However, expansion to Europe isn’t as simple as finding an office space and getting started. There are complicated hoops, new employment laws, tricky employment practices and intricate tax laws that differ greatly not just from the US but between countries.
As our recent Startup Guide to Growth podcast guest and Managing Director at Zedra, Kiki Stannard explained: “You are weighing up lots of pros and cons in each country. Some have a harsher employment law environment while others have lower social security costs. It’s difficult because you might find a really good person and some talent in a particular location, but that location doesn’t make the offer particularly commercial for you.”Kiki Stannard explained,“You are weighing up lots of pros and cons in each country. Some have a harsher employment law environment while others have lower social security costs. It’s difficult because you might find a really good person and some talent… Click To Tweet
It’s why Abhishek Lahoti, Head of our International Expansion Center of Excellence sat down with Kiki to unpack the nuances of expanding to different European countries. Here’s what we learned:
Employee benefits differ wildly between countries
Newly expanding startups often assume employment benefits are similar to the US. However, European employment obligations differ widely, even across the continent.
Pensions, for instance, differ widely across Europe. Benefits for startups in the UK include pension contributions which are typically mandatory. Employers are required to contribute at least 3% of salary to pension and the employee pays 5% to the pension.
But just a 45-minute flight away in Ireland, pensions are much different. Everyone must have a pension plan, but it’s not mandatory for employers to contribute. Though, Kiki notes, “we do usually see a matching contribution of about 4 or 5% as part of the overall benefits package.” Moving over to the Netherlands, pensions aren’t mandatory either. Although it is very typical for pensions to be set up and contributions are quite based on age, which is unusual. Although, Kiki says, “there are signs that [Pensions] are going to be changed to a flat rate of about 12% in 2023 with employers paying about two-thirds of that.”
Beware of Europe’s termination terms
Another pitfall that often gets expanding startups into trouble is assuming the rules are the same in as they are in the US. One of the biggest, Kiki explains, is “firing employees using at-will employment doesn’t apply in the UK or much of Europe. It can have some very costly implications, particularly if the employee has a number of years of service with the company, or they are in the protected category. You have to be very careful not to be discriminatory as well.”Firing employees using at-will employment doesn't apply in the UK or much of Europe. It can have some very costly implications, particularly if the employee has a number of years of service with the company, or they are in the protected category. You… Click To Tweet
In the UK, for instance, you are required to give notice when terminating employment – and this notice period differs from either one week to up to 12 weeks, depending on the length of service of the employee.
The unfair dismissal rights, or the rights for the employee to sue their employer from unfair dismissal, are acquired in the UK after two years of service.
But in Ireland, this happens after one year of service. So startups have to be careful of all of these different time limits and deadlines. “A big mistake is just being caught out by this one year for unfair dismissal claims, as opposed to two years in the UK. It just changes the process for managing employee performance and dismissal. And I think that you have to just be mindful of that and careful about how long new employees have been working with you, just in case their performance isn’t quite there. You might need to make a few decisions in Ireland a bit earlier than you might have otherwise have done if they’d been in the UK or Europe,” says Kiki.
And it’s much different in the Netherlands. Startups have to engage in termination conversations with employees, but they can’t do that until they’ve filed some very necessary paperwork with the authorities first. So there’s a specific process to follow if you want to terminate somebody. But there are complications with this process, as Kiki explains, “because of this facility to be on 70% pay for two years of sick leave, it’s not unusual for employees who are getting wind of a potential termination to go off sick for an extended period. So it can obviously cost the company quite a bit, particularly if they don’t have the insurance coverage… We have seen it happen, and employees know their rights. So it can be a little bit difficult to manage. You have to be very careful about how you go about any of those termination conversations.”
France approaches employee termination in an entirely different way. The grounds for termination have to be explained, and employees can challenge the termination. So it’s more common that the employee would take a company to court, although damages can be capped depending on the length of service. But the employee can claim more than one damage, so it’s very difficult to terminate somebody in France unless they’re still in their probation period.
Go deeper on european expansion
These are just some of the many employment challenges for startups expanding to Europe. Listen to Kiki and Abhishek’s full conversation about the pitfalls of European expansion on the Startup Guide to Growth podcast to hear more.
And if you’re planning an expansion soon, heed Kiki’s parting words: “Take advice, don’t assume that you know, don’t Google it because that’s not always the right answer either. Understand what you’re getting yourself into, and give yourself plenty of time to plan. You don’t want to be doing anything quickly without having a chance to consider all of the options and possibilities.”
Take advice, don't assume that you know, don't Google it because that's not always the right answer either. Understand what you're getting yourself into, and give yourself plenty of time to plan. You don't want to be doing anything quickly without… Click To Tweet
For more tactical insights into expanding into Europe, check out our European Expansion Playbook.
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