Things to Consider When Hiring Overseas

https://youtu.be/vtVrjoE_HFs

Contents

• Building our your global team
• Planning for a successful first hire
• The employment contract
• Do I need a locally compliant contract?
• Employment contract FAQ
• How legal structures can affect employment costs
• Staying informed on HR law
• Be proactive!
• Q&A

Building out your global team

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Andrew:

Julian and I are here to talk about international HR and things to consider when hiring overseas in another country. I’m Andrew Laing and I’m a Business Manager with Cintra Global in California. Julian Christmas is our Chief Revenue Officer based in the UK. 

In our last webinar we talked about international HR and gave an overview on hiring in another country. Now, we are going to go down to brass tacks and talk about things such as the employment contract.

In this webinar, we’ll go over…

In this webinar, we will go over how to set up for success when entering a new market. That means making your first hire, what a successful hire looks like, and how you can be proactive when it comes to international employment law. 

We will go over employment contracts, which form the basis of the working relationship, and how the legal landscape in another country can affect hiring decisions or your work with employees down the road. 

We will talk about the importance of staying on top of changes in HR law. HR teams usually have a good handle on what’s going on in their home market, but internationally it’s tough to deal with changes. So, we’ll go over some information on how to minimise that risk and how you can handle that going forward. 

We will also have a Q&A, so be sure to put any questions you have in the chat and we’ll respond to those then.

Planning for a successful first hire

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With this slide, I’m going to put a poll into the chat asking if your business is contemplating hiring anybody in another country. If you’re looking at hiring in another country, you can go ahead and put the country that you’re looking at hiring in. This will mean Julian and I can give you some country specific advice towards the end, along with the Q&A. 

I want to talk a little bit about what makes a successful hire in a new country. A lot of the companies that we talk to are looking at making a hire quickly. They have the candidate already identified and they are looking at making that hire within a month and trying to get them on a compliant payroll solution. We understand that timelines are really important, but it is also really important to get things done right the first time. 

In our previous webinar, we went over some hiring solutions such as international PEO, hiring without a legal entity and hiring with a legal entity. There are also contractors, but that is very limited in scope and a compliance grey area. When you’re considering different hiring solutions, you should look at your long-term plans in addition to your short-term hires. Is a legal entity going to be the best option? Can you get away with something a little less, like a payroll registration? If you’re looking at doing something without a legal entity, you should also look at the benefits landscape and consider how the HR requirements work with the solution you’re looking at. For example, you might need a legal entity to sign up for pension or certain benefits.  

Depending on what country you’re considering going into, it’s easy to bring a hire on a compliant solution in two weeks, but sometimes it can take four months, six months or eight months. In places like the UK and Canada, it is relatively easy for foreign businesses to get set up quickly and bring people on. However, places like Brazil, Japan, Spain or India can be very bureaucratic and take a long time to set up. There are some interim solutions, but it’s important to plan ahead to make sure that the solution is in place to make your first hire. We’re always happy to work with our clients to design a solution that’s going to work for them and help them meet their goals.

For work culture, it’s important to make employees feel like they are part of your company, now more than ever with the pandemic and remote working. We get a lot of companies that are looking to standardise benefits across all of the different countries that they’re in. They want parody in benefits between the US, the UK, Brazil, India and China. That is difficult to achieve. It’s important to set expectations among your employee base and with administrative teams on what that looks like from a benefits landscape. 

A lot of the time it’s very difficult (we usually say it’s nearly impossible) to standardise benefits across all countries. That’s because there are statutory benefits in different places, such as a 13th month salary, holiday allowances, insurance and pension. These are all handled differently in different countries. When you’re looking at the US, where there are not a lot of statutory benefits, versus somewhere like the UK, with the national health service, it’s difficult to standardise those benefits. It’s important to set expectations and plan ahead when you’re looking at going into a new country to make sure that your employees feel like they’re taken care of.

The employment contract

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I’ll hand it over to Julian now to talk about the employment contract. It’s a really important document that forms the basis of the employment relationship with your employees in other countries. It’s really important to get it right the first time, so that you’re not on the back foot and exposed to employee trust issues, liabilities or litigation. Julian, I’ll let you take it from here.

