Employee arrangements may vary worldwide, but a compliant employment contract is required no matter the employee’s location. While the type of contract depends on employer needs and resources, indefinite contracts are the most common agreement outside the U.S.
This guide discusses the pros and cons of indefinite employment contracts, what to include in an indefinite contract, alternative contract types, and the challenges of drafting indefinite employment contracts for global employees.
What is an indefinite employment contract?
An indefinite employment contract, or permanent contract, is a type of employment contract without a specific end date. Under an indefinite contract, an employee works for an employer until either party terminates the agreement.
As the name suggests, an indefinite contract implies that the employer and employee want to work together indefinitely. Businesses use indefinite contracts to invest in and retain long-term employees in ongoing positions.
Indefinite vs. at-will employment
Most professional relationships outside the U.S. operate under indefinite employment, which presents strict employee protections around termination. Employers must give lengthy notice before terminating employees and provide government-mandated severance payments. They may be required to prove the termination cause in court.
By contrast, most professional relationships in the U.S. operate under at-will employment, which allows employers or employees to terminate employment at any time without reasonable notice or severe consequences. At-will employment is much less secure for talent and employers.
Benefits of indefinite employment contracts
Indefinite-term contracts offer many benefits to both employees and employers.
For employees, indefinite employment provides guaranteed wages and benefits explicitly outlined in the contract, such as paid vacation or leave and notice of termination clauses. Indefinite contracts also offer employees better job security and financial stability.
Additionally, indefinite contracts help employers retain employees longer, lowering recruitment costs and staff turnover. Indefinite contracts also boost employee morale and drive employee loyalty to the business—leading to improved productivity and performance.
Disadvantages of indefinite employment contracts
Despite their benefits, indefinite-term contracts also present unique disadvantages.
For employees, indefinite contracts provide less freedom to choose their work schedule, try different types of work, or switch career paths.
For employers, indefinite contracts present additional employee costs, like competitive benefits and severance. They also make it difficult to quickly terminate talent without lengthy notice periods. Plus, if an employer seeks to hire talent in various countries, they must also navigate country-specific labor laws and craft compliant contracts accordingly.
What to include in an indefinite employment contract
Creating compliant employment contracts requires extensive due diligence. Each contract should be as thorough as possible and adhere to country-specific employment laws.
While requirements differ from country to country, indefinite contracts should generally include the following:
- Job description, work hours, and location
- Salary and benefits
- Social security information
- Vacation, public holidays, sick leave, and other leave policies
- Probation period
- Discipline process
- Dismissal process, including a notice period and severance policies
- What constitutes “just cause”
- Collective bargaining, if applicable
- Any other legally required language
Statutory benefits, probation periods, notice periods, and severance pay also vary per country. Employers must verify with local labor laws to ensure their indefinite employment contracts include all required conditions based on employees’ locations.
The employer or employee may terminate an indefinite employment agreement as long as the termination follows the contract terms and local employment regulations. Indefinite contracts are often terminated due to the following circumstances:
- Lawful termination by the employer
- Employee resignation
- Employee retirement
- Permanent business closure
Other types of employment contracts
While indefinite contracts are the most common type of employment contract used worldwide, other types of international employment contracts may better suit the unique needs of an employer or employee. A few examples are listed below.
Fixed-term contract: A fixed-term contract, also known as a definite contract or limited-term contract, has an established expiration date as formally recorded in the agreement—or it ends when a specific project is complete. A fixed-term employee may receive the same salary and benefits as an indefinite employee in the same role.
Fixed-term employees bring new skills and knowledge to a company or give the employers more staff support during a busy period.
Temporary contract: Temporary contracts allow employers to hire temporary talent to meet specific needs or busy periods. Temporary talent usually does not receive benefits, and services end after the contract’s agreed-upon term. Employers typically hire temporary employees to fulfill short-term needs.
While contract duration may differ per country, a temporary contract typically lasts up to six months.
Casual contract: A casual contract, sometimes called a zero-hour contract, puts talent on standby to perform services for an employer. It can be indefinite or limited-term but typically does not guarantee hours, frequency, or employment expectations. Casual employment contracts help employers when they can’t predict the time they need work completed or when they need it done quickly.
Self-employment contract: A self-employment contract is an agreement between an employer and a self-employed individual or contractor. Self-employed contractors offer businesses the flexibility to engage talent for a specific project or skill without the costs and time it takes to onboard a full-time employee. Contractors are not entitled to benefits or severance pay.
Learn more in our complete guide for global employers: Types of Employment Contracts.
Challenges of drafting international employment contracts
Unfamiliar regulations present global compliance challenges for employers that lack country experience and knowledge. Some challenges employers face when drafting international employment contracts include the following:
- Varying employment contract requirements. Jurisdictions have unique regulations for employment contract establishment, such as accepted languages and written versus verbal agreements.
- Varying statutory entitlements. States and countries also have different employee rights and benefits requirements, including leave entitlements and severance policies.
- Talent misclassification. Employees who are misclassified as contractors are denied their entitlements to benefits and other legal protections. If worker misclassification occurs, the employer is liable for unpaid taxes, employee back pay, and legal fines.
- Collective bargaining agreements. Some countries require that the employer sign a collective bargaining agreement—a legally binding agreement between an employer and a union representing local workers—as part of the employment contract.
- Data privacy laws. Each jurisdiction has its own regulations regarding how employers must safeguard employees’ personal and financial information.
- Language differences. If a business enters a country that uses a language other than English, care must be taken to ensure that the contract is either written entirely in the new language or accurately translated. Some countries require employment contracts to have both English and the local language presented side by side on the same page.
Ensure compliant indefinite contracts for your global talent
Employment contracts are tricky—especially when you’re hiring international talent. Companies can avoid the complexity and compliance risks by partnering with an employer of record (EOR).
An EOR like Velocity Global serves as the legal employer of your global talent, drafting and managing compliant international contracts on your behalf. An EOR also handles onboarding, payroll, benefits, HR support, and risk mitigation so you can quickly engage global talent without the burden of entity establishment or navigating complex employment laws.
Learn more: What Is an Employer of Record (EOR)?
Or contact Velocity Global to learn how we can help you quickly and compliantly hire, retain, and support your international talent with peace of mind.
