Every year there are changes to EU labor laws and 2018 is no exception. For an overview and insight into key changes that will impact companies who employ EU citizens, we spent some time with industry experts Ragu Bhargava, Co-Founder and CEO of Global Upside, and Gita Bhargava, Co-Founder and COO of Mihi. Both Global Upside and Mihi make it their business to be on top of labor laws around the world to help their customers maintain compliance, keep employees happy, and manage their costs.
Here are some of the most noteworthy changes and proposed changes to stay on top of in HR and labor law, that we’d like to share.
Some of the breakout trends you’ll see across several EU countries include pay equality, data privacy, GDPR rights and regulations, and plans to make the business environment more attractive to startups and foreign investment via friendlier labor laws.
One of the most significant changes happening in the EU is that pay equality is moving from the ‘morally right’ thing to do, to a legislated right. Companies will need objective evidence that they are providing those of different genders, yet in the same job, equitable pay. Human Resources will play an important role as they evaluate jobs, classes, and titles – and may even find themselves presenting to boards.
Another significant change to keep close track of is the EU’s General Data Privacy Regulation (GDPR), which will have sweeping implications when going into effect on 25 May 2018. There are also yearly changes in taxes that affect global payroll, so it’s important to understand which of those will affect your employees.
We will touch on these in more detail as we go through Germany, France, and the UK in the first part of this two-part series. We have also sorted other specifics by country. In our second blog, we’ll discuss noteworthy changes for Spain, Italy, the Netherlands, and Ireland.
GERMANY
Germany is the largest economy in the EU. Listed here are some of the changes, both actual and proposed, that we discussed related to labor and employment law.
Proposed Changes to Fixed-Term and Part-Time Employment Contracts
A key element of these changes is reform in fixed-term and part-time employment, affecting companies with more than 45 employees. The changes address when a company is required to offer part-time employment and what the limitations are for both employees and companies. It also proposes to reduce contributions to unemployment insurance by 0.3% and equalize employer and employee health insurance contributions. These announced changes represent a significant reduction in flexibility for employers in Germany regarding new hires.
Agreement on Changes to Fixed-Term Contracts
With a fixed-term contract, you are hiring someone to work for you for a limited period, as opposed to hiring them indefinitely. In an agreement regarding fixed-term contracts on 7 February 2018, the maximum allowed duration for fixed-term contracts has been lowered from 24 to 18 months. The previous ability to extend contracts three times has now been reduced to just once in 18 months. In addition, employers with 75 employees or more will be allowed a maximum of 2.5% of their workforce for non-material fixed-term contracts.
According to Ragu, you should hire fixed-term contractors if you have a project believed to last 36 months or less. The benefit of this is not having to pay severance and additional costs associated with hiring a permanent employee. However, if you plan on keeping them around longer than 36 months, you should hire them as a permanent employee.
Strict Labor Laws Changing for High Earners
Germany is seeking to reform its stringent labor laws for top earners across all industries. The objective is to streamline the existing time-consuming and expensive settlements regarding the early termination of senior staff. The current process can potentially lead to costly court cases that last over 6 months. This approach will face strong opposition from Germany’s powerful trade unions, who fear that this change will trickle down to regular workers.
Ragu believes this change will happen soon, though the details have not yet been finalized.
Equal Pay: Access to Information to Ensure Equal Pay for Equal Work
As stated earlier, Germany is one of the countries driving changes around equal pay for equal work.
Effective 6 January 2018, companies with at least 200 employees must respond to requests for pay information on 1) how much other employees are paid and 2) the business criteria used to determine those pay rates. in addition to the size of the company, there are, of course, certain restrictions: employees can request the information only every 2 years and access to the information is only required for employees who work in the same or comparable area of service and who are of the opposite sex.
Social Security Income Thresholds Raised
As of 1 January 2018, the income thresholds for social security contributions increased. The threshold for Health Insurance went from an annual salary of EUR 52,200 to EUR 53,100. The annual salary threshold for pension and unemployment insurance went from EUR 76,200 to EUR 78,000.
Disability Representation
To ensure that employees with disabilities are suitably integrated into the workplace, employers with at least 5 disabled employees must elect a representative body for those employees. Beginning 1 January 2018, employers must consult with this representative body before they can dismiss a disabled employee.
Ragu notes the importance of conducting a full analysis and presenting a case for why you are letting a disabled employee go.
Maternity Protection and Economic Dependence
Effective 1 January 2018, amendments to the Maternity Protection Act became effective. The changes introduce protection for consultants and other self-employed persons if they are economically dependent on the employer. Also included in the amendments is the requirement to conduct regular risk assessments for all individual roles to prevent health and safety risks from affecting pregnant or breastfeeding employees. If a risk is detected, the employer must introduce protective measures. These measures could include making changes to the role itself.
Ragu states, in Germany, maternity is seen more broadly – the breastfeeding cycle is also part of the maternity cycle. If you have an economically dependent employee who is pregnant or has become a mother, protective measures extend beyond what you would give to non-economically dependent employees. This is less about pay and compensation and more about benefits and accommodations at work. In Germany, you are required to give more accommodations.
