How the EU scores on harmonisation


The harmonisation of employee benefits across borders may sound straightforward in theory but, in practice, it is an enormous challenge fraught with legislative, fiscal and cultural hurdles.

Yet more organisations are trying to develop a standard employee benefits strategy internationally, across regions or the globe. Robin Chater, secretary-general of The Federation of European Employers (FedEE), says: “There has been a gradual increase in the numbers of employers that are attempting to do this.”

FedEE, founded in 1989, provides a practical HR resource for organisations operating within Europe. However, many of its members have head offices outside Europe, including in America and Japan. “A lot of employers see Europe as being an extension of the US where it is relatively simple to put in place a harmonised system. They see European Union (EU) directives as encouraging harmonisation, which of course they do, but only to a certain extent.”

While EU directives set in place minimum terms of employment and working conditions, there is scope for variation by individual countries.

“It’s actually very difficult to have a pan-European benefits policy because the laws aren’t that harmonised across Europe and most organisations aren’t just operating in the European Union,” explains Chater.

For example, Russia and Turkey are both located within Europe but do not belong to the EU. Furthermore, many HR and benefits practitioners have EMEA responsibilities that extend beyond Europe, to include the Middle East and Africa, increasing the scope for legislative and cultural differences between countries. “The tax situation is also a different driving force and tax is always changing so your best-laid plans [could] be ruined every year,” says Chater.

If organisations are set on pursuing a harmonisation strategy, then he says they may end up having to “gold plate” packages by increasing entitlement where necessary to bring benefits in to line across the region concerned. Alternatively, employers could opt for broad organisational policies, but these run the risk of becoming meaningless if they are too general. Rather than looking at a whole set of benefits, an easier option would be to focus on individual perks, such as company cars, says Chater. He explains that status cars can be allocated according to job levels that have been properly evaluated, and usage cars according to the mileage required to be covered for business purposes. But even where the structure can be consistent difficulties can still arise if the make and model of car are prescribed contrary to local market preferences.

However, HR practitioners may find in the future that they have less cause to get to grips with the minutiae of benefits as part of the reward package as a greater emphasis is being placed on remuneration. “Overall, I think people are moving towards remuneration because governments are taxing heavily [and picking up on benefits in kind],” says Chater.

In addition, he explains that there is a move towards flat-rate taxation in eastern Europe with, for example, Bulgaria introducing a 10% tax rate and Romania 16%. “Flat tax does not encourage benefits, just more and more remuneration.”

Since the fall of the iron curtain, eastern Europe has experienced significant changes in the provision of benefits with employees favouring cash over perks. “Most people associate heavy benefits with the state and the old regime. They want money and [the] freedom to be able to spend it, therefore everything is being pushed through into remuneration. Governments are encouraging that to some extent by the introduction of flat tax [as well as] foreign investment.”

However, remuneration is not always enough to secure the loyalty of workers in locations such as St Petersburg in Russia where competition for staff is tough. Here, some employers are considering providing subsidised housing as the state used to do in order to tie employees in to the organisation through long-term leases.

In the long term remuneration may end up being diverted to fund occupational pensions. With the growing realisation that their pensions systems are in a poor state, governments in eastern Europe are paving the way for additional pension plans to run alongside the state schemes.

If high-wage inflation continues, some of these countries will, according to Chater, experience economic difficulties and be unable to satisfy conditions to join the EU.

However, those that have are finding a changing EU, with the era of social benefits driven by new directives on the wane, says Chater. This is partly due to political and economic changes in the key states of France and Germany, which is having an impact on the overall mindset of members.

“The European Commission would desperately like to carry on doing its thing and introducing more directives and measures, but there is so much resistance,” he says.

However, there are a few changes that are on the agenda, including the Temporary Agency Workers Directive, which would give agency staff the same rights as full-time workers, and a directive that would enable the portability of occupational pensions. This pensions directive, which member states have until July 2008 to implement, is significant due to a rise in employee mobility and an increase in the use of occupational pension schemes on the continent to counteract deficiencies in state schemes.

Local changes

The EU has also produced a green paper Modernising labour laws to meet the challenges of the 21st century that moots possible labour law changes to help promote a more flexible jobs market while also improving security for workers, otherwise known as the flexicurity concept.

However, many of the changes that are taking place in relation to benefits are happening in individual countries rather than at a pan-European level, says Chater. Apart from general taxation and pensions issues, there are a number of other factors influencing legislative change such as the promotion of health and wellbeing, the state of the environment, and the cost of sickness benefits.

For example, Chater says that in Belgium, tax relief has been introduced on contributions towards sports club membership, and that there has been a crack down in Germany on tax relief on travel to work in an attempt to discourage commuting and in Sweden on the payment of statutory sickness benefit.

Some countries are also reconfiguring early retirement benefits to reduce their state pensions bill, for example, by imposing a negative tax where employers permit staff to retire below the age of 60 years or a positive incentive of extra pension for employees who decide to stay on at work.

Corporate governance is also on the agenda of some countries such as Norway, the Netherlands and Germany, resulting in steps to limit remuneration of executives, according to Chater. “There is a general danger that this view will apply to other employees as well.”

He claims governments are pushing for executives to be remunerated more fairly so their own less generous national pay policies are not undermined.

This approach is also being extended to share option schemes. Last year, he says, France introduced extra tax levies on employees on the exercise of an option and on employers at the grant of an option, while Ireland imposed taxation on the exercise of an option.

Apart from legal and taxation issues, HR and benefits practitioners also need to be aware of collective bargaining agreements. Although the power of trade unions is generally declining across Europe, there are some countries where these still have significant influence, such as France. “It’s important from a benefits point of view because a lot of collective agreements do contain enhancements to statutory benefits and on the continent they are automatically incorporated into the contract, whereas in the UK, even if they are referred to, it is still arguable that they aren’t part of the contract,” says Chater.

While many companies would like for fairness and simplicity’s sake to develop a harmonised system for employee benefits, there are many barriers to doing so. Even where they decide to develop some kind of consistency across individual benefits there may still be cultural, legal and taxation hurdles to overcome.


Career history

Founder and secretary general of the Federation of European Employers, Robin Chater spent 10 years as an adviser to the Employment and Social Affairs Directorate General of the European Commission.

During this time, he was asked to set up an informal network of employers to enable them to share information on how they operate in different countries in Europe. 

Later, in the 1990s, the network developed into a fully-fledged federation with Chater as secretary general. It provides a practical HR resource for employers operating internationally across Europe, with a focus on employment law, pay and labour relations.

“We have been trying to encourage employers to do interesting and innovative things and to improve levels of legal compliance. It is not about trying to determine what laws should be in place, it is more about how do we live with them,” he explains.

Before founding FedEE, Chater was director of the Personnel Policy Research Unit. Prior to that, he held posts at research firm Incomes Data Services, Hay Management Consultants and business strategy consultants Arthur D Little.

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