Employed under whose jurisdiction?
Since writing our article on Employing Foreign Workers Abroad we have worked with a significant number of firms to develop the correct working arrangements for gaining the services of workers outside the UK.
Employment is a special case, with emphasis on the word ‘employ’.
UK firms cannot employ workers in other countries under UK law. Nor can they employ workers in another country under that country’s law unless the firm has a legal presence in that country. The local authorities would simply not acknowledge the existence of any employment relationship. Even employment in another EU Member State requires the firm to register locally - and this reduced obligation will likely disappear after Brexit.
So what does this mean?
A UK firm wanting to employ people in another country needs to have a presence in that country. The employer and employee then naturally pick up the law and employment regulations of the host country.
Employment law and regulations can be very different in foreign countries.
Employment in the UK and across Europe is based on significant European Union legislation. However, this does not mean that employment rights and employment practices are the same. There are nuanced differences that must be understood and complied with – mainly affecting the firm and how it behaves.
So, lets consider what that might look like in three European countries.
In Ireland, pay would be governed by the prevailing national minimum wage, but there may also be additional agreements that apply to some sectors giving uplift to the minimum. In Germany there is no national minimum wage but for some sectors collective bargaining agreements (CBAs) mandate the minimum wage. There is no statutory minimum wage in Denmark with CBAs each setting pay levels.
Your Danish employees will get 5 weeks holiday with their German colleagues likely to get between 4 and 5 weeks plus a very generous 13 days as Bank Holidays. In Ireland your employees will have 4 working weeks plus Bank Holidays.
Turning our attention to pension, you will need to establish a pension scheme in Demark. In addition, employers in Denmark must pay into the Danish Labour Market Supplementary pension scheme for full-time employees. There is no requirement in Germany or Ireland to provide a pension scheme. However, if no occupation scheme is provided in Ireland then employers are required to provide a personal retirement savings account (PRSA) which is effectively the same as the UK auto-enrolment NEST scheme.
Danish employees seeking recourse following disputes would take their case to the Labour Court and the Industrial Arbitration Court. Employment courts hear cases in Germany and employees have only three weeks following the receipt of their dismissal notice to make a claim. This means such claims tend to be made while the person is still employed. Other types of claims can be brought within six or twelve months depending on what is written into the contract of employment. In Ireland, a Rights Commissioner would hear disputes related to employment issues, much like ACAS in the UK. If that fails then the case might go to a Labour Court or Employment Appeals Tribunal.
The same, but different
In Europe, employment law is substantially harmonised – and yet there are key differences. Employment law in other countries like the United Arab Emirates, the Philippines or India is very different.
Employees working in a country are required to pay taxes in that country, and receive the relevant benefits based on the employment law of that country. It’s therefore very clear that the obligations of the employer can’t be met without a presence in the country – even if that presence is a local accountant’s office.
Setting up a local office
There are a couple of options: set up a subsidiary or set up a branch office.
A subsidiary company is one that is owned by the UK parent company, which then has the controlling interest. A branch office is not a separate entity. It is just a part of the company located remote from the main office, including in this case, overseas.
Employees will be employed by the branch office or subsidiary and all relevant taxes and employment regulations will be dictated by local authorities.
Employed under whose jurisdiction?
The simple answer is the country in which the person is employed. That’s usually where the worker lives. And, there needs to be a business entity (or a registration in some EU countries) in-country to enable the employment relationship.
Each country has slightly different employment rules and regulations. It’s important to understand this when embarking on employing overseas workers in other countries.
If you are still not sure of whether to employ or set up some other relationship with workers in other countries, read our blog on employing foreign workers abroad. And if you want more direct help, call us.
- If the worker is to be self-employed or employed under an umbrella company, refer to our paper on Employing Foreign Workers Abroad