Julian:

Thanks, Andrew. Hi everybody. It’s nice of you to join us for this webinar. I’m going to talk a little about employment contracts now.

Do I need a locally compliant contract?

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A fundamental question of international hiring is, do I need to locally combine contracts? It’s one that we come up against all the time. Our business is very much about facilitating international hiring and taking on employees in new countries. A cornerstone of hiring internationally is making sure that you have a fully compliant employment contract in place, and there are no exceptions. 

A lot of today’s audience is based in the US and it’s really important to understand how different it is hiring outside of the US versus inside the US. A lot of the HR professionals who are joining us today will be aware of this, but there are always some who aren’t. The key starting point is that you should always have an employment contract in place that is locally compliant and fully tailored to the local country where you are hiring. 

Employment contract FAQ

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There are a few points here that we would like to talk through. 

The first one is understanding the difference between the offer letter and the employment contract. This is quite a US-focused question, because generally outside of the US the process is similar. In the US, the offer letter is a short document that highlights the key terms of employment in terms of what the job is and what the comp is. 

Outside the US, if you use the offer letter terminology, you are typically referring to an informal and non-binding piece of correspondence. Essentially, it confirms the headlines: we are offering you a job, this is the salary, this is the commission structure, and here is what the terms look like. It is a way of formally communicating what the offer is but it’s not legally binding and there is no specific format. It can be done by email or it can be done over the phone. The relationship is not formalised until the employment contract is in place. This is a legally binding contract because it does make lots of references to local employment. 

In the vast majority of cases, your intended hire won’t terminate their existing employment until they have the employment contract signed off and legally everything is in place for them to start their new role with you. At that point, once the employment contract is signed, they will terminate their existing employment. Depending on who they are and where they are, that could be anything from two weeks all the way up to three months or even more for senior employees in different parts of the world. That’s the difference between the offer letter and the employment contract. 

The next one is interesting because employment contract templates are part of the employment process that we deal with a lot. In many cases, we are asked if we can provide an employment contract template. In our way of speaking, a template is something that we have actually tailored to your company, probably to your first hire, so that it is literally ready to sign. The question is often, can we simply change the name and job title on the contract for the first person and use it for our future hires? It’s important to understand that the answer is yes in some countries, but the answer is definitely no in other countries. 

Broadly speaking, in the UK, Australia and Canada, one contract can be altered to accommodate a new employee who may be doing a different role, or the same role with a different comp. There are other countries where it’s a lot more complicated, even if you have somebody working for the same company in the same country. We are talking about the more complex countries now, where other things come into play such as collective bargaining agreements. There are formalised categories of employees in countries like France and Italy, from director level all the way down to blue collar. The contract will reflect the category that they are in, in terms of whether they’re a director, a blue collar or somewhere in between. Management level, what their role is and what sector they are in will determine a lot of the content of the employment contract. Therefore, in some countries it’s possible to take a contract and amend it for the next employee, but in some countries, it absolutely can’t be done because every single employment contract has to take account of some of the circumstances. It’s important to understand that as a key part of this international hiring landscape. 

Regarding the terms that are carried in an employment contract, salary, details of PTO (paid time off holiday allowance) and commissions are the usual headlines. There are also going to be lots of references to country-specific employment law. That may take into account some verbiage around collective bargaining agreements and terms that relate to the specific employee classification. Every employment contract looks very different. 

In Europe, employment contracts can easily be 10 or 15 pages long. The offer letters I’ve seen for the US are typically two or three pages long. They’re short documents. Employment contracts are long. There is a lot of detail and there are a lot of references to country specific employment law. You can then compliment them with some more standard clauses around, for example, IP protection, no compete clauses etc. The critical terms from an HQ perspective do need to be tailored for each country. It’s a pretty substantial document and because employment law varies across the world, everything is different. 

