Five areas for US multinationals to avoid overseas employment disputes Five areas for US multinationals to avoid overseas employment disputes

Five areas for US multinationals to avoid overseas employment disputes
06 Aug 2018

Many US-based multinational companies end up embroiled in employment disputes overseas due to a lack of awareness of local regulations that may be quite different from their own.

But in order to avoid incurring fines and penalties, it is vital to ensure you operate under local employment law. As the old adage goes, prevention is always better than cure. Areas of particular note in this context include:

  1. Employment contracts;
  2. Holiday and annual leave entitlement;
  3. Bonus payments;
  4. Termination at will;
  5. Termination and severance payments.

Here are some basic points of global employment law that US employers should be aware of:

1. Employment contracts

It is useful to compare the US to Luxembourg in this instance. In the US, employers are not required to provide their employees with a written employment contract. In fact, such contracts are relatively rare and are mostly reserved for highly-paid staff. More commonly, employees are provided with a written offer letter that outlines their salary, pay frequency, available benefits and the company’s vacation/holiday policy.

In Luxembourg, on the other hand, employers are required by law to provide staff with a written employment contract before they start work. Two original copies must be produced, with one going to each party. Contracts must also be drawn up in a language that is understood by both parties, which usually comprises Luxembourgish, French, German or English.

All employment contracts must likewise contain the following:

  • Hire date;
  • Place of employment;
  • Job description;
  • Normal working days;
  • Normal working hours;
  • Basic salary;
  • Paid holiday leave;
  • Length of probation period;
  • Length of notice period;
  • Pension scheme.

2. Holidays and annual leave entitlement

In this case, it would be of value to compare the US with Australia. In the US, The Fair Labor Standards Act (FLSA) does not require that staff members be paid for time not worked, such as vacations, sick leave or federal and other holidays. These remunerations are generally a matter of agreement between an employer and an employee. The FLSA also does not require extra payment if they come in on Saturdays, Sundays, public holidays or regular days of rest, unless overtime hours are worked.

In Australia, meanwhile, full- and part-time employees receive four weeks of annual leave, based on their normal hours of work. For example, if a full-time staff member works for 40 hours per week, they receive 160 hours of annual leave. If they work 20 hours per week, they are entitled to 80 hours of annual leave, while shift workers receive five weeks of annual leave. Every employee is also entitled to between 10 and 13 paid public holidays, depending on the state and territory in which they live and work.

3. Bonus payments

Let’s compare the US and Spain here in relation to bonus payments. In the US, employers are not required to pay bonuses to their employees. Such payments are discretionary unless specifically agreed upon in writing and based on an employment compensation schedule.

In Spain, however, employers are legally required to pay staff two bonus payments per year. Annual pay is divided into 14 installments, comprising one payment per month plus two additional ones that are payable in July and December. These payments are referred to as 13th and 14th month salary payments. For example, if an employee typically earns US$1,000 per month, they will earn US$2,000 in July and December.

4. Employment at will

‘Employment at will’ means that employers can terminate a staff member’s employment at any time and without any reason, explanation or warning, and without providing notice. It also means that staff members can quit at any time for any reason.

Employers can likewise deny any claim that attempts to seek compensation for losses as a result of termination.

But what many US employers are unaware of is that the US is the only nation in the world in which ‘employment at will’ applies. In all other countries, employers and employees have specific termination protection and required notice periods.

5. Termination and severance payments

Here we will compare the US with Thailand. US employers are not required to offer employees severance payments if their employment is terminated.

In Thailand, on the other hand, employers must provide their employees with 60 days’ notice prior to terminating their employment. If they fail to do so, they must pay severance equal to the 60-day period.

Employees who have worked for at least six months but for less than one year are entitled to severance pay of not less than 30 days. If they have worked continuously for at least a year but for less than three, they must be provided with severance pay of no less than 90 days at the most recent rate of basic pay.

If staff members have worked continuously for at least three years but for less than six years, they must be given severance of no less than 180 days at their most recent basic pay rate. Working continuously for at least six years but for less than 10 means they are entitled to severance pay of no less than 240 days at the most recent rate of basic pay. Finally, employees who have worked for more than 10 years consecutively are required to receive severance pay of no less than 300 days at the most recent rate of basic pay.

Amber Morris

Amber Morris is business development manager at global payroll and tax services provider Immedis. She has extensive experience of ensuring the global payroll operations of multinational organisations are compliant with regulations.

