When scaling your business internationally, understanding and complying with local employment laws is critical. Each jurisdiction presents unique challenges and opportunities, and careful planning is essential to mitigate risks and ensure compliance.
The previous article Engaging talent abroad: issues for fast growth employers to consider, explored the general considerations for companies looking to scale and expand internationally. This article delves into the specific employment law topics that employers should keep in mind when scaling in the UK and abroad.
Employment status
Determining whether to engage individuals as employees or consultants is crucial (though this may not always be an issue where a company is clear on what is required). Misclassification can lead to penalties, so it's important to assess the nature of the work and the level of control over the individual. In some European jurisdictions, such as in the UK, the distinction between employees and independent contractors is particularly significant, and misclassification can have both employment and tax implications. In some countries in the Middle East, employment laws tend to favour traditional employment relationships, with specific regulations governing contracts, working hours, and termination. Similarly, some countries in Asia have strict regulations on employment contracts, often requiring detailed documentation and adherence to local labour standards.
While using an Employer of Record (EOR), which is a third-party organisation that officially serves as the employer for a company's workforce by handling the legal and administrative tasks such as payroll, taxes and benefits, can simplify international expansion by managing local employment contracts and compliance, it is not without potential challenges. Companies should be aware that relying on an EOR does not entirely absolve them of legal responsibilities. Issues may arise if the EOR fails to comply with local labour laws, which could indirectly impact the company. Additionally, there may be complexities regarding the control and direction of employees, as the company remains responsible for day-to-day management, which could blur the lines of employment status. It's crucial for companies to conduct thorough due diligence on the EOR's compliance practices and contracts because there might be some carveouts on liability, and ensure clear agreements are in place to delineate responsibilities and mitigate risks. Understanding these potential pitfalls is essential to leveraging the benefits of an EOR while maintaining compliance with employment laws.
Mandatory rights
Employers must comply with statutory rights, which can vary significantly between countries. For example, in the UK employers must comply with statutory rights such as the right not to be unfairly dismissed, minimum wage, and working time regulations. By comparison, many industries in other European countries are governed by collective bargaining agreements that set out additional rights and obligations. Employers should be aware of these agreements and their implications. In some European countries, works councils play a significant role in employment matters. Employers must engage with these councils on issues such as redundancies and workplace changes. In Asia, it's common to have robust employee protection laws, including mandatory severance pay and restrictions on working hours, which employers must navigate carefully.
Therefore, understanding these rights and the necessary documentation in each jurisdiction is essential.
Mandatory benefits and insurance
When scaling internationally, employers must navigate the complexities of mandatory benefit entitlements, which can vary significantly across jurisdictions. This includes understanding obligations related to sick pay, holiday pay, family leave, minimum wage, and pension requirements.
For instance, in the UK, employers are required to enrol eligible employees into a workplace pension scheme, while other countries may have different pension management practices. In Asia, some countries require employers to contribute to a comprehensive social security savings plan and provide health insurance for employees.
Additionally, employers must ensure compliance with any mandatory insurance requirements, such as workplace accident cover and employer's liability insurance, which are essential in many countries to protect both the business and its employees.
Failure to adhere to these requirements can result in legal and financial repercussions, making it crucial for employers to thoroughly understand and implement the necessary benefits and insurance provisions in each country of operation.
Termination procedures
Termination procedures vary significantly across different countries, each with its own set of legal requirements. In the UK, employers must ensure that dismissals are fair and follow a proper procedure where an employee has over two years' service, which typically includes providing a valid reason and conducting a fair process. In certain European countries, the involvement of works councils is often necessary, particularly in cases of redundancies. In the Middle East, employment termination is generally governed by local labour laws, which may require notice periods and the payment of end-of-service gratuities. In Asia, some countries have specific requirements for termination, including notice periods and severance pay, particularly in certain governed sectors.
Employers should ensure compliance, as well as keeping up to date, with jurisdiction specific termination processes to avoid potential disputes with employees and/or any relevant authorities.
Cultural nuances
Cultural compliance is a vital aspect of successful business operations, particularly when expanding into new regions. Understanding and respecting local customs and cultural norms can significantly impact employee relations and business success. In the Middle East, for example, cultural considerations such as dress codes, religious practices, and communication styles play a crucial role in workplace dynamics. In Asia, cultural nuances such as hierarchical structures and collective decision-making processes are important to consider. Employers must be sensitive to these cultural nuances to foster a respectful and inclusive work environment, which can enhance employee engagement. However, this will need to be carefully balanced against the global company culture, which companies will also be keen to safeguard.
For tailored advice and support on navigating employment law in any region, please contact us at EmploymentBD@Mishcon.com. We can provide detailed guidance and help you execute your recruitment plans effectively.