Help Wanted: How to Hire in Europe
This is an article I wrote that CFO Magazine published in September 2011.
Enjoy! A software company in New Hampshire is in the process of expanding farther into Europe. It has decided to start hiring in Germany – primarily sales and support staff – and is considering hiring for similar roles in the Netherlands and the United Kingdom. While the company can use many of the search strategies it uses in the United States, including networking, social media, and recruiters, there are facets of hiring in Europe that will be different – sometimes very different – from standard U.S. practices.
Two items in particular often trip up U.S. executives. One is the slow timing of new hires. When you find those right people, they won’t be able to start in two weeks. Instead, they will likely need to follow termination processes with their current employer, a process that can range from one to nine months. The other potentially difficult issue is the common use of employment contracts in Europe, even for nonexecutive roles. We look at this issue in more depth below.
Making a List, Checking It Twice
The employment contract is a required document in Europe, and an important one. Getting your head around the regulations, plus the existing cultural expectations, that need to be incorporated into such a contract can be a daunting task. However, doing a little due diligence will make it much easier. Here are a number of items to consider.
1. Language. In most European countries, contracts written in the local language prevail in court, so it is common to draft the contract in both the local language and in English. (They can be on the same document or in two separate ones.) In general, the English version will be used as the working document, with the translated version being drafted once the key terms are agreed upon.
2. Job description and title. In some European countries, candidates find their job description and title to be very important. Having a comprehensive job description and related title as part of the profile you use to advertise the job will keep discussions to a minimum at this point of the process.
3. Compensation. Getting the balance of salary and commissions right can be tricky, since European salespeople will generally expect to have more guaranteed compensation than U.S. salespeople. Depending on the benefits you offer, the salary-to-commission mix can be vastly different than what is offered in the United States, especially for seasoned sales reps. Benefits packages are also likely to look very different from those in the United States. The basic law covers items such as paying 50% of health-care coverage and providing basic pensions. However, what companies offer or what cultural expectations are can be quite different. Large multinational German companies offer additional benefits, such as richer pension plans, that can equal up to 16% of annual salary, as well as employee stock-purchase plans with large discounts. Salespeople in Germany will also likely expect a company car or, at a minimum, a car allowance. Subsidized meals and travel allowances are also common expectations. All of these items are likely to be included in the contract. Once you agree on the right package, there are two other important subjects to address in writing: commissions and stock awards. Crafting the commission section of the contract correctly will save you a lot of aggravation and money. Be sure to be clear on how commission is earned, how it is calculated, and if there are any guarantees. In addition, if you say in the contract that you will provide a plan each year by a certain date, ensure that you do so. In certain countries, if you don’t and you find that you need to terminate the employee, some courts will consider the entire annual amount due. As for stock awards, be sure you understand the local tax rules before granting them to your employees. If not, they could have a substantially negative impact on your employees’ tax liability, as some countries tax upon grant.
4. Length of employment. European countries differ on this topic, but basically there are two common types of contracts: fixed term and open-end term. The most common contract term is open-end, with no fixed time frame, though there are circumstances where fixed-term contracts are accepted. When using fixed-term contracts with the expectation of bringing the person on board full time, keep in mind that some European countries limit the term and also the number of times one can renew a fixed-term contract, if at all. This is to avoid companies using this method of hiring to get around termination laws. It is also common in Europe to have a trial period or probation period, since terminating people can be a lengthy and difficult process. Each country has its own legal and cultural norm, so take full advantage of it. You may need it!
5. Vacation. European vacations are generally regulated. In France the legal minimum is five weeks (25 days) plus 11 days for employees choosing to work more than 39 hours per week instead of the regular 35 hour workweek. In a lot of countries, the minimum is 20 days, though cultural norms may dictate more. In Germany, for example, employees working a regular 40 hour-per-week job are offered 25 days or more, even though the legal minimum is 20.
6. Non-compete agreements. Keep in mind that in many European countries, you as the employer will be required to pay the employee his or her average earned income for the duration of the non-compete period.
Eventually, you will get a dual-language contract signed, sealed, and delivered. But what about how to fire that employee, if need be? This is a subject that frightens most executives who have employees abroad. Each European country has its own regulations and processes, and each culture has its own norms and expectations when it comes to terminating an employee. Countries such as the Netherlands, Germany, and France in most cases require the employer to give the employee warnings and a plan for improvement, and then reevaluate the employee after a three-month period. In certain cases, this can take nine months. Having this understanding before presenting a compensation package to a candidate will help with your budgeting process and potentially save you a lot of aggravation. In summary, hiring in Europe requires a fair amount of preparation, and it is advisable not to go in blind. With a little research, you will enjoy a smoother and more stress-free hiring process.