5 Pitfalls of Hiring International Employees
Entering a foreign job market as an informed employer can mean the difference between deriving maximum value from your new employees and exposing your company to potential intellectual and financial risk.
Complexities exist around hiring and managing international employees from afar that must be considered. The points below and the corresponding checklists will help you map out an appropriate legal position and identify variances between the U.S. and other countries when you hire foreign employees.
At-will Employment and Employee Termination
The U.S. law that defines an at-will employment relationship as one in which either party (employer or employee) can immediately terminate the employment relationship at any time, with or without any advance warning.
Sending a foreign employee a letter offering at-will employment occurs often and is a common mistake when presented to a non-U.S. resident, as there is no concept of an at-will employee outside of the United States.
For example, in Brazil, an employee termination depends on whether the employer has cause to terminate. However, cause to terminate is generally limited to cases of gross misconduct and therefore excludes terminations because of poor performance or economic reasons.
On the other hand, Cyprus law stipulates that an employer, by written agreement, may extend the employee probationary period, from 26 weeks up to a maximum of 104 weeks, thus allowing the employer to dismiss the employee without reason and without notice.
Knowing the complexities around the disparate employment laws and methods that govern businesses of different sizes, and that every country approaches employee termination differently, is critical. Planning ahead and keeping track of changes in legislation can mean the difference between successfully hiring an employee and handling substantial severance liabilities later.
Following is a checklist of employee termination considerations:
- Does the country require just cause to terminate?
- If so, what reasons constitute just cause and what processes need to be followed?
- Are there qualifying criteria for termination, such as duration of service, local headcount, salary thresholds, etc.?
- Is there a local system of termination penalty payments in lieu of just cause (as in Spain)?
- What are the local termination notice requirements?
Another important detail to consider: A letter offering employment must quote the salary in local currency rather than U.S. dollars because exchange rates fluctuate and the salary expressed in local currency cannot be reduced from one month to the next without the employee’s agreement.
PTO Versus Annual Leave, Sick Leave, Etc.
In the U.S., Paid Time Off (PTO) plans do not distinguish between personal days, vacation days (annual leave), or sick days, and very often do not allow carryover of untaken time allowance into the following year. Unlike the U.S., most foreign countries subscribe to a different approach, which separates distinct legal entitlements for annual leave, sick leave, and other various leaves.
For annual leave (i.e. days exclusively used for vacation), an employee may be entitled to a minimum number of days per annum as dictated by local statute.
Very often annual leave is accrued in the year before it is taken.
The rules that apply to the carryover of unused leave in each country vary; most fall on the side of employees, either providing them an express right to carry forward unused leave or permitting carryover where the employees claim work commitments prevented them from taking their allowance.
Interestingly, some countries, like Belgium and the Netherlands, require employers to pay employees at an increased rate of salary during their vacation (a so-called vacation bonus) – most often 25 to 33% on top of the normal wage.
Vacation allowance can be a moving target. In many countries, the statutory minimum entitlement increases with service, while in other countries it depends on the employee’s age and, even more rarely, less obvious factors like how many children are in the family.
In Hungary, an employee with three children may accrue an extra seven days of allowed leave over a colleague with no children.
Distinct and separate from annual leave is the availability of Paid Time Off for illness or sick leave. Employees who are incapable of coming to work because they are ill will generally receive pay during their absence, subject to annual limits and salary caps.
Very often the amount paid will be less than the individual’s usual salary. In most countries, there is very little abuse of a system that offers separate compensation and employees are off work only for genuine illness.
Checklist considerations for employee leave include:
- What is the statutory minimum annual leave entitlement, and how does this accrue?
- Does the statutory minimum allowance increase, such as with increases in service, age, etc.?
- Are there vacation bonuses (or a higher rate of salary) payable during annual leave?
- What are the leave allowance carryover rules?
- Is the statutory minimum considered too low when compared to local market rates?
- For sick leave, how many days are permitted, at what rate of pay, and does it need to be evidenced by a doctor’s certificate?
- What are the other types of leave are employees entitled to? Are these paid or unpaid, and at what rate?
