Employing Staff Abroad: What to Consider in Employment Contracts
Hiring or retaining employees who live abroad is becoming increasingly common. Whether an existing employee relocates or you hire talent from another country, cross-border employment raises important questions. What should you include in the employment contract, and which rules apply? In this blog, we explain the key considerations and risks for employers dealing with international employees.
What should you consider when employing staff abroad?
When an employee lives or works abroad, three key areas must be assessed for each individual case:
The country where social security legislation applies
The country where income tax must be paid
The applicable employment law
These depend on factors such as where the employee lives, where they work, and where the employer is established. Social security is always governed by the legislation of one country. Within the EU, this is determined by European Regulation 883/2004. Employers have no choice in this matter.
Taxation may apply in one or multiple countries, depending on where the work is physically performed and the relationship between employer and employee. Employment law offers some flexibility, but also comes with important limitations.
Choosing the applicable employment law
As an employer, you can often choose which employment law applies to the contract. Many employers prefer to apply Dutch law for simplicity. However, this choice does not mean foreign rules can be ignored. If an employee works in another country, you are always required to apply the mandatory employment law provisions of that country if they are more favorable to the employee.
This means that:
If Dutch law is more favorable, Dutch provisions apply
If foreign law is more favorable, foreign provisions apply
In practice, this can result in the employee benefiting from the most favorable elements of both systems, which may significantly increase costs.
Continued payment of wages during sickness
One of the biggest risks in cross-border employment relates to sick leave. In the Netherlands, continued payment of wages during sickness is part of employment law. However, according to European case law, this obligation may be considered a social security matter in international situations. This means the rules of the country where the employee is insured for social security will generally apply.
In many countries, the obligation to continue paying wages during sickness is much shorter than in the Netherlands. For example, in Germany this is limited to six weeks.
Employers should therefore be cautious when including Dutch-style sick pay provisions, such as two years of continued salary, in employment contracts for employees working abroad.
The impact of collective labour agreements
Collective labour agreements can further complicate matters. If a Dutch CLA applies and you have chosen Dutch law in the employment contract, the employee working abroad may still be entitled to CLA provisions, even if these would not have applied otherwise.
This can lead to additional obligations, particularly regarding:
Continued payment during sickness
Additional employment benefits
It is therefore essential to carefully consider the interaction between choice of law and applicable CLA provisions.
Practical considerations for employers
When employing staff abroad, it is important to:
Assess social security, tax and employment law on a case-by-case basis
Carefully choose the applicable law in the employment contract
Be aware of mandatory local employment law provisions
Review the impact of collective labour agreements
Check whether insurance policies, such as sick leave insurance, provide coverage abroad
Seeking proper advice can help prevent unexpected costs and compliance risks.
