European employment law works differently from other parts of the world. This is especially true for businesses headquartered or operating in the USA. So, if you are looking to grow or establish your business in Europe there are specific things you’ll need to be aware of!
So, let’s examine HR and payroll in the European market more closely—including the important topics of how to establish a business in Europe, how to payroll, contract must-haves, and more.
Why do business in Europe?
First things first. Why is the EU such a popular centre for doing international business? Well, the European Union is the largest unified economic zone in the world, with the second largest share in the global economy at approximately 22%.
Europe also hosts specialised tech hubs and a skilled workforce across its countries. Different regions within the EU house different tech specialisations, like biotech, telecommunications and IT in Spain; aerospace in France. The EU places great importance on and provides constant support to its member nations to constantly improve their education and educational systems.
Plus, mobility across the countries in Europe makes it easier to hire manpower and trade across borders, enabling organisations to grow at a faster pace.
Firms from abroad can also avail themselves of the opportunity to bridge the quality gaps between services and products that still occur in developing parts of Europe today.
European Employment Law: Considerations when employing in Europe
We can divide these employment considerations into two broad categories – the must-have and the nice-to-have regulations for the hiring and onboarding process.
Must-have considerations
- Payroll Registration – either as a domestic or an international firm
- Compliant Employment Contracts
- Knowledge of local and federal payroll requirements – depending on your decided country
- Statutory benefits – also differ from country to country
Nice-to-have Considerations
- Supplementary benefits – to help make your employment offers more attractive
- Employment through a legal entity – mitigates your permanent establishment risk
- Unlimited PTO – according to that particular country’s statutory limits
What makes payroll different in Europe from payroll in the US?
To move from the US to Europe, there are several changes in the payroll format because of the complicated HR landscape. Employing people in Europe differs greatly from how it happens in the US. Some of the most notable differences are:
- The US has an at-will employment pattern, which also works for termination at-will. The EU follows a contract employment format, with a high level of legal complexity, depending on the country. You will have to have legal paperwork in place in order to start employment and there will be specific terms in place for how and when you can terminate an employee also.
- Unlike in the US, collective bargaining agreements in countries like France and Spain provide additional special terms and conditions for employees.
- Notice periods in Europe are certainly longer than in the US, averaging at around 3 months, while it can go up to 6 months for executives.
- In some countries in Europe, local language understanding is a necessity along with English, while the US only makes contracts in English. In Europe, contracts must be drafted in the local language to be binding.
- European countries also have a payslip requirement with detailed working and leave days.
- In all European countries, it is traditional that payments are made every month in arrears, unlike the US’s weekly pay structure.
- Additional payments are usually made during the holidays in Europe, such as in Italy.
- Bonus pay in Europe, along with other perks and commissions, are simply taxed as an extension of salary, while the US taxes them differently.
European employment law is varied. Each European country has a different working style and culture – it is important to get the correct advice from an experienced agent or a partner to work in the country you desire.
Employment Contracts in Europe
The employment contract requirements in Europe also vary from other places in the world. For a general contract within a European country, some of the considerations are:
- Both EU and local requirements must be observed
- Most candidates do not resign in Europe unless they have a contract with a new employer in place
- Collective bargaining agreements
- Classification of employees
- Dual-language contracts, as mandated
- Points of negotiation
Employment Termination in Europe
In a situation where an employee has to be terminated, again there are key differences to terminations elsewhere in the world:
- Terminating an employee in most cases involves a strict process
- Litigation following an employee termination is very high in some countries
- Use of compromise agreements, as mentioned in the contract
- Notice period can varies between 1 and 6 months, and is typically 3 months.
Country Overviews
Let us take a look at some of the different and popular business destinations of Europe and a quick overview of their employment law, payroll, and other employment considerations.
United Kingdom
- Employment Law – well-balanced between the employer and the employee’s interests.
- Terminations – fairly straightforward if the employee has less than two years of service.
- Cost of Employment – total cost of employment is approximately 120% of the employee’s gross salary.
- Time to First Hire – companies can hire UK employees virtually immediately.
- Country Quirks – as of 2021 Brexit means that the UK does not necessarily follow the same rules as apply to the European Union.
- Difficulty Score – 2020 World Bank ease of doing business ranking: 8th.
France
- Employment Law – heavily favours the employee, but it can be managed with appropriate advice.
- Terminations – complex. It is best to work with an advisor who is familiar with the HR law in France.
- Cost of Employment – Total cost of employment is approximately 140% of an employee’s gross salary.
- Time to First Hire – companies can expect to spend 4 to 6 weeks hiring French employees.
- Country Quirks – collective bargaining agreements are complex; language requirements; employee litigation is generally high.
- Difficulty Score – 2020 World Bank ease of doing business ranking: 32nd.
Germany
- Employment Law – moderately in favour of the employee.
- Terminations – moderately complex.
- Cost of Employment – total cost of employment is approximately 130% of an employee’s gross salary.
- Time to First Hire – companies can hire German employees in about four weeks.
- Country Quirks – unique Social Security structure.
- Difficulty Score – 2020 World Bank ease of doing business ranking: 22nd.
Ireland
- Employment Law – well-balanced between the employer and the employee’s interests.
- Terminations – fairly straightforward.
- Cost of Employment – total cost of employment is approximately 120% of the employee’s gross salary.
- Time to First Hire – companies can hire Irish employees virtually immediately.
- Country Quirks – none.
- Difficulty Score – 2020 World Bank ease of doing business ranking: 24th.
Summing up European Employment Law
Expanding a business into the European Union is lucrative yet complex. But overall the opportunities are attractive and worthwhile, so long as you have the right advice and help.
Cintra Global is a company working towards helping businesses expand internationally, be it US-inbound, US-outbound, or anywhere else in the world. We manage various back-office services for our clients to allow these expansions to take place, such as HR, Payroll, Compliance, Financial Reporting, and much more.
Frequently Asked Questions (FAQs)
Is there a risk in paying contractors without having a local legal entity?
There will occur a problem with permanent establishment if not handled correctly. This situation can open up a host of liabilities for your company. However, the presence of a legal entity is dependent on the roles you’re hiring as well as the kind of activity you’ll be carrying out. It’s worth seeking advice each time you plan on hiring.
Which countries are currently the most popular hiring spots in Europe for the US?
Despite Brexit, the United Kingdom remains a popular destination for US-based companies to hire employees. Apart from that, Germany, Spain, and France are also well-liked countries for employment. A secondary group of countries considered by companies consists of Italy, the Netherlands, the Nordic countries, and Ireland.
