Why international employment contracts are important for global payroll Why international employment contracts are important for global payroll

Why international employment contracts are important for global payroll
04 Jan 2018

 Clients often ask me if they need an international employment contract with their new employees when setting up payroll in a new country. They often want to reduce the timetable and expense of their overseas expansion by adopting the same contracts that they use for their domestic employees

International employment contracts are also usually the responsibility of HR. However they are critically important for global payroll. If these contracts are not set up correctly, they can result in many global payroll issues months or even years later.

This article aims to give you an introduction to some of the basic facts about international employment contracts. It will provide a simple guide to many of the most common questions that are asked.

What is an international employment contract?

Let’s start by defining what an international employment contract is. It is the statement of record for your relationship with your new international employee. It contains all the key terms and conditions of the agreement between you and your employee. It will include items such as salary, the benefits that your employee is entitled to, holidays, confidentiality requirements, notice period and other important employment conditions.

We define an international employment contract as being one that is subject to the laws and regulations of the specific country where your employee is working. As such, it needs to be fully compliant with that country’s employment laws and regulations. For example, an employee hired in Australia will require an Australian employment contract

Why international employment contracts are important

There are several reasons why it is important to prepare an international employment contract. It is often a compulsory requirement in the country where you are operating. It will usually be the definitive guide in the unfortunate event that you ever have any disputes with your employee.

If you do not have one, and you enter into a dispute that needs to be resolved in court or by arbitration, then the contract will need to be locally compliant in order to provide you with legal protection. If the contract is not fully compliant with local laws, then the ruling body can simply override it and replace it with the local laws and conditions.

Do expats need international employment contracts?

Each situation for expats needs to be addressed on a case-by-case basis. International employment contracts can be obligatory, for example, for work permit reasons, but these may not be required in all cases.

International employment contracts and global payroll

When global payroll is setting up a new country, it should use the international employment contract as an essential guide. The contract will set out all the different types of salary and benefit entitlements which global payroll will need to be aware of.

Global payroll should use the contract in order to validate all the payroll functionality that is required from the new global payroll operator. It should also ideally use the contract to validate any data that has been provided to payroll, such as salary and start dates. The contract will be the legal document of record. Unless otherwise specified, it will therefore override any other source of data, which is inconsistent. It is usually best to make corrections sooner rather than later.

Potential global payroll issues

Global payroll issues can arise if payroll does not have a good international employment contract to rely on, or if global payroll does not check against an international employment contract. The most common errors are poor accuracy or even missing items. Here are a few of the issues that can occur:

Inaccurate salary raises

In some countries, there are statutory or even traderelated regulations governing salary increases for employees. A good local employment contract will refer to these obligations. If global payroll checks against employment contract, it will ensure that the annual salary rises for international employees are legally compliant.

Accrued leave

If your international employee one day moves on to a new organisation, global payroll will want to ensure that it has accrued all their outstanding leave obligations. This can be a complex business. Many countries have their own local employment rules for annual employee leave requirements for how long they can be carried forward and even how much can be accrued.

An international employment contract will specify leave requirements. Global payroll can use this to ensure that the ongoing accrual and reporting of leave carried forward is accurate in order to avoid messy and expensive disputes with departing employees.

How easy is it to get an international employment contract?

The good news is that it is not as difficult or expensive as you may think to get an international employment contract. Unless you have particularly complex employment terms and conditions, you can use a local specialist who is experienced in drawing up employment contracts for international companies.

This type of task does not usually require a highly expensive professional adviser overseas. A good adviser will usually start with a template approach to cut costs and save time. This type of approach starts with a locally compliant employment contract and allows you to change only items specific to your requirements.

It is unlikely that your current HR staff can prepare an international employment contract. In order to be fully compliant with international employment rules and regulations, the contract will need to be drawn up by a locally qualified specialist.

Changes in international employment laws

Local employment rules and regulation are continually changing. Some of these changes may affect you by overriding the terms and conditions of your employment contract. It is worth retaining a relationship with your international HR adviser so that they can update you on any changes that have an impact on you, and amend your international employment contract as a result.

 

John Galvin, CEO of Galvin International, provides expert, independent advice for clients setting up global payroll. He also finds clients excellent international payroll, accounting and tax partners worldwide. John heads a team of global finance experts and a worldwide network of independent payroll, accounting and tax suppliers. He has 20 year’s CFOlevel experience with multinational blue chips and SMEs and has successfully implemented global payroll, accounting and tax in over 40 countries. If you have any queries about the information in this article, or would like to know more, please contact John at john.galvin@galvininternational.com.

