Comply with regulations when hiring remote employees in Europe
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As workers have rapidly shifted their workplace from the office to the home, HR departments are facing new challenges as the way and where we work has completely changed. If an employer employs employees who live outside its own jurisdiction, it is also bound by the laws of the country in which its teams are based. In this case, the challenge for HR departments is how to onboard employees in a country where they do not have an office or legal personality. It is important to comply with local labor and social security laws. In this article we will focus on the European Economic Area (EEA). Fortunately, the EEA benefits from unique employment legislation that allows a company registered in Europe to hire employees in any other member state without having to set up a legal entity. This is important for teams spread across Europe.
A company that has legal personality in any EEA member state can employ staff in all 30EEA member states. These are the EU 27+ Iceland, Liechtenstein and Norway. In addition to Switzerland. The ability to reach talent remotely across all 31 Member States will be facilitated. This is significant because it allows a company to maintain the legal relationship between employer and employee, as would be the case if hiring locally.
Find out about local labor, social security and tax laws
If a company decides to hire staff in another country, it must find out about the labor, social security and tax laws there. This makes the role of HR departments very complex. These laws ultimately dictate the ability of the company to hire new workers in that country.
Whether a company decides to outsource the employment relationship, hire them as direct employees or as independent contractors, or form a legal entity, it should research which option makes the most sense.
The complexity of hiring a team spread across multiple countries
To better understand the complexity, let's take a closer look at how hiring employees from different countries can complicate HR departments.
For example, a company incorporated in Ireland has decided to allow remote anywhere deployment in Ireland. In this context, the Irish incorporated company is a registered employer in Ireland and can easily employ remote employees who are also based in Ireland. You would go through an almost identical process as a new hire in an office in terms of paying the relevant charges such as taxes and social security contributions. In addition, some considerations are made regarding data protection and security, home office equipment and insurance.
Using the example of the same Irish company, it is decided to open up the hiring of employees for “Remote inEurope”. Recruitment in the European Economic Area is unique in that there are laws that facilitate employment in several countries. This allows the company to maintain the same working hours across the team while accessing a much larger pool of diverse talent across these 31 countries.
The company decides to make an offer to an applicant residing in Norway. This now raises some questions for the company as it prepares to make the offer.
Assessing the classification of the employment relationship in a remote work environment
The classification of the employment relationship determines the level of security for an employee according to the national law of their country of residence. Employees enjoy protection against unfair dismissal, work-related accidents and benefits such as minimum paid vacation days, sick pay and paid maternity leave. The employment classification was examined in the Uber case to determine whether drivers are actually employees and, as such, entitled to employee benefits and protections. The case went in the driver's favor. This is important for remote teams, where worker misclassification is common.
Misclassifying remote workers is typically a quick fix to get around the fact that companies have no physical presence or legal personality in a country where their team members are based. It's a quick, easy way to get a worker on board so work can begin and they can get paid. In this case, the employee has no protection or benefits, nor does the company have to pay social security contributions or taxes for the employee under this classification. The independent contractor, on the other hand, often has to cover these costs themselves. In some countries, these contributions can be quite high, regardless of what an employee earns. These costs are often claimed when it is determined that a worker has been misclassified as an independent contractor.
Risks associated with misclassification of workers
- Additional payment of social security contributions and taxes in the employee's country of residence
- Criminal sanctions, in some cases prison sentences for the company management(s)
- Civil lawsuit
- Damage to the company's reputation
- Sanctions/fines depending on the severity of non-compliance
When the employment relationship is actually that of an employer and an employee. When a company makes an offer of employment to an employee resident in an EEA country, it may consider the options it has to employ that applicant:
- Employment as a direct employee of the company
- Offering as an independent contractor, subject to the risk (if any) of misclassification depending on the country
- You commission a third party to outsource the hiring process (Employer of Record).
- Establish a legal entity
The EEA is a single borderless region for companies hiring remotely
Technology has completely changed the way and where people work today. However, the legislation was not adapted to this huge change in working practices, which has been compared to the Industrial Revolution. Accelerated by the Covid pandemic, we now have the opportunity to work completely virtually. This creates valuable opportunities for companies to attract the best talent to their team, regardless of where they are geographically based.
When considering how a company can employ workers based outside its territory, risks, costs and the protection of intellectual property must be weighed. The coordination of EU labor law and the protection of workers through social security are designed to take traditional working environments into account. Although some policy changes have been made at the national level, companies and national governments must interpret existing laws to be applicable in a remote work environment. There is no one-size-fits-all solution. Companies will likely use a combination of solutions to balance risks, costs, and business needs.
Companies that have legal personality in an EEA member state benefit from the opportunity to employ employees throughout the region. This not only gives them access to a huge pool of talent, be it technical, linguistic or industry-specific. You also retain full control over the legal employment relationship and the company's intellectual property.
By reducing the complexity and high costs for companies having to comply with legal regulations when hiring employees across Europe, we facilitate legally compliant hiring and fair employment opportunities across the region. This not only improves the accessibility of skills and expertise, but also creates a fairer distribution of quality jobs across rural Europe.