Works Councils
Effective 1 March 2018, regular works council elections must take place every 4 years (which is a shorter term than the US). This is to ensure the election of new members in hopes of bringing in new blood by requiring re-election rather than allowing members to sit on the council for a long time.
EU Data Protection
The General Data Protection Regulation (GDPR) takes effect on 25 May 2018, as does the new German Federal Data Protection Act. The German Act, known as Bundesdatenschutzgesetz, implements the regulations in national law. Employers operating in Germany must comply with the Regulation Standards when processing employee personal data. This also includes all vendors that are processing employee data for any reason.
FRANCE
Overhaul of Labor Laws to Provide more Flexibility to Companies
France is the second-largest economy in the EU. As a country, France has been working very hard to make itself more business-friendly and therefore more attractive to companies considering a move. For a long time, it has had an unfavorable reputation from the employer perspective. Some of the laws are becoming more employer-friendly and are moving away from focusing solely on the employee. Along those lines, here are some of the changes that are taking place.
France has overhauled its labor law to provide more flexibility to companies. Now, companies can negotiate job cuts and organizational restructuring directly with labor representatives within the business, rather than through stringent industrywide collective bargaining agreements.
According to Gita, because of these changes, France is becoming one of the main EU countries that companies are moving into, including startups. Previous fears regarding labor unions and laid off workers are now being reduced, though there are still requirements. For instance, France has one of the longest pay statements due to its various taxes. They also have a different vacation calendar and an employer must maintain that employees have asked for vacation and that the company hasn’t denied them. There are two separate calendars for statutory leave, in addition to the company’s calendar. Mihi helps with leave management, streamlining the process, helping companies be aware, and sending vacation information directly to payroll.
Until last year, says Gita, employers were required to mail pay statements to people’s homes; now statements are available electronically. Simple changes like this make it easier for companies and employees, alike.
One of the points of concern is these changes will enable companies to dismiss highly paid employees with seniority, and recruit disposable workers in their place, leaving workers more vulnerable.
While the new laws have led some companies to announce downsizing plans, they have also spiked investor interest. For example, Amazon has announced it will open a new distribution center with 1,000 jobs, Facebook and Google are planning to invest in artificial intelligence development, and Toyota has announced that it will invest €300 million, (or $367 million) through 2020.
Increased Scope of Collective Agreements
Global Upside shares knowledge of what employers can negotiate on with the new law changes:
- The company level regarding work hours, bonuses, and salary
- The branch level regarding employment length, renewal, and the waiting period between fixed-term contracts
Damages Awarded for Unfair Dismissal Have Been Reduced
Employee dismissals have become easier in France. This is intended to make it easier for the company to focus on getting work done and keeping employees happy. Companies can also now negotiate directly with the bargaining unit for working hours, bonuses, and salaries. Also, negotiations can be made down to the branch level; it’s more flexible.
Damages awarded by courts for unfair dismissal have been reduced and capped. There is now a minimum and maximum range of indemnities that is based on an employee’s seniority. For example, in case of unfair dismissal of employees with more than 2 years seniority, the minimum indemnity has been reduced to 3 months’ salary from the previous 6 months’ salary.
The legal severance pay will be increased to one fourth month’s salary per year of seniority. In addition, the time limit to challenge a dismissal before labor courts is now reduced from 2 years to 1 year.
Upcoming Reform of Welfare System to Bring ‘Flexicurity’ System
This reform regards apprenticeship schemes and unemployment benefits in France. The government aims to introduce training programs according to employment needs. A survey by Eurostat shows that youth unemployment in France was 21.8% in November 2017, whereas the EU average was 16.2%. The government is hoping to pass the unemployment benefit reform in the 3rd quarter of 2018. They are also working toward a training system for their workforce.
UNITED KINGDOM
The UK is the third largest economy in the EU. Most changes in employment law go into effect in April 2018 as that is the beginning of their fiscal year.
Ragu states that the UK has the most number of cameras in the world, so pretty much everything is recorded on every street corner: every train, every metro, etc. Monitoring employees was legal, but the courts have now said that a company can only monitor in exceptional circumstances, must limit the number of people being monitored, and must limit the length of time they are monitored; companies will also be required to make an argument for why employees are being monitored.
The Right to Protection for Employees
Last year, the UK Prime Minister asked independent advisor Matthew Taylor to conduct research into proposed modern working practices and make recommendations for change. The resulting report is called the ‘Taylor Review’. Out of the 53 recommendations, almost all are being implemented. Based on the Taylor Review in 2017, the UK government plans to make major reforms aimed at increasing the rights and protection of employees, including those who are part of the gig economy. They are calling this the ‘Good Work Plan’ and it sets out a series of major government reforms with the objective of improving the rights and protections of workers, including those more vulnerable.
