Labor Laws and Human Resource Practices

Abstract:

The researching of labor laws and human resources practices of Germany, Spain, Czech Republic, and Hungary is crucial to any company looking to successfully and profitably expand into these European nations. Each nation provides a different business climate, some more favorable than others. By analyzing labor law, labor unions, benefits packages, and taxes associated with labor, recommendations to ease cross-border differences of nations that hold strategic importance to Fastenal can be made. These recommendations include, creating labor contracts, creating positive relationships with labor unions, engage in alternative dispute resolution, and paying competitive wages. By following these recommendations Fastenal can potentially be more successful and competitive in the European market.

Problem:

Every country has its own set of laws and regulations regarding human resource and labor practices. The objective of this research is to compare and contrast the laws and regulations among the countries: Germany, Spain, Czech Republic, and Hungary; and how these differences can be minimalized to promote the growth of Fastenal throughout Europe. It is important to explore this issue, because these differences in policy can negatively affect the operations of Fastenal if not properly and thoroughly researched. For example, the United States Federal Government has set the minimum wage to $7.25 per hour. In Germany, however, there is no set minimum wage in all labor fields (www.export.gov). It is differences like these that can hurt operations of a company if not researched and understood. Findings from this research can be used to ease cross-border differences among international firms, as well as helping to make Fastenal an even larger and more successful international business.

Review of Literature:

Labor laws and human resource practices in Europe are not created by the European Union, but by each country itself. This leads to differing regulations on business practices throughout Europe. This research will focus on four countries of strategic importance to Fastenal. These countries include: Germany, Spain, Czech Republic, and Hungary.

One of the most economically powerful nations in Europe is Germany. In Germany, the hiring of workers may begin with the drafting of a labor contract. “The terms of the contract can be freely negotiated by both parties subject to existing legislation, collective agreements and bargaining agreements with a potential works council. Every employment contract has to comply with the current legislation and the labour-law based on the jurisdiction of the Federal Labour Court” (UHY Doing Business in Germany 2010). To terminate the employment of an employee, relevant notification must be given, unless severe cause is determined (UHY Doing Business in Germany 2010). Typical workdays in Germany begin at 9 a.m. and end at 5 p.m. with an average workweek consisting of 37.5 hours (German Economy and Business Practices). Additionally, German workers average between 20 and 30 days of vacation time annually (German Economy and Business Practices). “Unions are powerful and large in Germany. Workers are protected by strong labor laws that provide them many different rights. They are much more substantial than in the U.S.” (German Economy and Business Practices) “Social Security and Health Care cost are equally split up between the employee and the employer” (German Economy and Business Practices) The German Social Security program can be divided into 4 sections: pension insurance 19.5%, unemployment insurance 6.5%, health insurance 13.7%, and care insurance 1.7% (General Information About German Social Security, http://www.social-security.de/general.htm). In regards to minimum wage rates, “in Germany there is still no uniform statutory minimum wage, which applies to all employees” (Minimum Wages In Germany, http://www.wageindicator.org/main/minimum-wages/germany). “When compared internationally, wages in Germany are among the highest in the European Union and worldwide. Average industry wages in 2005 were 27.9 EUR (Western Germany) respectively 17.4 EUR (Eastern Germany) per hour. Nonetheless, German labor is known to be productive and skilled (German Economy and Business Practices).

The second country being examined is Spain. Business in Spain is highly regulated in an attempt to protect the rights of workers. Hiring in Spain begins with the creation of a labor contract. In Spain there are two types of contract, indefinite and temporary (Employment Law In Spain, http://www.spanish-living.com/jobs-employment-spain/employment-law). “Written contracts of employment are obligatory and the employment of people without contracts can result in serious consequences for the employer including, in some cases, heavy fines” (UHY Doing Business In Spain 2010). Similar to the United States, the average workweek in Spain is 40 hours. Minimum wages are paid 14 times per year, at a wage rate of € 633.30 per payment. Legal labor unions are relatively new in Spain. “Labor unions were legalized in Spain in 1977 after the death of dictator Francisco Franco…Spain's labor unions consist of three main organizations: Workers' Commissions (CCOO), General Union of Workers (UTG) and the Workers' Trade Unionist Federation (USO)” (List of Labor Unions in Spain, http://www.ehow.com/list_6836960_list-labor-unions-spain.html). In Spain, “the state retirement pension is 50% of the average covered earnings after 15 years’ contributions, increasing to 100% after 35 years’ contributions. Employers contribute 29.9% of covered earnings (up to EUR 38,761.20 a year) for state benefits and employees contribute 6.35%” (Spain: An Overview of Employee Benefits, International Benefits Network). Spanish workers are given 21 days of vacation annually, and sick days are non-existent. If a worker falls ill, he or she must have a doctor sign a “baja”, stating that they are too sick or injured to perform their job functions. Both employee and employer pay into the Spanish Social Security system. Employers pay approximately 31.6% of the employees wage, while the employee pays 6.4% of their wage, with the tax being removed from their paycheck.

The third country researched is the Czech Republic. The hiring process of the Czech Republic begins with either a labor contract or exceptional appointment. Termination of employment is possible through either an agreement in writing, or with notice given to the opposite party at least two months in advance. However, the employer can only dismiss an employee for reasons stated within the nations labor code. (UHY Doing Business In Czech Republic). Czech Republic does have minimum wage laws, with the wage rate set at CZK 48.10/hour (UHY Doing Business In Czech Republic). The largest labor union in the Czech Republic is the Czech-Moravian Confederation of Trade Unions. According to their website, “Czech-Moravian Confederation of Trade Unions is the largest trade union headquarters in the Czech Republic. CMKOS is a voluntary, open and democratic association of 30 independent trade unions, whose mission is to protect the wages, working and living conditions and workers' rights” (http://www.cmkos.cz). Required benefits in the Czech Republic are health insurance and pension insurance. Workers are also given at least four weeks of leave annually (UHY Doing Business In Czech Republic). “Social security payers are employers, i.e. organizations (legal entities or individuals who employ at least one person) and natural persons (individuals), who participate compulsorily (employees) or voluntarily” (UHY Doing Business In Czech Republic). Corporate tax rates have been falling in recent years, with this previous years rate at 19%. Investment and pension taxes are 5%. (UHY Doing Business In Czech Republic).

The final nation being examined is Hungary. To become employed, both employee and employer must enter a work contract stating the salary, job description, and place of work. Termination is permitted with mutual agreement, and ordinary or extraordinary termination (UHY Doing Business In Hungary 2010). The minimum wage in Hungary is set at HUF 305.00 (EUR 1.21) per day (Minimum Wages In Europe). Hungarian workers enjoy many benefits. One example is “tax shelter”. “Tax shelter means that you can reduce your tax, for instance with a determined percentage of the cost of your life insurance. Companies use another type of tax paying avoidance, which is increasing their employees’ income by the means of invisible income such as luncheons vouchers, holiday vouchers, free health insurance and other allowances, instead of offering a higher salary” (UHY Doing Business In Hungary). Workers are also granted a minimum of 20-30 days vacation annually, depending on age. Workers with children or who take care of children are typically given more holiday days. Both employees and employers make social contribution payments in Hungary, however, employers pay a vast amount more. Employers pay a total of 33.5% of benefits into social security. Additionally, “The employer is required to pay a standard health care contribution in sum of HUF 1,950 (which is 65 HUF per day) if the employee’s income exceeded 30% of the minimum gross salary in the previous month.” Employees pay approximately 17% of their paycheck into social contributions (UHY Doing Business In Hungary).

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