International employment contracts and why they are important

Hiring people overseas offers many benefits, including flexibility and opportunities to collaborate with wider range of employees. For employers it broadens their talent pool, builds cultural diversity, and may also result in lower costs.

When hiring employees in different countries an employer will need to draw up an international employment contract. However, when growing globally, companies will need to ensure they remain compliant with the country’s that govern employment law.

This article looks at what an international employment contract is, the importance of having one in place and what should be included.

What is an international employment contract?

An international employment contract is an agreement between an employer and employee(s) based in different countries. The contract will need to comply with the employee’s local employment laws i.e. the country where they conduct their work, not where the employer is based.

3 possible reasons why an international contract is required

While global hiring provides advantages to both parties, it does add more risk and potentially expose companies to legal liabilities. Below are 3 reasons why an international contract may be required:

1. Employer and employee protection

An international employment contract protects both an employer and employee in cases of disputes. Having a written contract in place allows either party to use it as a point of reference.

Employers should be aware of the risk of disciplinary actions when not providing a written statement.

2. Compliance with local laws

Employers must provide an employee with a contract that reflects the country’s statutory rights in order to avoid any legal disputes. In cases of a dispute, the court will make a decision based on local laws governing the contract.

3. Legal requirement

Most countries will legally require both parties to sign an employment contract that reflects the country of residence of the employee. It is important that an employer consults local authorities to ensure they are compliant with the applicable laws.

Possible scenarios when an international contract is required

An international employment contract will be required if the employer is based in one country, while the employee works from a different country. This type of contract will be needed if an employee has been hired overseas, or if they permanently move abroad during their employment term.

Since the pandemic, remote work has boosted global employee mobility, and many employees may work remotely from different country or move back to their home country. Alternatively, if an employee decides to relocate permanently, the contract will have to be replaced by an international one which is adapted to the new country’s employment rules.

However, if an employer relocates their employees to the country where the company is based, they will not require an international employment contract since the employee resides in the same country. Their income will be subject to the country’s taxes they reside in.

An employer can consult the Employer Helpline and other overseas authorities to confirm their obligations.

What to include in the international employment contract?

The clauses that may differ in an international contract include:

• Statutory and discretionary benefits which may be different to the ones offered in the UK depending on where the employee is based.
• Statutory and company sick leave and pay can differ depending on local laws.
• Payment details such as pay period, date, method and reviews – the payroll frequency may vary by country. It is also important to bear in mind the specific trade unions that represent employees in a given country that can determine salary increases.
• Statutory leave and pay, and any additional paid days off provided by the employer. This can differ depending on where an employee resides and this can be further differentiated by the state or region a person is in.
• Parental leave and rights which may differ by the country the person resides in.
• Probationary period—if the local law allows for trial periods.
• Notice periods and employment termination procedures – this will be determined by the country’s regulations and trade unions for the industry.

An employer should seek legal advice in their employees’ country of residence to ensure they are meeting legal requirements, and in certain instances where the contract may need to be translated to the local language.

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The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.