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Many US-based multinational companies end up embroiled in employment disputes overseas due to a lack of awareness of local regulations that may be quite different from their own.

But in order to avoid incurring fines and penalties, it is vital to ensure you operate under local employment law. As the old adage goes, prevention is always better than cure. Areas of particular note in this context include:

  1. Employment contracts;
  2. Holiday and annual leave entitlement;
  3. Bonus payments;
  4. Termination at will;
  5. Termination and severance payments.

Here are some basic points of global employment law that US employers should be aware of:

1. Employment contracts

It is useful to compare the US to Luxembourg in this instance. In the US, employers are not required to provide their employees with a written employment contract. In fact, such contracts are relatively rare and are mostly reserved for highly-paid staff. More commonly, employees are provided with a written offer letter that outlines their salary, pay frequency, available benefits and the company’s vacation/holiday policy.

In Luxembourg, on the other hand, employers are required by law to provide staff with a written employment contract before they start work. Two original copies must be produced, with one going to each party. Contracts must also be drawn up in a language that is understood by both parties, which usually comprises Luxembourgish, French, German or English.

All employment contracts must likewise contain the following:

  • Hire date;
  • Place of employment;
  • Job description;
  • Normal working days;
  • Normal working hours;
  • Basic salary;
  • Paid holiday leave;
  • Length of probation period;
  • Length of notice period;
  • Pension scheme.

2. Holidays and annual leave entitlement

In this case, it would be of value to compare the US with Australia. In the US, The Fair Labor Standards Act (FLSA) does not require that staff members be paid for time not worked, such as vacations, sick leave or federal and other holidays. These remunerations are generally a matter of agreement between an employer and an employee. The FLSA also does not require extra payment if they come in on Saturdays, Sundays, public holidays or regular days of rest, unless overtime hours are worked.

In Australia, meanwhile, full- and part-time employees receive four weeks of annual leave, based on their normal hours of work. For example, if a full-time staff member works for 40 hours per week, they receive 160 hours of annual leave. If they work 20 hours per week, they are entitled to 80 hours of annual leave, while shift workers receive five weeks of annual leave. Every employee is also entitled to between 10 and 13 paid public holidays, depending on the state and territory in which they live and work.

3. Bonus payments

Let’s compare the US and Spain here in relation to bonus payments. In the US, employers are not required to pay bonuses to their employees. Such payments are discretionary unless specifically agreed upon in writing and based on an employment compensation schedule.

In Spain, however, employers are legally required to pay staff two bonus payments per year. Annual pay is divided into 14 installments, comprising one payment per month plus two additional ones that are payable in July and December. These payments are referred to as 13th and 14th month salary payments. For example, if an employee typically earns US$1,000 per month, they will earn US$2,000 in July and December.

4. Employment at will

‘Employment at will’ means that employers can terminate a staff member’s employment at any time and without any reason, explanation or warning, and without providing notice. It also means that staff members can quit at any time for any reason.

Employers can likewise deny any claim that attempts to seek compensation for losses as a result of termination.

But what many US employers are unaware of is that the US is the only nation in the world in which ‘employment at will’ applies. In all other countries, employers and employees have specific termination protection and required notice periods.

5. Termination and severance payments

Here we will compare the US with Thailand. US employers are not required to offer employees severance payments if their employment is terminated.

In Thailand, on the other hand, employers must provide their employees with 60 days’ notice prior to terminating their employment. If they fail to do so, they must pay severance equal to the 60-day period.

Employees who have worked for at least six months but for less than one year are entitled to severance pay of not less than 30 days. If they have worked continuously for at least a year but for less than three, they must be provided with severance pay of no less than 90 days at the most recent rate of basic pay.

If staff members have worked continuously for at least three years but for less than six years, they must be given severance of no less than 180 days at their most recent basic pay rate. Working continuously for at least six years but for less than 10 means they are entitled to severance pay of no less than 240 days at the most recent rate of basic pay. Finally, employees who have worked for more than 10 years consecutively are required to receive severance pay of no less than 300 days at the most recent rate of basic pay.

Amber Morris

Amber Morris is business development manager at global payroll and tax services provider Immedis. She has extensive experience of ensuring the global payroll operations of multinational organisations are compliant with regulations.

OTHER ARTICLES THAT MAY INTEREST YOU

Hiring disabled workers in China: Incentives and challenges

Navigating important acronyms in Saudi Arabia and the UAE

UK 'right to work' dismissals: A delicate balancing act