It’s important to think about the classic stock or company performance based compensation, because there are various things to think about and it’s always important to consider these ahead of making your hire. Although it may be ok to make reference to a stock plan in the employment contract, it’s not good practice to give all the details and specifics of their entitlement in the employment contract itself. Usually, an employment contract should make reference to the fact that the employee is entitled to participate, but the details and the actual stock award investing schedule should be done in a separate document. One of the fundamental reasons for that is that if the stock-based compensation is detailed in the contract, it becomes contractual, according to the employment contract. That means if the employee is terminated, any calculations that drive off their contracted earnings will potentially take account of the value of the stock-based compensation. There is no disadvantage to the employee of having it dealt with outside of the employment contract, but there is a clear advantage to the company. So, that’s one thing to consider.

Other things to consider include the tax implications for the employee. Employees always like to understand what the tax implications are of being issued things like stock options or RSUs. You are not obliged to, but it is good practice to be able to explain to your employee what the implications are for them. It’s also very important to understand the implications for the company as an employer. What is the company’s obligation in terms of compliance and making filings, whether it be every year or quarterly?

It is also important to consider what the taxable events are. During the life cycle of an employee who is entitled to stock options, which events are taxable? Is it award? Is it vesting? Is it exercise? The answer varies from country to country. Broadly speaking, there isn’t a tax implication for the company until exercise, but that’s a horrible generalisation and I wouldn’t want to be quoted on that. 

In many countries, if you are issuing stock or share options to employees under the parent company plan, the gain on exercise would often go through the payroll and be taxed as income. This is important to consider for the employee because income taxes are typically higher than capital gains taxes. For the company, if it goes through the payroll, it’s likely to attract on costs and social cost of employment. Stock options are intended to be a non-cash reward, but actually the on cost of those exercises can be quite significant. In countries like France, social costs can run to 40%. Understanding these things might not change the path that you follow, but it’s always helpful to understand them upfront. There is a process in the UK where the social cost can be borne by the employee. However, in some situations it can result in tax and social security burden to the employee of up to 60%, because the employer is layering approximately 15% of their own costs onto the employee. If anybody has any specific questions or a specific interest in this, we can happily provide support. 

There are language requirements in some countries. For countries like the UK, Canada and Australia, English language prevails. There are some non-English speaking languages where an English language contract is ok. In the Netherlands, you can have a Dutch contract, or you can have an English contract, or you can have a dual language contract. However, there are lots of countries, such as France, Germany and Spain, where the legally binding part of an employment contract is always in local language. When we provide employment contracts to our clients in these countries, we provide dual language contracts. So, a German contract will be in dual language, with a German part and an English part. The English part is not legally binding. It’s the German language part of the contract which is always legally binding. The English translation is just so that any English speakers can understand the terms and the details of the employment contract. It’s really important to understand what the language requirements are. 

It is possible to get into trouble in France if your employment contract is in French and subsequently you negotiate other terms of employment, but you don’t do that in French. This can render certain clauses and certain terms invalid. In the past, there have been situations where terms have been negotiated or updated, even just by email in English, that contravene local law. This is not always the case, it’s just important to understand that language can be an issue from one country to the next. 

So, those were some headline FAQs. We talk to our clients about the employment contracts, what they cover, what they include and how to deal with certain things. Hopefully that was a helpful run-through of the employment contract landscape.

Andrew:

How legal structures can affect employment costs

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I want to go over how the legal landscape in certain countries can affect employment cost, as you may want to plan for these things when you’re looking at countries. We had a couple of people say that they are looking at hiring in other countries, but they’re not sure where. The legal landscape and structure in a country can certainly impact that decision. 

Employment law differs greatly from country to country. The US, where I’m based, is very different to a lot of other parts of the world. The US is at-will employment, whereas a lot of other countries are not. So, it’s important to consider that. If you don’t have at-will employment, there are a lot of procedures that need to be followed, especially around terminations and bringing people on probationary periods. Oftentimes, there are tribunals or government agencies that need to adjudicate in the case of terminations. You need to know where to go and what the notice periods are, as they depend on the length of service of the employee. You should know all of this before entering a country, so that you have got a good handle on it in case anything needs to happen. France is a good example. I know Julian and I keep going back to that, but it’s a complex country to hire in and both parties need to agree to a termination in France. It’s not like the US, or some other countries, where you need to give a notice period and documents before you can terminate somebody. In France, both parties need to agree to a mutual separation in a lot of cases. 

