What are mandatory benefits?

Mandatory benefits are the standard benefits and protections that employers are legally required to provide to their employees. These aren’t optional perks – they’re the essential rights of every worker, ensuring a minimum standard for working conditions (in addition to salary) across all industries and regions. This often includes things like contributing to social security, paid time off (like vacation and sick leave), and unemployment insurance.

It’s important to remember that mandatory benefits aren’t the same in every country. They can vary significantly depending on local labour laws and cultural nuances between geographies.

For companies operating internationally, it’s crucial to understand and comply with these varying regulations. This not only keeps companies on the right side of the law, but it also helps build a strong and respectful relationship with employees.

While the specifics vary from country to country, here are some of the most common types of mandatory benefits you’re likely to encounter around the world:

• Social security contributions: Payments made by both employers and employees to fund social security programmes.
• Health insurance (or access to healthcare): Ensuring that employees have access to healthcare services, a national healthcare system, or other means.
• Paid leave: Providing employees with paid time off for various reasons, such as vacation, illness, parental leave, and public holidays.
• Unemployment insurance: A system that provides financial support to workers who lose their jobs through no fault of their own.
• Pension schemes (or retirement savings plans): Helping employees save for retirement through employer-sponsored plans or mandatory contributions to national pension schemes.

Mandatory benefits can be surprisingly different from one country to the next. This is because each country has its distinct approach to social security, employment law, and employee protections. Various factors shape these differences:

• Unique labour laws: Local labour laws dictate minimum standards for employment, including minimum wage, working hours, overtime pay, and, of course, benefits. These laws are influenced by the country’s history, economic conditions, and social values.
• Distinct social security systems: Social security systems vary significantly in how they’re funded, what they cover, and the level of benefits provided. Some countries have comprehensive systems that provide a wide range of benefits, while others have more basic programmes.
• Healthcare systems: Access to healthcare is a fundamental right in many countries, but how it’s provided can differ greatly. Some countries have universal healthcare systems funded by taxes, while others rely on private health insurance or a mix of both. In some countries, the employee takes the more considerable burden of payment, while in others, a bigger chunk falls on the employer. The differing philosophies directly impact the role employers play in providing health benefits.
• Cultural norms and expectations: Cultural values around work-life balance, family, and social welfare play a significant role in shaping mandatory benefits. Countries with strong traditions of social welfare tend to have more generous benefits, while those with a more individualistic culture may have fewer mandated benefits.

When it comes to paid time off, many European countries mandate several weeks of paid vacation each year, often exceeding four weeks, to promote work-life balance and employee well-being. The European Union has a standardised minimum of 20 days per year. In contrast, the United States has no federal requirement for paid vacation time, leaving it up to individual employers to decide.

Similarly, how social security contributions are divided between employers and employees can differ significantly. Some countries, like Germany, opt for a near-even split, while in others, employers may bear a larger share of the cost, impacting a company’s financial planning and budgeting.

The UK takes a proactive approach to retirement savings with its “auto-enrolment” policy, requiring employers to automatically enrol eligible employees in a workplace pension scheme and contribute to it. Other countries only make it mandatory for employers to contribute once the employee starts contributing.

Some countries have quite specific mandatory benefits that reflect their unique priorities. In Brazil, office-based employees who rely on public transportation for their commute are entitled to transportation vouchers from their employer if the cost of transportation exceeds a certain percentage of their wages. Similarly, in France, employers must cover 50% of their employees’ public transportation expenses for their commute to work. This helps alleviate the financial burden of commuting and reflects a concern for employee economic well-being.

For businesses with a global workforce, understanding mandatory benefits is crucial for a number of reasons:

• Ensuring compliance: Meeting all legal obligations regarding employee benefits is essential for operating smoothly in any country. This avoids potential legal issues and disputes.
• Supporting employee well-being: Mandatory benefits play a key role in employee health, financial security, and overall quality of life. This can boost productivity, engagement, and loyalty within your teams.
• Attracting and retaining talent: Offering a comprehensive benefits package, including all mandatory benefits, is a must for attracting and keeping top talent in a competitive global market.
• Building a positive company reputation: When companies prioritise employee well-being and demonstrate respect for local laws, they build a strong reputation as responsible and ethical employers. This can enhance their brand image and attract customers and investors.
• Maintaining positive employee relations: Providing mandatory benefits helps foster a positive and trusting relationship with employees, reducing the risk of disputes and promoting a healthy work environment.

Staying on top of mandatory benefits in different countries requires a proactive and informed approach. Here’s how employers can navigate this:

• Deep dive into local laws: Before expanding into a new country, it’s essential to thoroughly research and understand its specific labour laws and mandatory benefit requirements. Don’t just skim the surface – get into the details.
• Get expert advice: Consider consulting with employment lawyers or local advisors who specialise in these matters. They can provide valuable guidance on navigating complex legal systems and keep you updated on any regulatory changes.
• Build out global HR processes: Develop clear, well-defined policies and procedures for managing benefits across all the countries where you have employees. This ensures consistency and reduces the risk of errors or oversights.
• Educate your team: Make sure your HR team and managers receive regular training on international labour laws and the cultural expectations surrounding employee benefits in each location. This empowers them to make informed decisions and avoid compliance issues.
• Partner with an Employer of Record (EOR): If you’re looking to streamline compliance and reduce the administrative burden, consider partnering with an EOR. These service providers can handle all aspects of compliance, payroll, and benefits administration, allowing you to hire across borders with ease.

An Employer of Record (EOR) acts as the legal employer for a company’s international employees, assuming full responsibility for compliance with local employment laws and regulations, including mandatory benefits. Here’s how an EOR can be a valuable asset:

• Compliance expertise: Leading EORs possess a thorough understanding of the specific employment laws and regulations in each country where you have employees. This means they can accurately determine which benefits are required and how to provide them correctly, minimising your risk of legal issues.
• Administrative efficiency: They handle all aspects of payroll processing, tax withholdings, filings, and benefits administration, ensuring accuracy and efficiency.
• Local insights: EORs have deep knowledge of local customs and norms related to employee benefits. They can offer valuable guidance on what employees expect and how to structure your benefits package to attract and retain top talent in each location. This includes both mandatory and non-mandatory benefits.
• Risk mitigation: By taking on the legal responsibilities of employment, an EOR helps you minimise the risks associated with global expansion. They act as a buffer, protecting your company from potential legal challenges and ensuring your global workforce is supported and compliant.