Tread rigorously: International pay and employee advantages traps for the unwary

This briefing highlights a number of international legal issues related to employee pay and benefits that can lead to potentially severe penalties. Each of these issues are worth reviewing now to avoid future consequences.

01. International – worldwide mobile employees

The tax treatment of globally mobile employees has always been complicated, and companies have had to keep track of employee location at the time of granting, vesting and exercising employee awards. The COVID-19 pandemic has created particular problems by moving employees to unusual locations or for an unusual, possibly unexpected, length of time. This can lead to tax burdens in countries where the company is unfamiliar with tax withholding or reporting requirements, and it can also lead to violations of unknown local laws such as exchange controls or securities laws or privacy laws. Violating securities laws can lead to unintentional crime and violating privacy laws can result in very heavy fines associated with global revenue.

In the new era of remote working, companies offering incentive programs need to know exactly where their employees work and consider the implications for incentive agreements when employees work in multiple jurisdictions, whether on purpose or as a result of unexpected circumstances.

02. Europe – Visa for business travel

As the pandemic subsides, employees will slowly begin to resume international work trips. After the UK left the European Union (EU) in 2020, many employers have not given much thought to whether it is UK workers who have to work in the EU or EU workers who work in the UK (be it occasional business trips in multiple jurisdictions). need work visas. Some of these trips are business visits and others may be work under local laws that require a local work visa. Penalties for illegal work vary by jurisdiction and range from criminal penalties to fines. Penalties can also include business closures and penalties that affect the local unit’s ability to sponsor individuals for work permits.

03. Great Britain – Crimes under the Data Protection Act 2018

The 2018 Data Protection Act provides for a number of criminal offenses that can be committed by companies, managers and employees. For example, it is a criminal offense to unlawfully obtain, disclose or store personal data. If due care and attention are not given to UK data protection laws, a company or individual could repeatedly breach this provision without realizing that “reckless” processing is sufficient to cause a breach. All violations according to the Data Protection Act 2018 are currently punishable by a (possibly very heavy) fine. The maximum corporate fine is $ 25 million, or 4% of annual global sales, whichever is greater. Directors can also be personally held responsible for violations, and international data usage poses some particular problems.

04. Germany – “crowdworking”

An “evergreen” topic in German labor law is the incorrect classification of employees as freelancers or consultants. Freelancers do not enjoy employee protection rights, are not subject to wage tax and social security obligations. The correct classification depends on the “integration” of the individual in the employer’s workplace and is fact-based. Failure to pay social security contributions can be a criminal offense that can result in fines or up to five years in prison. This classic topic has been given a modern twist in the form of “crowdworkers”, often students who use an online platform to take on small “jobs” at will. If they were treated as freelancers in the past, the Federal Labor Court recently confirmed that crowdworkers can be classified as employees and are therefore subject to social security contributions. Non-compliant crowdworking could place significant liabilities on directors and companies.

Similar problems have arisen in the UK and other countries, particularly with app-based delivery drivers and taxi drivers.

05. Europe – European works councils

A European Works Council (EWC) involves the consultation of a forum of employee representatives from all member states of the European Union on job changes with cross-border effects. Whether the obligations can be triggered depends on the number of employees within Europe and individual member states. Therefore, not knowing where your employees are can lead to trouble. Enforcement varies by jurisdiction (in some jurisdictions an EWC may enforce consultation obligations through an injunction) but in England and Wales failure to do so can result in fines and industrial relations consequences.

06. Hong Kong – Compulsory Retirement Fund Obligations

Hong Kong employers are required to register their employees between the ages of 18 and 64 within the first 60 days of their employment with a mandatory pension fund and make mandatory contributions, unless the employee falls under one of the limited exemptions. Failure to comply with legal requirements can criminalize the employer, its officers and / or managers with a maximum fine of $ 45,000 and a three-year prison term. Employers convicted of related crimes are published by name on the website of the Compulsory Pension Fund Authority.

07. UK – Criminal penalties for breaches of pensions

The Pension Act 2021 introduces new criminal offenses in connection with defined benefit pension plans. The offenses apply not only to trustees and sponsors of defined benefit plans, but also potentially to directors, lenders, investors or professional advisers. The sanctions include unlimited fines and up to seven years’ imprisonment. Some of the new offenses are very broad and could potentially involve mergers and acquisitions, dividends, lending and reorganizations.

The government has stated that the new law is not intended to hinder normal business activity, but it remains to be seen how this will play out in practice. The new regulation is to come into force in autumn 2021. Further information can be found in our guide to the Pension Act 2021.

08. Russia – salary payment and social security

In Russia, the employer’s general manager, branch / representative office / other subdivision manager is criminally liable for non-payment of salary and social security contributions. This includes partial non-payment of salary and benefits for more than three months and non-payment of a large amount ($ 200,000 and up) of social security contributions, including contributions to fund state pensions. Penalties range from a $ 1,200 fine to three years in jail to a three-year ban from the profession.

09. Netherlands – sectoral pension funds

80% of Dutch workers are covered by sectoral pension funds. There are many of them for different industries and almost all of them have a legal obligation to participate. If a company falls within the scope of the sector, it must participate. If the company fails to register and the Fund finds this, the company may be forced to participate subsequently. The delay can be up to twenty years, which can mean very large sums of money.

10. Germany – Works Council Remuneration and Treatment

In Germany works councils are elected employee representatives. Works councils represent the interests of the employees by “running” the company. This task is an honorary position for which the works council members must be released from their professional activity without wage cuts or other disadvantages. This not only covers the times of layoff, but also guarantees them the same salary increases and advancement opportunities as comparable employees. Correct treatment of the remuneration and professional development of works council members is fraught with difficulties. Discrimination, favoritism and any attempt to hinder or disrupt the function of the works council is punishable by a fine or imprisonment for up to one year.