It is also important to make an assessment of who the employment law favours. In certain countries, like the UK, it is pretty balanced in terms of the employee versus employer. However, France is heavily in favour of the employee. In case of any disputes, or anything that goes back to the employment contract, it is likely that the employee is going to win the case. It’s important to work with an advisor or law firm who can help you determine what your potential liability might be in a certain country.

Collective bargaining agreements are in place by company or by industry in the US. I’m speaking to the US because that’s where I’m based and I’m pretty familiar with it. However, in a lot of other countries like Spain, for instance, collective bargaining agreements can be regional or even down to the municipal level. This depends on where you’re setting up your business and what kind of employees you’re hiring, because it can also be by industry. Certain terms need to be included in the employment contract that might feed into a potential litigation or dispute. It’s really important to do this right and work with someone who knows what they’re talking about and knows the legal landscape and those collective bargaining agreements. Getting the employee classification and getting that done right in the employment contract is really important, just in case anything goes awry and you need to communicate something to that employee, or if worse comes to worst, terminate that employee.

Staying informed on HR law

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HR teams have a responsibility to have a good handle on what’s going on in their domestic country. Once you add one more country, it might be easy to handle. However, if you’re looking at hiring in two, three, four or five countries, how do you stay on top of new pronouncements that are coming out in those countries? 

This can affect what gets communicated to employees and what is in your policies, procedures, manual and employment contracts. Staying on top of that information can be hard if you’re just using Google as the tool. So, how do you stay on top of that and make sure your business is compliant with new laws that are coming out?

Be proactive!

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This is just a sample list of things that can change and may need to be tracked or communicated to employees, including maternity and paternity leave and paid time off. Termination notice periods can change by length of service of the employee. They can be affected by the industry, the employees, and by the employment contract. It is really good to stay on top of these, especially when it comes to employee experience. 

A lot of companies are focused on their employee experience and want their employees to feel confident that their employer knows what they’re doing. They are not going to enter a country without any idea on what the benefits are. From an employee experience standpoint, it’s important to stay on top of these things and communicate to your employees internationally when things change. This helps them to feel like they’re taken care of and that their employment relationship matters to the employer. Potential liabilities or litigation is important, but second to the day-to-day communications you have with employees and making sure they feel comfortable with you. So, with that exposure to international HR risk, I’ll transition back to Julian to talk about some ways to minimise that risk from an employer standpoint.

Julian:

We have a poll to help us to understand how good of a handle you have on your international HR risk, in terms of exposure or understanding of the local HR landscape where you have international hires. It’s interesting to see that everybody has answered with either one, two or three, which means that there isn’t a great degree of comfort that everyone has a good understanding of the risks and exposure. That’s interesting, thank you everyone for answering that. 

To a certain degree, common sense prevails in terms of minimising the risks, but it’s not always as simple as that. It is critical to get advice as early as possible in the process. As soon as you have identified that you are planning to hire in a country, either as a strategic move or as an opportunistic hire, seeking advice is critical. Unfortunately, we deal with a lot of damage limitation situations where things have been done the wrong way. A classic situation would be that somebody in one department has identified a hire and has hired them before telling HR or finance teams. Sometimes they might extend a US offer letter. We then have to tidy up in terms of getting a proper contract in place and registering the payroll, which may not happen on a timely basis. So, getting good advice is important. 

In terms of joined up thinking, you can have an HR team who do their part and they do it correctly. You can have a finance team or a payroll team who can also do their part correctly. However, it doesn’t mean to say that the end result will be the perfect result. To some degree, it can be about the “unknown unknowns”. For example, if you’re hiring somebody in Spain or Italy, it’s important to understand that the employment contract, or a summarised version of the employment contract, has to be registered with the social security (essentially with the government) on or before the employee start date. That means if you have a new hire in one of these countries, you can’t get the employment contract in place and make the required registrations that will enable you to hire that person if they’ve already started. This would mean you are immediately in non-compliant territory. Certainly, in Italy, if you don’t register the employment contract before the start date, it will invalidate certain key aspects of the employment contract itself. 

