What indefinite employment means when hiring globally

July 15, 2021

indefinite contract

Many employers are planning to take advantage of the work from anywhere movement by tapping into the world's talent pool. But before you jump on the bandwagon, you need to understand that employee protections are much stronger outside of the U.S., so there are unique challenges that come with indefinite (or long-term) employment in the global marketplace. 

Learn more about indefinite employment and what it means when hiring in foreign countries. 

Understanding indefinite employment 

Most companies in the U.S. operate with at-will employment contracts—with some exceptions—and can change the terms of any agreement or terminate employees without reasonable notice or consequences. But most other countries operate under indefinite employment vs. at-will employment.  

An employment contract of indefinite duration is fairly self-explanatory. It allows for employment for an indefinite period of time, and offers relatively more permanent and flexible employment relationships. 

Where at-will employment allows employers to terminate employees whenever they want, with little reason or forewarning, an indefinite contract forces a business to go through a lengthy and costly process to terminate an employee. That includes reasonable notice periods, government-mandated severance pay that is tied to a worker’s length of employment, and court proceedings. 

Employers can still terminate indefinite employees but the termination has to be based on “just cause.” And even in circumstances where an employee is provided a just cause dismissal, the employer may still have to prove that it was a lawful termination.  

Aside from a lawful termination, indefinite employment can still end via: 

  • Employee resignation 
  • Employee retirement 
  • Permanent business closure 

Drawing up an indefinite employment contract 

When creating indefinite duration contracts for potential employees, it’s important to be as thorough and upfront as possible. Countries that use indefinite employment contracts require comprehensive processes and due diligence from employers. 

When contracting for indefinite employment, make sure the agreement includes: 

  • General job description, location and hours 
  • Wages and benefits 
  • Social security payments 
  • Paid time off, vacation time and other general leave policies 
  • Probation and discipline processes 
  • Dismissal and termination processes, including severance policies, required notice periods, and reasons that constitute “just cause” 
  • Collective bargaining terms (if applicable) 

This is not an exhaustive list, however. It’s vital to look up local labor laws and make explicit any terms that may seem implied. 

Fixed-term employment 

A potential alternative to indefinite employment is a fixed-term employment agreement. Also known as a limited-term employment contract or temporary contract, these agreements allow for employment over a fixed amount of time. During the duration of a temporary contract, the employee receives full benefits. And at the end of the contract, the company may choose to extend or renew the contract. 

Fixed-term employment can be beneficial to both employers and employees. Employers can hire based on seasonal demand or other company needs, and employees can maintain full benefits and know the exact length of their employment. 

However, these contracts can come with some issues. Many countries limit how often you can renew a fixed-term contract or cap the total contract period. The idea is that, if an employer can afford to constantly renew the contract, they can also hire them on a more permanent contract (like an indefinite employment contract). 

Potential advantages of indefinite employment 

The main benefit of indefinite employment is employee empowerment. Indefinite contracts are designed to support your employees through wages and benefits that are guaranteed and properly outlined in their contracts.  

With a more secure work arrangement, employees are ostensibly more committed to their work and to the organization as a whole. Workers are empowered to learn and grow while supporting and even improving business operations. 

For the organization,  there is less worry of turnover and productivity improves as permanent employees typically have better morale and engagement with the business. 

Potential disadvantages of indefinite employment 

While indefinite employment has several advantages, one downside is that it can be costly to employers. Employers have more obligations with regard to statutory benefits, like paid time off, paid leave, pension and medical care, which add to employment costs. And in the event of a termination, the employer is required to provide severance pay and benefits as outlined in the employment contract. Some terminations can also result in litigation and expensive legal fees.  

With high costs on the line for any HR missteps, it’s critical to ensure compliant employment contracts are in place to protect your business.   

How to ensure compliant employment contracts  

Unfortunately, local labor law varies from country to country, so crafting compliant contracts can be a significant challenge for companies that lack in-country expertise. 

Local HR and legal experts can help draft compliant contracts in foreign markets or companies can partner with a global employer of record (EOR), sometimes referred to as an international PEO 

An EOR, like Global Employment Outsourcing, is a local employer that hires workers on your behalf and takes on the legal responsibility for complying with all the payroll and employment laws where your employees reside. This partnership guarantees compliant employment contracts with statutory entitlements for employees and employer protections for you—a win win.  

Have questions about drawing up an indefinite contract for your global team? Our global employment outsourcing experts can help ensure worker contracts are compliant with local legislation. Contact us today to learn more 

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