Key measures include:
- Enforcing for the first time, vulnerable workers’ holiday and sick pay
- List of day-one rights including holiday and sick pay entitlements
- Right for all workers to get a pay slip, including casual and zero-hour employees with a clear understanding of what they are getting paid and what taxes, etc. are taken
- The right for all workers, not just zero-hour and agency workers, to request a more stable contract
Also, the following key proposals in the plan will impact temporary and contractual workers:
- Providing the population of 1.2 million agency workers with a clear breakdown of who will pay them, and any costs or charges deducted from their wages
- Considering repealing laws allowing agencies to employ workers on cheaper rates
Work Hours and Rest Time
Under the Working Time Regulations, a rest break for 20 minutes is required for workers. If the duration of the rest time is below 20 minutes, employers are to be held for breaching Working Time Regulations. Adding up smaller breaks that total 20 minutes or more is not considered a substitute for 20-minute breaks.
These rules are not well enforced in the US, except in places such as factories. In the UK, however, there are monetary penalties for non-compliance for 2 breaks per day plus your lunch break. It is enforced across everyone, not just factory workers.
Covert Monitoring of Employees
Most importantly, covert monitoring of employees (meaning that they do not know nor do they have reason to suspect that they are being monitored) should be considered only in the rarest of circumstances. The Information Commissioner’s Office in the UK, in section 3.4 of its Data Protection, The Employment Practices Code, warns employers that covert monitoring of employees should only be under exceptional circumstances. In the case of covert monitoring, authorization of the senior management is required. Moreover, the monitoring should be for the shortest possible time, be with good reason to suspect criminal activity or similar malpractice and affect as few employees as possible.
Disability Discrimination
Terminating a disabled employee in the UK for exceeding the threshold of an employer’s sickness absence policy could be indirect discrimination. Employers need to ensure that terminations are justified and that they have tried reasonable adjustments. There is a need to have justification and proof that a reasonable effort was made to accommodate before the termination of an employee.
National Minimum Wage and National Living Wage (Increase from 2017 to 2018)
There have been increases in the hourly rates of pay for both the National Minimum Wage and National Living Wage. Details are in the table below.
These and future changes for wages will take place in April of each year. The changes take effect for everyone at the same time. For example, if someone is on maternity leave at the time of change their pay will go up while they are on leave.
Fit for Work Service Changes (Effective December 2017 in England and March 2018 in Wales and Scotland)
Fit for Work was set up as an assessments service, providing occupational health assessments for employees at risk of long-term sickness absence.
In England and Wales, the service stopped accepting new referrals in December 2017, but will continue to deal with ongoing referrals until 31 March 2018. In Scotland, the service is due to end on 31 May 2018. They will stop accepting new referrals on 1 March 2018.
In all locations, the Fit for Work AdviceLine will continue to provide telephone, webchat, email service and online resources related to general health and work advice, as well as support on sickness absence.
Childcare Voucher Scheme (Effective April 2018)
Childcare voucher salary-sacrifice schemes will close to new entrants from 6 April 2018, but will continue for existing users. The new tax-free childcare scheme does not involve employers – individuals apply themselves. Employees don’t have to depend on the employer to sign up for tax-free voucher benefits.
GDPR for the UK
As it relates to employers, the General Data Privacy Regulation (GDPR) applies to any company with employees who are EU citizens. Many people think of GDPR in terms of customer private data, but remember that it also applies to the personal data of employees, so it affects not only companies with UK employees, but also, in any EU country. There are clear and potentially significant financial impacts to companies that do not comply with GDPR.
The UK Information Commissioner’s Office has published the Overview Of The General Data Protection Regulation (GDPR). Highlights related to employment include:
- The Article 29 Working Party has published guidelines on imposing administrative fines
- The Article 29 Working Party has published the following guidance:
- Breach notification
- Automated individual decision-making profiling
- In the key areas to consider we have updated the next steps regarding the ICO’s consent guidance and the Article 29 Working Party’s Europe-wide consent guidelines
- The Article 29 Working Party’s consultation on their guidelines on high risk processing and data protection impact assessments closed on 23 May. We await the adoption of the final version.
- Article 29 have published the following guidance, which is now included in our overview:
- Data portability
- Lead supervisory authorities
- Data Protection Officers
About Our Experts
Ragu Bhargava is the Co-Founder and CEO of Global Upside. His mantra is “impossible is not in my vocabulary” and he has helped Global Upside’s clients successfully navigate some of trickiest business environments. Global Upside is a leader in helping companies transform their finance, accounting, and human resources functions in over 100 countries.
Gita Bhargava is the Co-Founder and COO of Mihi . With a 20-year track record of operational excellence and innovative problem solving, she led the vision and development of Mihi’s global human capital management software which automates attendance/ leave management and benefits administration globally, so companies stay compliant in 100+ countries. Under her leadership, Mihi is rapidly expanding into new companies, languages and countries worldwide.
Global Upside and Mihi care about employment law changes. They are a trusted service provider to their clients, who lean on them to stay out of trouble. Because they know when laws change, they can help their clients stay out of trouble. Also, since they are an advisor, they can help companies with the practical application of the changing laws. When clients call, they can understand the question, the situation, and the ultimate answer. They also proactively alert companies to upcoming law changes, such as changes to the minimum wage.
For more updates on EU Labor Law’s, stay tuned for Part 2 of this blog series.
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