International HR Management: Complying with Local Employment Laws
Erez GreenbergApril 25, 2017
Did you know, in some countries it is illegal to email employees after normal work hours? This is just one example of the interesting labor laws that can catch an unsuspecting employer at an inopportune time. For this purpose, it pays to have international human resource management to understand the requirements of the country you are in.
In the 2017 Global HR Practices study in which we partnered with Papaya Global, we asked companies about their level of risk, and confidence in their existing resources. One of the preliminary findings of our study highlighted that 70% of companies are susceptible due to limited understanding of local compliance requirements. Additionally, seven out of ten companies manage the complexities of their global workforce in-house, creating a vulnerability to potential problems if they are unaware of local customs, requirements, and regulations.
A Sampling of Global Employment Law Differences
It has been said that companies based in the United States have it “easy.” In terms of labor laws, there are relatively few that govern how businesses operate. Take the common “employment at will” doctrine for example. In essence, companies can terminate workers at any time and for any reason as long as it’s not explicitly based on a discriminatory reason. In other countries, work contracts, workers’ councils, unique benefits requirements, and strict termination rules that define the employment relationship are common.
Other countries however, commonly rely on actual employment contracts to hire workers. Because workers are tied to contracts, terminations often become complicated. For instance, in Dutch employment law, the statutory period of notice for an employee is one calendar month; According to Eynat Guez, CEO of Papaya Global this notice period can add complexity to terminations. She explained, “Companies have to provide a termination notice only on the first day of the month. If you choose another date, the required notice period for termination doesn’t start until the first day of the following month, which could extend the time until you can properly terminate the employee.”
During one research interview, an international human resource management leader at a German company took some time to explain her challenges with the local workers’ councils. This is a concept similar to a union in North America, except that in a workers’ council, the employees actually run the business, not just negotiate with the business through collective bargaining. In her story, the company was trying to gather data through an employee survey, but the workers’ council would not allow the HR team to share the information with the consulting partner to analyze and interpret the data, creating a stalemate.
Other challenging areas include benefits and leave. For instance, employers must pay Chinese workers 300% of the value of any unused vacation days at the end of the year, according to Guez. And each country has its own set of holidays and leave requirements to abide by, making the process of managing paid time off more complex. Take Brazil, for example. Guez said, “Brazil requires employers to offer employees thirty calendar days of paid leave after twelve months of service. In addition, the company must allow a third of a month’s salary as a holiday bonus payment.”
It’s clear that without some awareness of the requirements for global employment, or knowledge of the best ways to handle global payroll outsourcing, companies can often make costly missteps, but there are ways to minimize the risk associated with global employment.
Getting Educated is Key
The solution to this problem is education or reliance on experts for managing these processes. Insights on the areas in which you have or plan to have a workforce will go a long way towards protecting the company and ensuring compliance with your international human resource management practices. For instance, several years ago a US-based technology startup company was sending a team of workers into Saudi Arabia to complete a project, and at the last minute the firm found out that it had to hire Saudi nationals to join the group as part of the Saudization requirements.
There are plenty of resources on how to plan for each country’s labor requirements. For instance, our free CountryPedia offers insight into some of the more recent developments in specific countries and also offers specific details in a searchable database of countries like China, Singapore, Denmark, and others. This is a great resource for international human resource management professionals and business leaders.
At the end of the day, it is critical to understand how each country’s laws work. It is best to hire someone e.g a local professional employment organization with local knowledge, who knows how to handle these complex issues so you don’t have to have to worry about these compliance issues. This is important not only because it will keep your company in compliance, but because it can also help to demonstrate to your in-country workers that you are capable and trustworthy as an employer. One research study showed that high-trust organizations outperformed low-trust organizations by 286 percent in total return to shareholders. A workforce that can trust its leaders is more likely to be productive and profitable than one that is not.