Once you decide to expand your business globally, it’s crucial to find the right market. One of the most complicated aspects of researching new markets can be understanding world employment regulations. Even with detailed reports and insider knowledge, the simplest employment regulation systems can still be challenging to implement.
This blog post details five facts to help you better understand world employment regulations before taking your business overseas.
1. World Employment Regulations Are Different Everywhere
It may not be surprising that every country regulates employment differently. But you might not know that the entire philosophy of employment can be different from place to place. For example, the concept of at-will employment, where an employee can be dismissed by an employer for any reason, is unique to the United States.
Outside of the U.S., work culture can seem more like a family than a business. In Japan, bosses regularly do things that most employees around the world may find uncommon, such as make hospital arrangements for employees and plan company visits to the founder’s ancestral grave. In return, employees often work long hours and are expected to socialize with work colleagues and clients after work hours. And even their employment regulations reflect this familial attitude.
2. Countries Can Have Extreme Regulatory Burdens
In May 2014, the International Trade Union Confederation (ITUC) ranked 139 countries, using 97 indicators in the protection of workers’ rights. Countries with stronger protections, as well as heavier employer regulations, received higher ratings. Countries that make it difficult to dismiss employees, offer more collective bargaining protections, and give more statutory rights to employees received the highest ratings.
In France, 50 employees is the threshold for many difficult regulatory burdens. Bloomberg reports that France has 2.4 times as many companies with 49 employees or less than companies with 50 employees or more. After 50 employees, a company is required to create worker councils, introduce profit sharing, and submit plans to the council before restructuring or laying off employees.
Another example includes Brazil, which enshrined employee protections in its constitution. Brazil requires employers to contribute to a social fund, has difficult procedures to dismiss workers, and requires strong benefits for its employees.
3. Labor Protections Are Easing in Select Markets
An OECD report, Policy Priorities for International Trade and Jobs, shows that recent globalization trends pressure countries to lessen their statutory regulations on workers and employers. While many people feared that these regulations would lead to exploiting workers, the opposite has occurred. Workers’ jobs have improved as the economy grows. Because of this, many countries are following this example, including the following:
- France is easing restrictions on hiring and firing
- Vietnam has moved from a planned economy to a market-based economy, which affects employment regulations
- The United States has passed “right-to-work” laws that lessen the power of business unions.
4. Countries Can Have Contract Requirements
Many countries require a written employment contract, similar to the European Union. Most of these countries mandate the minimum clauses that employers should include in the contract. These countries usually require clauses with the following:
- Place of work
- Salary and benefits
- Social payments
- Vacation, sick leave, and other leaves
- Notice period for dismissal
In addition, many countries have implied terms that are part of every contract by law, whether or not they are explicitly included in the contract.
5. Payroll is Complicated
Not only does every country have a different set of worker protections, but they also have different obligations for employers and payroll. Some countries require the employer to withhold taxes for employees. Countries also have mandatory social insurance payments that are split between employers and employees.
For example, Britain has a “pay-as-you-earn” system where the employer reports salaries in real time. And India allows employers to break salaries into several kinds of allowances that have different tax implications. Because employers withhold taxes in India, they also need to understand the system to remain compliant.
Manage World Employment Regulations with an Experienced Partner
Any business expanding into overseas markets should consult a local labor expert to ensure that contracts, policies, and payroll systems are compliant with employment regulations. Working directly with an expansion partner can help you navigate the different legal requirements and compliance for your business.
Enlist a partner like Velocity Global to ensure that your contracts meet requirements and established local labor laws and so you can succeed in your new country.