You’re expanding to new countries—that's certainly worthy of big congratulations. But before you can celebrate, there are some crucial HR details that need to be ironed out. Namely, figuring out the rules and regulations associated with global hiring and international employment contracts in your new markets.
Between employment laws in the U.S., employment laws in the countries you’re expanding to, and your own company’s policies, there is a lot to get right. And there can be high stakes if you get it wrong.
Here are the basics of creating a compliant international employment contact and common pitfalls to avoid during the process.
What is an international employment contract?
According to the Global Payment Management Institute, an international employment contract is “the legal statement of record and arbiter between your business and your employees in overseas locations.”
In other words, this contract is the document that outlines all the key details of the relationship between you and your international employee, including things like:
- Start date
- Duration of the position/length of employment
- Working hours
- Overtime policy
- Vacation rights
- Sick policy
- Termination policy
- Notice period
- Confidentiality requirements
The employment contract legally outlines everything the employer is responsible for—and everything the employee is responsible for in return.
But here’s where it starts to get tricky. Because each country has its own employment laws, you need a different contract template for each country. In some countries, you may need multiple employment contracts—for example, if you’re employing people in Canada, you should have a different contract for each province.
Why it’s essential to write a compliant international employment contract
For starters, it’s typically the law. Employee protections are stronger outside of the U.S., and employee contracts are usually required to hire internationally.
Practically, having a solid employee contract in place protects your business in the case of a dispute with your employee. Have a compliant contract? Then your dispute will be handled according to this legal document. No international employment contract? Then you could be open to more risk and liability.
Finally, your payroll team will rely heavily on your international employment contracts to make sure they’re following the local laws when it comes to things like payment, required salary raises, tax withholdings and more.
What you don’t know as a U.S. employer can hurt you
Remember how other countries are more employee-friendly than the U.S.? One prime example is that termination can be more difficult when your employees are working internationally, thanks to various levels of employment protection.
Your international employment contract must follow local regulations regarding termination, including what may seem like extensive notice requirements and hefty severance pay. In Mexico, you cannot terminate an employee without “just cause” if the employee has been with your company for a certain amount of time.
If you get this piece of the contract wrong, you risk significant fines and lawsuits. Some countries will even pursue court-ordered reinstatement (yikes).
A fixed-term employment contract can prove to be a useful tool in global hiring when you have a firm grip on the timetable needed to complete a project. In this case, it’s probably not a huge risk, especially when you compare it to something like an indefinite contract.
But make sure you carefully consider local laws before deciding on a fixed-term contract—unless you want to unwittingly end up with a permanent employee. In both the U.K. and Japan, your fixed-term employees automatically join your team for good after four and five years, respectively.
Another risk? Fixed-term contracts may not be legal at all for the types of employees you’re hiring. In France, fixed-term contracts are only allowed in special cases, such as to replace a temporarily absent employee, and they cannot exceed 18 months (including a renewal).
Related content: Why a fixed-term employment contract is risky in global hiring
Collective bargaining agreements
Back to France, every employee gets 30 days of paid vacation per year (jealous yet?). But according to SHRM, the Society for Human Resource Management, the country’s “collective bargaining agreements can provide more paid vacation days or more leave based on an employee's seniority.”
This is just one example of how different collective bargaining agreements (CBAs) in each country can further complicate the employee contract. If there are CBAs in place in the markets where you’re planning to hire in, you will need to work with the unions instead of independently drafting your own employee contracts.
How to avoid global hiring risks and protect your business
Chances are, your internal human resources team does not have enough knowledge of local requirements to properly draft an international employment contract—especially if you’re new to global hiring. Locally qualified specialists are the place to turn for complete and compliant contracts.
We recommend that if you’re looking to hire internationally, you consider seeking legal and HR help in your host countries or partnering with a global employer of record (EOR), sometimes referred to as an international PEO. Our GEO service is the perfect solution for when you need assistance hiring international employees.
When you work with an EOR, you rely on the provider to hire workers on your behalf and take on the legal responsibility for complying with all the payroll and employment laws in the country. In other words, you can get on with the excitement of global expansion—without getting bogged down by the minutiae of international employment contracts (phew!).
Have questions about employment contracts for your global workers? Our global solutions advisors can ensure your contracts are compliant with local legislation and include custom amendments that meet your business needs—like non-compete or non-disclosure agreements. Contact us today to learn more.