If you are planning to expand your business operations to another country, there is a good chance that you will also employ personnel in another country. Or send Dutch personnel to work abroad. It would seem obvious to use a Dutch employment contract and declare that Dutch employment law applies.
➔ But is that the right decision?
➔ What should you bear in mind when personnel work in another country, either temporarily or in the long term?
➔ And which other labour law obligations may be relevant in the event of international growth?
In this article we discuss a number of important points and pitfalls when employing personnel in another country.
Applicable labour law
Different countries have different labour law provisions. So beware, as aspects such as employment conditions, occupational health and safety rules or employer obligations may vary. The main rule when working in another country is that you and your employees decide together which labour law applies to the employment contract: Dutch employment law or, for example, the law of the country in which your employees perform their work. You usually agree upon this explicitly in the employment contract. However, this choice may never result in the employee losing the protection that would have existed in the absence of a decision on the labour law in the employment contract. In other words, the decision may not be prejudicial to the employee.
Temporarily working in another country
The first step is to examine the law of the country from which the employee habitually carries out their work in performance of the contract. This will make clear which labour law would apply in the absence of a choice of law. It is important in this regard that this “country where the work is habitually carried out” does not change if an employee temporarily works in another country. The core requirements of Belgian employment law will therefore not necessarily automatically apply to a Dutch employee who spends a week working in Belgium.
The combined circumstances can sometimes reveal that the employment contract enjoys manifestly closer connection with a country other than the country in which work is usually carried out or in which you are established as an employer. In this case, the labour law of the country with which there is a manifestly closer connection will apply. You need to consider all the factors that characterise the employment relationship. This may for example include the country in which the employee pays tax on the income from employment. Or the country in which the employee is registered for social security, as well as the various pension, health and/or disability insurance schemes.
Expanding abroad?
If one of your employees is going to work in another country for a longer period, it is important to first form a picture, based on the facts and circumstances, of the employee’s habitual country of employment and the country with which the employee’s contract of employment enjoys the closest connection. If one of these two is potentially not the Netherlands, this can have implications for you as an employer. The core requirements of the labour law of the other country may apply. In such cases, the impact of the foreign country’s labour law needs to be analysed. The possibility and desirability of bringing the employment contract in line with local labour law (and declaring that Dutch employment law no longer applies) must likewise be examined. Generally, it is not a good idea for the labour law of two countries, whether it be the core requirements or otherwise, to apply to an employment contract. Furthermore, it may be useful to align the applicable labour law with the social security system.
Collective Labour Agreement (CLA)
If you are covered by a Collective Labour Agreement (CLA), either mandatorily or voluntarily, you must check whether this also applies to your employees abroad. In addition, the CLA may contain specific provisions that have an impact on the employment conditions that apply to the foreign situation. It is wise to look into this matter in advance so that you know how this affects you.
Pensions
Working in another country temporarily or for a longer period can have an impact on applicable Dutch pension schemes. Pension funds and pension schemes do not always deal with this in the same way. While some may offer the option or even obligation of excluding your employees from membership when they work in another country, others may totally prohibit your employees from accruing pension while they are working abroad. You therefore need to check what the options and obligations are. Discuss any decisions on this in detail with your employees and document in writing what has been agreed. This will prevent your employees experiencing surprises or disappointment.
Reporting obligation - Posted Workers Directive
Another important point of attention is whether there is a reporting obligation for working in another country under the EU Posted Workers Directive. This directive sets out requirements and conditions for employers that post employees to an EU member state to work for a fixed period. The Directive aims to safeguard equal employment conditions and fair play on the European market as much as possible. If one of your employees is to work or perform a service in another EU country, remember to consider the following, too:
Local obligations and exceptions: the directive is not interpreted in the same way by all countries and different exemptions may apply. First, determine whether the specific duties will result in a reporting obligation in the country in question;
Notice: if there is a reporting obligation, as an employer you must comply with this by means of the local reporting process;
Representative: you will usually also need to appoint a contact person who - insofar as is necessary - maintains contacts with the local authorities;
Employment conditions: to safeguard equality of employment conditions, in the event of an audit you may need to show wage slips or some other form of proof;
Registration: finally, it is also important to keep records of the work that has been carried out, employment conditions and working hours.
Habitual country of employment?
As your company grows, there may come a time when you decide to open an actual branch in another country. Incidentally, even before that moment, there may already be a permanent establishment for tax purposes. In addition to the implications for corporate income tax, this may have consequences for wage tax and social security.
When you employ foreign personnel, you also need to consider important aspects of labour law carefully. You might need to bear in mind obligations under foreign labour law, possibly even more so than when you employ a Dutch employee in another country. Our specialised Global Mobility advisors would be happy to explain what you need to consider in such cases. Together with our international network partners of Baker Tilly International, we can advise you on matters such as remuneration, taxation, employment conditions and obligations.
Keen to find out more?
Our Global Mobility specialists can help you identify the relevant points of attention regarding labour law, administrative obligations and tax liabilities surrounding international growth. You can also count on us for the national and international coordination of your HR matters and salary administration.
➔ Whether you temporarily post a single employee to another country or are structurally expanding abroad: we are happy to assist you. Would you like to know more? Please don’t hesitate to contact us!
The legislation and regulations in this area may be subject to change. We recommend that you discuss the potential impact of this with your Baker Tilly advisor.
