January 30, 2023
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There are many different compliance challenges companies face when growing globally, and hiring abroad is definitely one of them. Every country has its own rules and laws that govern employment relationships, and the local legal landscape is often made even more complex and difficult to navigate by the existence of collective bargaining agreements which constantly add new industry-specific regulations.
The first touchpoint with local labor laws and regulations for businesses is typically when they hire their first employees in a new market and have to draw up an employment agreement. Hiring employees in different countries requires an international employment contract, but many employers are unsure how to tackle the task of drafting a compliant agreement.
Good news is, you’ve come to the right place. In this blog post, we’ll answer all your questions about international employment agreements, including what key elements they need to contain and why they are absolutely necessary when hiring global talent.
In simple words, an international employment contract is an employment agreement concluded between an employer and an employee who are based in different countries. For example, if a German company decided to hire a remote employee in Sweden, then the company would need to draft an international employment contract. Just as with any “normal” employment contract, the agreement should outline the key terms of employment.
It’s important to point out that the adjective “international” solely refers to the fact that the employment agreement is concluded between two parties which are based in different jurisdictions. And contrary to what one might assume, it doesn’t mean that the contract is based on some special international employment regulations which override in-country laws. Therefore, it’s not possible to simply draw up an international employment contract template to use for all your international employees.
Contracts with employees overseas are typically based on the laws of the country from where the employee usually conducts his or her work. In addition, there are international regulations such as Rome I, which grant employees and employers the right to choose the law that should govern the employment relationship. In this case, the international employment contract should contain a so-called “choice of law” clause which determines the chosen legal framework.
However, since employment contracts based on foreign labor laws could conflict with local interests and since there are certain restrictions with regard to choice of law clauses, it’s strongly recommended to consult with an employment law expert before choosing an employment law other than the one applicable in the employee’s country of work.
Country laws surrounding labor and employment may differ, but there are certain key elements which shouldn’t be missing in an international employment contract—regardless of whether the agreement is concluded with a remote employee hired in Japan, Germany, Australia or anywhere else in the world. Here is a list of the essential elements to include:
Identification of both parties, i.e. name, address and tax identification numbers of both employee and employer
Start and end date of the contract
Place of work—on-site, at home, combination of the two
Contract type, i.e. part-time or full-time, fixed-term or permanent
Job title as well as a description of the role and the responsibilities that come with it
Daily and weekly working hours, breaks and rest days
Basic salary as well as additional pay (e.g. overtime), bonuses and other benefits
Payment details such as pay period, pay date and pay method
Paid days off, including annual leave and additional paid days off provided by the employer
Probationary period—if the local law allows for trial periods
Procedures and notice periods for employment termination
Confidentiality clause to prevent employees from sharing confidential information after their employment is terminated
Although these are the most common legally required elements for employment contracts, country laws could make it mandatory to include additional elements. Also, certain countries like Ireland don’t have a legal requirement to put a written agreement in place, but instead require employers to provide their employees with a written summary of the key terms of employment. If the latter are defined by law, businesses should make sure to include all these terms in the written employment contract to remain compliant.
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Unfortunately, there’s more to drafting a compliant international employment agreement than just putting the key terms of employment we’ve outlined in the previous section into a contract template. There are several other hurdles and issues businesses need to be aware of when drawing up the document which will serve as the legal base for the employment relationship with your new international hire. Here are some pitfalls to look out for.
When hiring several employees in one and the same country, it’s surely enough to draw up a contract for the first hire and then simply replicate this contract for any additional employee hired in that jurisdiction, right? Well, unfortunately not. Countries like India or Canada, which are divided into multiple provinces and states, are usually characterized by a great regional variation when it comes to employment regulations, which can also have an impact on which information needs to be included in an employment contract.
In countries like France or Italy, the influence of labor unions is quite significant, which often leads to industry-specific labor standards and regulations. For instance, a collective bargaining agreement could mandate higher minimum wages for employees in your industry or reduce the weekly working hours for employees in that sector. An international employment contract should reflect the regulations imposed by CBAs and include a reference to the applicable collective agreements where applicable.
Some countries require employment agreements with local employees to be written in the local language. In Qatar, for example, the mandatory contract language is Arabic, which means that international employment agreements must include an Arabic version as well as an official translation into English (or whichever language chosen by the employer) to be legally valid and understood by both parties.
Most countries give employers the choice between fixed-term contracts and open-ended contracts when hiring employees within their borders. However, it’s important to keep in mind that fixed-term contracts are often subject to special regulations. In many countries, they always require a written form and can only be concluded for a certain period of time. Very often there are also specific rules for contract renewals. Not respecting these rules usually results in the intended fixed-term employment turning into an open-ended employment which cannot be terminated all that easily and grants the employee broader rights in terms of severance pay and more. What’s more, some countries have limited the use of fixed-term agreements to special cases, creating an obligation for employers to present a valid reason for choosing this type of contract.
An international employment contract is needed whenever your business enters into a cross-border employment relationship, which is typically when the business hires employees overseas. Another case where an international employment agreement becomes necessary is employee relocation. Remote work has led to a boost in global employee mobility, and many employees make use of their ability to work remotely to move to a different country or move back to their home country.
When an employee decides to relocate permanently—and not just temporarily work from abroad with the help of a remote work visa—to a foreign country, his or her current employment agreement usually needs to be replaced by an international one which is adapted to the new country’s employment rules. However, in certain cases, expatriate employees may not need an international employment contract if they continue working for their old employer.
The short answer to this question is a definite yes! No international employment relationship should be concluded without a written contract. Sure, the rules concerning the contract form (i.e. written or verbal) differ from country to country, and not all countries require employment agreements to be in writing—two examples are Thailand and the United States where verbal agreements are also legally valid. But the truth is that even if there is no legal requirement for the written form, it’s always the safest option to put a strong written contract in place. Only a detailed (written) international employment agreement can protect your business against legal claims in case of a dispute with one of your global employees.
Just remember that the conditions stated in the individual employment agreement can’t be less favorable to the employee than the statutory requirements. For example, if the labor law on which the contract is based states that an employee’s regular weekly working hours must not exceed 40 hours and that any additional hour counts as overtime and must be paid at a rate of 150%, the individual contract can’t increase the employee’s weekly working hours to 45 hours and eliminate the statutory right to overtime pay.
In this sense, a detailed international employment agreement can also be useful for your payroll team whenever they need to double-check country-specific rules and regulations.
International employment contracts are an absolute must when hiring global talent. They are vital to protect the business and also serve as a point of reference when in doubt about local labor laws and regulations, since they outline the key terms of employment based on which the employee is hired. However, even with thorough research, there is a risk of getting something wrong and exposing the business to compliance fines and legal issues.
Businesses should therefore consult with experienced employment law experts to make sure all their international employment agreements are fully compliant and watertight. One way to secure expert guidance and take the compliance burden off your internal team’s shoulders is to hire talent globally with an Employer of Record (EOR).
An Employer of Record simplifies global expansion by allowing businesses to hire employees abroad without setting up a legal entity in the country. As the employee’s legal employer, the EOR takes care of all the legal and administrative aspects of the employment, which includes drawing up a fully compliant employment contract to protect the business against wrongful claims and legal disputes.
Stop worrying about international employment contracts and leave this responsibility in the hands of experienced experts. With Lano’s global Employer of Record solution, you can compliantly hire remote employees in more than 150 countries worldwide and have the employment contracts for your global team drafted by legal experts. Book a demo to learn more.
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