The second point about choosing your service provider wisely is about being fit for purpose. If you’re looking to build a 300-person factory in Peru or hire a team of a thousand people in China, I can happily tell you that Cintra Global is not a good solution for those very large and very complex situations and there are others who are. But similarly, if you’re looking to hire one, two or three people in another country, ADP might look like a great solution from a payrolling perspective, but they’re actually not that good at supporting low head counts. They don’t provide any kind of peripheral HR support or wider advice and so ADP isn’t a great solution for a small head count expansion, but Cintra Global is. 

We do a lot of expansions of one to ten head counts because that’s a sweet spot. If you’re hiring a low headcount, you won’t be having a local HR team or a local payroll team. We can join all the dots and deliver the fully joined up service that you’re probably looking for. So, it’s important to get advice from the right direction. Choose a service provider who is fit for purpose, understanding the importance of employment contracts and statutory benefits. 

There is also an element of being sympathetic to local employment culture. Classically, a lot of our clients like to try and deliver benefits which closely match HQ benefits, whether HQ is in the US or in the UK or somewhere else. However, this can cause problems if you learn that, for example, in Australia the equivalent of the 401(k) contribution or the pension contribution on the part of the employer is 10 or 12%. It’s very high and that would buck the trend of a lot of HQs. You have to embrace and adopt the norms of the local country. It’s commonly understood that Italy closes down for the whole of August and lots of people take holiday. That’s just a bit of Italian culture that you really have to understand and adopt into your thinking if you’re looking to hire in Italy. So, the contract and the statutory benefits are important, but it’s also important to be sympathetic to the local norms. 

We talk a lot about which countries are difficult to hire in, such as France, Spain, Italy and Brazil. It’s not actually difficult to hire people in these countries, and it’s actually not always difficult to terminate people in these countries, but you have to have the paperwork and you have to follow the process. If you do everything exactly correctly, it’s not as complicated as we often make out. However, it’s the process itself that is complicated. 

During COVID, we helped a client shut down their entire French operation and terminate the whole team. It was a team of about 10. It was very complicated because one employee was on maternity leave. It was a real case study in very complex termination, but using local legal counsel and very sharp legal support, we managed the process without any issues. It really is about making sure that the documentation is correct and compliant, and that you follow the local process. The local process in France is different from the local process in Germany, which is different from the local process in the UK and everywhere else. It’s really, really important not to cut corners where employment law is involved.

The final piece there is compliance. Take care to be compliant. If you’re engaging with service providers, make sure they have a good understanding and are able to explain what your compliance obligations are. If they’re not able to explain it, they’re probably not a good partner for you. You need to have a high level of comfort that they understand the compliance landscape in the country, including everything from employment law to the requirements around payroll and stock option filings. There are lots of extensions which you don’t necessarily consider at the point of hiring. There are the “unknown unknowns”. Addressing all of these things together will help you to minimise and mitigate the risks of employing people in other countries. 

We have around one hundred clients at any point in time. We support them in dozens and dozens of countries and it is very unusual for us to get into a position of non-compliance which results in disaster. We did have one last year. We supported a client with a French termination process. It all went according to plan because we provided the legal support and everything that was required. However, the client then used the paperwork for a German termination. This was totally non-compliant and the employee went into litigation with the client. This was an example of the client, frankly, trying to cut corners and not quite understanding the final piece of the jigsaw.

Q&A

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Now we’ll move on to the Q&A. We have had a couple of questions through the chat. 

Is it normal to have exclusivity clauses in contracts, primarily in countries like India?

It is normal. My interpretation of exclusivity clauses is that if you’re working for my business, if you’re working for Cintra Global, you are providing a service exclusively to Cintra Global and you can’t work for anybody else at the same time. It is not uncommon, certainly in the professional world, to have clauses which essentially say, in order for you to most effectively deliver your effort to my business, I don’t expect you to be delivering to anybody else at the same time. Exclusivity clauses aren’t unusual. That’s a fairly generic statement, but I think it applies globally. 

India is an interesting place. From an HR perspective, India is quite a straightforward place to hire people. However, from a general infrastructure perspective, it’s quite complex. Getting a legal entity off the ground takes a long time. We have about three Indian legal entities under incorporation at the moment for our clients. It’s a fairly arduous process which involves a lot of legalisation of documentation, paperwork, passport photos and all sorts of things. It takes a long time but once the entity is set up, it’s quite easy to hire and onboard employees. 

