the country, as explained in the previous section. This means that if a dispute arises with it (such as in the case of Uber), courts will disregard the agreement and rule based on the law.
It's also essential to understand that any employee or company changes will need to be added to the contract. This is particularly key when it comes to hybrid and work from home situations. For example, an employee moving to work permanently from their home in Portugal will warrant an additional agreement. Its validity, however, is limited to three years and would need to be renewed after. On the other hand, in Estonia, employers need only to create an amendment to the contract.
What is important to understand here is that more than the obvious things (the work address) need changing. For example, in the case of a move to WFH, performance, and reporting expectations, working hours and other structural aspects of the job description may also need to be changed. If employers do not update the employment contract accordingly, authorities may deem it void, making the employee an illegal worker.
Local benefits can loosely be grouped into government-provided and government-mandated ones. Most countries will have a mandatory national insurance system, to which either the employer or the employee will contribute or, in some cases, both sides will. Once again, regulations vary significantly. For example, in the UK and Australia, employers must contribute to employee pension schemes. In Ireland, on the other hand, all employers with more than five employees must offer access to a pension scheme, but they are not required to make contributions.
Paid time-off benefits — such as vacations, holidays, maternity/paternity leave, and medical leave — all exist as benefits in one form or another in OECD countries, with the notable exception of the US when it comes to paid maternity.
What further complicates this field are benefits in kind, which employers offer at their discretion. Generally, since benefits in kind have a monetary value, they are treated as taxable income. In most cases, it's the employee that pays that tax. However, in Australia and New Zealand, employers pay it. In Ireland, employees have to pay that tax but have an initial €500 tax-free allowance.
Suppose you want to harmonise the benefits in kind you offer internationally. In that case, you will have to beware of countries such as Estonia, which has progressive benefits in kind tax that can be as high as 60%–70%, making them very unattractive to employees.
Employ internationally with Boundless
Adhering to employment laws, taxes, and employee rights in another country requires a commitment to learning. While you can go at it alone, availing of the services of an Employer of Record can save you a lot of time and stress and be indispensable when tackling these international employment issues.
As a global employer of record, Boundless can help with your international employment and 17 countries and counting. We collect and make sense of the complex legislative information and embed it in our services and platform. We help you employ anyone legally and hassle-free. Our Employer of Record model acts as the legal employer to your remote workers and takes care of the local employer obligations.
If you're ready to hire overseas and avoid running into any of these international employment issues directly, get started here.
Need help in figuring out how to employ your international workers?
The making available of information to you on this site by Boundless shall not create a legal, confidential or other relationship between you and Boundless and does not constitute the provision of legal, tax, commercial or other professional advice by Boundless. You acknowledge and agree that any information on this site has not been prepared with your specific circumstances in mind, may not be suitable for use in your business, and does not constitute advice intended for reliance. You assume all risk and liability that may result from any such reliance on the information and you should seek independent advice from a lawyer or tax professional in the relevant jurisdiction(s) before doing so.
Written by Dee Coakley
Before founding international employment platform, Boundless, Dee Coakley was a three-time COO, having spent 10 years with B2B SaaS businesses (Masabi, Bizimply & Axonista). In her COO roles, she experienced first-hand the operational challenges of setting up employees in new countries, and so set about building a solution.
Boundless handles cross-border HR compliance and payroll for small and mid-size businesses, removing the barriers to growing teams internationally.
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