Guide

A Guide to Hiring Employees Internationally

Key Takeaway

Employment law varies dramatically by country, OECD EPL scores provide a reliable signal for compliance risk, and understanding the key variables before you hire can prevent costly surprises later.

Why Employment Law Differs by Country

When a company hires its first employee in a new country, it encounters a legal environment shaped by decades, sometimes centuries, of local labour law development. Employment regulations reflect each country's political history, the strength of its union movement, the structure of its courts, and the prevailing social consensus on the balance between worker security and employer flexibility.

Common law countries like the United States, United Kingdom, and Australia developed employment law through court decisions as much as legislation, producing relatively flexible dismissal frameworks. Civil law countries, particularly in continental Europe, codified worker protections in statute, creating a denser web of rules that change only when parliaments act. The result is that moving from a US-centric employment model to a market like Germany, France, or Portugal requires a fundamental shift in how you think about the employment relationship.

What OECD EPL Scores Signal for Employers

The OECD Employment Protection Legislation (EPL) database scores 72 countries on a 0–6 scale (one of three sources behind PlainEmploy's 145-country coverage, alongside ILO EPLex and World Bank B-READY), where higher scores indicate stronger legal protections for workers. For employers expanding internationally, the overall EPL score and its component pillars provide several actionable signals:

  • High overall score (above 2.5): Expect mandatory notice periods measured in months, not weeks. Severance pay will be a significant cost at termination. Dismissal will require documented justification, and unfair dismissal claims carry real reinstatement or compensation risk.
  • High regular employment score: Permanent employees are well-protected. This increases the value of probationary periods, use them fully, as firing an employee before probation ends is typically much simpler than after.
  • High temporary employment score: Fixed-term contracts are tightly regulated. You may face restrictions on how many times you can renew them and how long temporary arrangements can last before conversion to permanent employment is required.
  • High collective dismissals score: If you plan significant operations in a country, understand what headcount threshold triggers collective dismissal procedures. These add mandatory consultation periods and government notification requirements on top of individual notice obligations.

High-Protection vs Low-Protection Markets

Looking at the OECD EPL data, a clear divide emerges:

Low-protection markets (overall EPL below 1.0) include the United States (0.09 on regular employment), Canada, and New Zealand. These markets offer employers maximum flexibility, at-will or near-at-will employment in some jurisdictions, short notice requirements, and limited severance obligations. Hiring is easier to reverse, but worker expectations and voluntary turnover patterns may be different from higher-protection markets.

High-protection markets (overall EPL above 2.5) include many European economies. Portugal, Luxembourg, and the Czech Republic consistently score above 3.0 on overall EPL. Germany, France, and the Netherlands sit in the 2.5–3.0 range. In these markets, the employment relationship is more legally binding in both directions, workers can expect job security, and employers must plan for the financial and procedural costs of any workforce change.

Middle-ground markets exist across Asia-Pacific, Latin America, and Eastern Europe. Japan, South Korea, and Chile have moderate overall EPL scores, but the specific structure of protections varies significantly, what drives the score matters as much as its level.

Key Variables to Assess Before Hiring

Notice Periods

Notice periods define how far in advance an employer (or employee) must give notice of termination. In many countries, notice periods scale with tenure, a worker with 20 years at a company may be entitled to four or more months of notice, while a new hire might require only a few weeks. The OECD measures notice periods at three tenure points: 9 months, 4 years, and 20 years of continuous service.

Practically, notice periods mean you cannot instantly restructure. If eliminating a role requires 3 months of notice, that role remains on payroll for 3 months after the decision. Budget accordingly.

Severance Pay

Severance pay is compensation paid to workers at termination, separate from any wages owed for the notice period. Some countries mandate statutory severance on top of notice pay; others only require payment in lieu of notice. The OECD EPL database tracks statutory severance at the same three tenure levels as notice periods.

Dismissal Difficulty

Beyond notice and severance, the OECD captures how difficult it is to dismiss an employee at all. This includes whether valid grounds are required (just cause, economic necessity, or both), what procedural steps must be followed before giving notice, and what remedies are available to workers if a court finds the dismissal unfair, ranging from compensation to reinstatement.

Probationary Periods

The OECD also measures the maximum statutory probationary period. Probation is typically the most employer-friendly period in the employment relationship, termination during probation involves fewer protections. Knowing the maximum probationary period in your target market tells you how long you have to evaluate a hire before full employment protections apply.

Compliance Approaches: EOR and PEO Models

For employers testing a new market with a small headcount, two models, Employer of Record (EOR) and Professional Employer Organization (PEO) - offer a way to hire locally without establishing a legal entity.

An Employer of Record becomes the legal employer of your workers in the target country. The EOR handles payroll processing, tax withholding, statutory benefits, and compliance with local employment law. Your company directs the work. This is useful for one to a few hires in countries where the overhead of incorporation is not justified.

A Professional Employer Organization enters a co-employment arrangement with your company and its existing employees in the target country. PEOs are more common in markets like the US where there is an existing employee base to co-employ.

Both models transfer compliance risk to a specialist provider, but they come with ongoing per-employee fees and are not substitutes for local entity structures once operations reach significant scale. Neither model changes the underlying employment law that applies to the worker, the EPL scores still determine notice periods and severance obligations, whether the employer of record or your company directly bears those costs.

Germany High-protection market, view EPL scores United States Low-protection benchmark, view EPL scores Full Country Rankings Compare all 145 countries across 7 metrics

Frequently Asked Questions

Why does employment law differ so much by country?

Each country's employment law reflects its own political history, union movement strength, judicial system, and social contract. Common law countries like the US and Australia developed relatively employer-friendly dismissal frameworks, while civil law countries, particularly in continental Europe, codified worker protections in statute. These foundational differences compound over decades, producing the wide variation captured in the OECD EPL scores.

What is an Employer of Record and when should I use one?

An Employer of Record (EOR) is a third-party company that legally employs workers on behalf of a foreign business. The EOR handles payroll, benefits, and legal compliance in the worker's home country, while the hiring company directs the work. EORs are useful when you need to hire one or a few employees in a country where you do not have a legal entity and do not want to set one up for a small headcount. They are not appropriate as a permanent solution for large teams.

Which OECD EPL score best predicts the cost of exiting a market?

The Regular Employment pillar (Pillar 1) is the most relevant indicator for estimating exit costs. It captures notice periods and severance pay at multiple tenure levels. The Collective Dismissals pillar (Pillar 3) also matters if you plan to hire enough staff that a future reduction could trigger collective dismissal rules, which add procedural requirements and delays beyond individual notice.

Do EPL scores apply to independent contractors?

No. EPL scores measure protections for employees, workers classified as employed under local law. Independent contractors and freelancers are generally not covered by employment protection legislation. However, many countries have strict rules about worker misclassification. A worker treated as a contractor but who works exclusively for one company, follows set hours, and uses company equipment may be reclassified as an employee by labour authorities, triggering retroactive obligations.

Is a high EPL score a reason to avoid hiring in a country?

Not necessarily. High EPL scores reflect employee protections that are normal and accepted business costs in those markets. German and French companies routinely hire and manage large workforces within those frameworks. What EPL scores help with is planning: budgeting for notice periods and severance, structuring contracts appropriately, and understanding the timeline and process if a role needs to be eliminated.

PlainEmploy is rendered directly from the OECD Employment Protection Legislation indicators, the ILO EPLex database, and the World Bank B-READY labor pillar, no number is typed in by an editor. See our editorial standards & corrections policy, the methodology behind these numbers, or report a data error. Data current as of 2026-07-06.