The benefits landscape in India is relatively straightforward. However, the compliance side, from a legal entity perspective, is quite complicated in terms of the various registrations and filings that need to be made during the course of the year. As a service provider and as a professional outfit, we provide that support. We generally provide start to finish compliance support so that the client has the protection of our start to finish service provision.

Are there any tools to manage benefits and PTO across all the countries that we’re in?

At Cintra Global, we’ve implemented a partnership with BambooHR which helps store all the pertinent HR information such as compensation, benefits and paid time off. Maybe some of the larger providers like ADP have something, but I’m not aware of any payroll systems that capture 100% of everything worldwide. As we mentioned earlier, there are so many differences in things that are provided in different countries and it’s difficult to capture all of that information. 

However, from an HR perspective, there are tools that we implement to track all of that information. Sometimes our clients based in the US might have an HR system which is very US centric and doesn’t translate well to other countries. That’s the reason why we have incorporated BambooHR into our standard service offering with country-by-country tailoring. Lots of our clients do have HR systems which they extend to their international employee base, some of them don’t have any HR system at all, and some of them have one which perhaps just doesn’t lend itself well to the needs of international employees. There isn’t one magic solution which literally covers everything, but having a robust HR system is a good start.

There were some more specific countries that came through on the first poll, with people looking to hire in Ukraine, Romania, Argentina, and Egypt. Do any of these countries jump out as particularly difficult or that we see a lot of activity in? It depends on how many people are being hired and what they’re being hired to do. It is possible to hire and build teams in India without a legal entity, but generally speaking, you would want to incorporate a legal entity. This is because the liaison office, which is the lesser registration that can be made, is still very complicated to get in place. So, in India you’re looking at a legal entity to hire. In Ukraine you need a legal entity to hire. In Argentina you need a legal entity to hire. I think it is the same for Egypt. However, Romania is one country where you don’t need a legal entity to hire. 

It would be interesting to have a follow-up discussion on these, to understand what the head counts will be, what the activities will be and a bit more about the plan for the countries. That being the case, we would be better placed to have a discussion about whether there is an effective solution for direct hiring or if it would be better to follow another path. For example, it’s a big, complicated exercise to get a legal entity set up in Argentina. If this is to hire one person, we might recommend a different solution. However, if it’s for building a team of 10, then it’s an absolutely great solution and gives the local infrastructure to build a team and a local operation. It depends from country to country, but unfortunately all of the countries that you have referenced, except Romania, require a legal entity to be incorporated in order to properly hire people and payroll them locally. It’s important to gain an understanding of what the employees are going to be doing and what the expansion plans are to come up with the best fit solution.

How can we make sure our benefits package is compelling in another country?

We talked about the differences in benefits that are offered country to country, particularly with statutory benefits, but in many places there are supplementary benefits that can compliment these. For instance, in the UK, there are insurance plans that can compliment the national health service. 

We can certainly help with benchmarking benefits in other countries. What it looks like to be a top-tier employer or a mid-tier employer depends on what employees you’re trying to attract and retain. It is complicated speaking from a US perspective. We work with companies that come into the US as well and it’s an entirely different benefits landscape. Working with the right provider who can provide some guidance on that is important.

On the benchmarking point, it’s helpful to understand that we can do salary benchmarking as well as benefits benchmarking. We can give a detailed perspective on what benefits would be expected in order to qualify your business as a top-tier, mid-tier or average employer. We can drill down in terms of roles and we can be really specific. We have global coverage of that too. The cost isn’t particularly high. If you’re contemplating building a team in another country, it could be quite helpful to do a benchmarking exercise to make sure that you have an accurate perspective on what salary you would expect to pay. It is also helpful to understand what the additional costs of employment are because they vary widely from country to country. On top of gross salary, you have things like social security to pay. So, benchmarking can be very helpful and is a good way of ensuring that your package and what you’re offering is competitive to the extent of which you want it to be.

If we didn’t cover your question, feel free to get in touch with me. I’ll put my contact information at the end.