 Clients often ask me if they need an international employment contract with their new employees when setting up payroll in a new country. They often want to reduce the timetable and expense of their overseas expansion by adopting the same contracts that they use for their domestic employees

International employment contracts are also usually the responsibility of HR. However they are critically important for global payroll. If these contracts are not set up correctly, they can result in many global payroll issues months or even years later.

This article aims to give you an introduction to some of the basic facts about international employment contracts. It will provide a simple guide to many of the most common questions that are asked.

What is an international employment contract?

Let’s start by defining what an international employment contract is. It is the statement of record for your relationship with your new international employee. It contains all the key terms and conditions of the agreement between you and your employee. It will include items such as salary, the benefits that your employee is entitled to, holidays, confidentiality requirements, notice period and other important employment conditions.

We define an international employment contract as being one that is subject to the laws and regulations of the specific country where your employee is working. As such, it needs to be fully compliant with that country’s employment laws and regulations. For example, an employee hired in Australia will require an Australian employment contract

Why international employment contracts are important

There are several reasons why it is important to prepare an international employment contract. It is often a compulsory requirement in the country where you are operating. It will usually be the definitive guide in the unfortunate event that you ever have any disputes with your employee.

If you do not have one, and you enter into a dispute that needs to be resolved in court or by arbitration, then the contract will need to be locally compliant in order to provide you with legal protection. If the contract is not fully compliant with local laws, then the ruling body can simply override it and replace it with the local laws and conditions.

Do expats need international employment contracts?

Each situation for expats needs to be addressed on a case-by-case basis. International employment contracts can be obligatory, for example, for work permit reasons, but these may not be required in all cases.

International employment contracts and global payroll

When global payroll is setting up a new country, it should use the international employment contract as an essential guide. The contract will set out all the different types of salary and benefit entitlements which global payroll will need to be aware of.

Global payroll should use the contract in order to validate all the payroll functionality that is required from the new global payroll operator. It should also ideally use the contract to validate any data that has been provided to payroll, such as salary and start dates. The contract will be the legal document of record. Unless otherwise specified, it will therefore override any other source of data, which is inconsistent. It is usually best to make corrections sooner rather than later.

Potential global payroll issues

Global payroll issues can arise if payroll does not have a good international employment contract to rely on, or if global payroll does not check against an international employment contract. The most common errors are poor accuracy or even missing items. Here are a few of the issues that can occur:

Inaccurate salary raises

In some countries, there are statutory or even traderelated regulations governing salary increases for employees. A good local employment contract will refer to these obligations. If global payroll checks against employment contract, it will ensure that the annual salary rises for international employees are legally compliant.

Accrued leave

If your international employee one day moves on to a new organisation, global payroll will want to ensure that it has accrued all their outstanding leave obligations. This can be a complex business. Many countries have their own local employment rules for annual employee leave requirements for how long they can be carried forward and even how much can be accrued.

An international employment contract will specify leave requirements. Global payroll can use this to ensure that the ongoing accrual and reporting of leave carried forward is accurate in order to avoid messy and expensive disputes with departing employees.

How easy is it to get an international employment contract?

The good news is that it is not as difficult or expensive as you may think to get an international employment contract. Unless you have particularly complex employment terms and conditions, you can use a local specialist who is experienced in drawing up employment contracts for international companies.

This type of task does not usually require a highly expensive professional adviser overseas. A good adviser will usually start with a template approach to cut costs and save time. This type of approach starts with a locally compliant employment contract and allows you to change only items specific to your requirements.

It is unlikely that your current HR staff can prepare an international employment contract. In order to be fully compliant with international employment rules and regulations, the contract will need to be drawn up by a locally qualified specialist.

Changes in international employment laws

Local employment rules and regulation are continually changing. Some of these changes may affect you by overriding the terms and conditions of your employment contract. It is worth retaining a relationship with your international HR adviser so that they can update you on any changes that have an impact on you, and amend your international employment contract as a result.

 

John Galvin, CEO of Galvin International, provides expert, independent advice for clients setting up global payroll. He also finds clients excellent international payroll, accounting and tax partners worldwide. John heads a team of global finance experts and a worldwide network of independent payroll, accounting and tax suppliers. He has 20 year’s CFOlevel experience with multinational blue chips and SMEs and has successfully implemented global payroll, accounting and tax in over 40 countries. If you have any queries about the information in this article, or would like to know more, please contact John at john.galvin@galvininternational.com.

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