When you operate a business, you will likely have to terminate employees, and when you have a remote workforce with employees around the world, it makes it even more important to understand how termination policies work. While there is no requirement for a company to provide notice of future termination, many companies will still provide prior notice of termination — particularly when termination involves more than 100 employees where a 60-day notice is required or when there is a contract or union involved.
In many cases — companies will provide a severance package or Payment in Lieu of Notice to help employees take the next step in their careers. Payment in lieu of notice allows a company to terminate an employee instantly and pay them the wages they would have earned in the period between an advance notice and termination date, and while this is not uncommon, it may require companies to pay close attention to local employment laws when they hire in emerging markets like Central Asia.
Truss provides tech companies with a global hiring platform and employer of record services that will help you find, recruit, hire, and manage remote employees in Central Asia and around the world. We want to help businesses better understand the ins and outs of managing a remote workforce around the world — including how to handle payment in lieu of notice for global employees.
Contact Truss today for more information about hiring remote global employees!
READ MORE: Why Hire Remote Developers with an Employer of Record?
5 Things to Know About Payment in Lieu of Notice for Global Employees
Payment in lieu of notice is a viable option for many tech companies and can be mutually beneficial for the company and the employee. This method allows a company to protect intellectual property and operational integrity, while providing the terminated employee with the financial resources needed to help transition to a new career. When you choose payment in lieu of notice, it is important to understand how it can be impacted by international borders.
Here is a better look at a few things you need to know and consider when you terminate a remote global employee:
1. How to Check Local Labor Laws
Payment in lieu of notice is not legal in every country around the world, making it important for you to know and understand the local labor laws when you build a global workforce. Many countries around the world make statutory notice a legal requirement, while others insist that payment in lieu of notice is mutually agreed upon. With an employer of record like Truss to ensure you are compliant with local labor laws, your company remains protected.
Where Is PILON Legal in the Central Asian Region?
- Kazakhstan: Legal with Mutual Agreement
- Uzbekistan: Legal in Select Cases
- Armenia: Legal in Select Cases
- Georgia: Legal in Select Cases
- Azerbaijan: Not Legal
- Turkmenistan: Legal in Select Cases
- Kyrgyzstan: Legal in Select Cases
- Poland: Not Legal
2. How to Check Employment Contracts
Your employment contracts play an important role in the legality of payment in lieu of notice for U.S.-based tech companies that employ a global workforce. In many countries — payment in lieu of notice must be written into employee contracts for companies to use this method without the employee’s mutual agreement. An employer of record can help tech companies write legal employment contracts that include payment in lieu of notice clauses.
3. How to Calculate the Correct Payment in Lieu of Notice
How much does payment in lieu of notice need to be? Payment in lieu of notice is tied to a notice of termination period no matter where you find and hire talent. This period of time will change based on the country where you hire remote employees and can range from two weeks to two months or more. When tech companies use payment in lieu of notice, it is important they have a complete understanding of the legal requirements that dictate how much you must pay terminated employees.
4. How to Apply the Correct Taxes
Payment in lieu of notice may be subject to specific taxes when you terminate employment — like any standard wages. With this payment subject to income taxes and social security contributions that will vary in the countries around the world, it is important for companies to apply the correct taxes or face legal penalties. Tech companies that partner with an employer of record will have protection against potential penalties, and can rely on an employer of record to ensure PILON taxes are calculated correctly.
5. How to Process the Payment in Lieu of Notice
How employee pay is processed and distributed matters — and that is important to understand when you process payment in lieu of notice. It is best practice to issue payment in lieu of notice as a lump sum that is paid out separate from standard payroll. With this process, it makes tax reporting simpler with itemized termination pay.
What Are the Differences Between Payment in Lieu of Notice and Severance Pay?
Business owners and managers that find themselves needing to terminate an employee may not know the key differences between payment in lieu of notice and severance pay. In general — the primary difference between payment in lieu of notice and severance pay is that PILON pays a terminated employee for a set period outlined in their contract, while severance pay is based on the employee’s years of service as part of a mutual agreement.
Here is a closer look at key differences between payment in lieu of notice and severance pay:
Key Differences: Payment in Lieu of Notice vs. Severance Pay
| Feature | Payment in Lieu of Notice | Severance Pay |
| Purpose | Replaces the required notice period with immediate equivalent pay. | Pays an employee for their length of service upon termination. |
| Employment Status | Employment ends instantly on the day notice is given. | Employment ends on a designated separation date. |
| Legal Basis | Notice clauses defined by employment contracts or local labor laws. | Driven by redundancies, layoffs, company policy, or statutory tenure formulas. |
| Pay Calculation | Based on the salary and benefits owed for the remaining notice period. | Based on a payment formula tied to years of service. |
READ MORE: Avoiding Compliance Fines with Global EOR Services
How Truss Helps Manage Remote Employees
Do you have questions about how to handle payment in lieu of notice for global employees? A qualified employer of record — like Truss — will solve a lot of your problems when it comes to employee management.
Truss provides an end-to-end global employment platform, and as your employer of record will take on the legal responsibilities of hiring, onboarding, managing, and terminating employees. When you hire talented professionals in different parts of the world, you are responsible for following and complying with local labor laws, and an employer of record accepts that responsibility and acts as an added layer of legal protection for your company. Truss, as your employer of record, can help ensure that payment in lieu of notice is included in employment contracts, you pay terminated employees for the correct period, and that payment in lieu of notice is legal in the country where you are employing a remote workforce.
Contact Truss today to learn more about our employer of record services!