Exempt Employees vs. Working Time Regulations
For many employers in the U.S., the classification of exempt vs. non-exempt employees excludes large samples of the workforce from payment for overtime worked. While many countries will have exclusions, it is generally the case that far fewer overseas employees can be considered exempt.
In Europe, for instance, usually only very senior executives are considered exempt. There are, of course, some exceptions to the norm – such as in the U.K., where employees can agree to exclude the working time regulations from their employment, or in France where, for certain employee grades, the employer can apply an annualized regime eliminating the need to track hours worked on a daily and weekly basis.
Generally speaking, employers should prepare themselves for the fact that overtime is something that will need to be administered and paid. For a remote workforce, this obviously raises concerns regarding monitoring employees’ working hours.
For tracking and paying employees, the checklist of questions to consider includes:
- What is the standard working day/week?
- Are employees entitled to payment of overtime for work completed beyond their contracted hours? If so, at what rate?
- Are there any employees who can be considered “exempt” from local overtime requirements?
- Is it possible for employees to agree to waive their rights to overtime?
- Are there maximum limits to the amount of working time, including overtime, per day, per week, etc.?
- Is there a local practice where basic salary can be split to accommodate an amount earmarked for overtime?
Employee Inventions and Non-competes
It is generally accepted in the U.S. that employees can legally transfer their rights to any future invention, either in connection with their employment or connected to the business of the employer.
The international position on this follows the principle that the transfer of rights cannot occur until the invention has been created, and usually the employee and employer have followed a notification and claim process enforced by statute. Therefore, in most countries, a U.S.-style pre-invention assignment agreement is not enforceable.
With regard to post-termination non-competes that prevent an employee from working for a competitor, most countries uphold the same requirements as the U.S. for reasonableness in territory and duration. Note: employers should be aware that throughout Europe it is usually a requirement to pay the ex-employee during the term of the restriction period as outlined in the non-compete agreement. In some countries, such as the Czech Republic, this can be as much as 100 percent of the individual’s average salary.
One further aspect of non-compete agreements to consider is that they should be included as part of the employment contract at the outset of employment in order to be enforceable. Even employees who do not pose a direct threat to the company and have been terminated for poor performance may be eligible to receive non-compete compensation after they have left the company.
A checklist for protecting the company with regard to employee inventions and non-compete agreements includes:
- Do pre-invention assignment agreements apply?
- If not, what are the local rules regarding an employer raising a claim over an employee invention, including classifications, time frames, payment, etc.?
- If employers want to apply non-compete agreements, do they need to be detailed in the employment contract? Do they require payment during their term? And is it possible to unilaterally withdraw a non-compete without lengthy notification periods?
- If the answers to the point above make non-compete agreements non-viable, are post-termination non-solicitation agreements an option?
Simply put, collective agreements can be problematic, so it pays to check whether they will apply or not.
A collective agreement generally supplements the local labor laws, either by inflating the minimum standards, such as better rates of annual leave, or creating additional policies and processes to better protect employees. This can include increased consultation requirements on termination, improved safety procedures and/or training, etc.
Many will also create a hierarchy of employee grades, outlining minimum salaries and benefits with a requirement on the employer to allocate the correct grade to each new hire. The biggest difficulty with collective agreements is that they are usually written only in the local language and are updated frequently, which makes it very difficult to monitor and manage them remotely.
In many countries, collective agreements are only applicable if the employer voluntarily signs up. Most international employers choose not to sign up for these agreements so they are not an issue. However, in some countries, a collective agreement is deemed to apply indiscriminately to all employers operating in a particular trade. European countries with mandatory agreements are France, Italy, Spain, and Denmark.
Consider the following checklist with regard to collective agreements:
- Is there a mandatory collective agreement that applies to our workforce?
- Is it industry-, vocation-, or region-specific?
- What are requirements of the collective agreement?
Embrace Rather Than Avoid
As outlined here, generating a degree of familiarity with common employment-related practices outside of the U.S. is critical. Having the foresight to ask the right questions and to decipher local requirements, rather than simply avoid the country completely, will better position employers to hire staff – and maintain a smooth-running, multinational office with effective Human Resource functions.