Global perspective on the costs related to employee dismissal
Exclusive study by Deloitte Legal 2018
Dismissing an employee is a rather complexly regulated issue essentially throughout the world and thus it represents many challenges for multinational enterprises. The fourth issue of the International Dismissal Survey examines the legislative provisions concerning employment dismissal and it provides in-house lawyers and HR specialists with illustrative projections of employee dismissal costs across 46 countries, including the Czech Republic.
Using data from this survey, companies can estimate potential expenses, anticipate difficulties and make informed decisions when hiring employees. This comprehensive, structured information will lead you through decision-making related to headcount planning.
The survey starts with a comparison of six cases reflecting the costs of dismissing an employee in all participating countries. The data from the survey resulted from specific examples (scenarios) of three employees with different levels of seniority (number of years worked) and different amount and structure of remuneration, and differences related to the circumstances of the dismissal were also examined for each of them (existence or non-existence of an objective reason for dismissal).
The survey covers legal regulations concerning employee dismissals in 46 countries and the requirements arising from upcoming legislative changes.
The study issued in 2018 newly contains:
- Two new comparison tables provide a better overview of the total impacts of dismissal in terms of costs
- Expansion to include countries from Latin America and the Asia-Pacific
- 16 new countries including Albania, Bosnia and Herzegovina, Brazil, China, Colombia, Cyprus, Ecuador, Japan, Kazakhstan, Montenegro, Myanmar, Serbia, Singapore, South Korea, Thailand and Vietnam
Key findings from the survey:
- Many countries, for example France, Italy and the Netherlands, have changed their legal regulations concerning employment dismissal to increase labour force flexibility and/or the financial predictability of dismissal costs.
- In more than 75% of the observed countries, the employer can dismiss an employee at any time, but similarly to the Czech Republic, the terminated employment may be re-established by the court, if it finds the dismissal to be unfounded. Previous approval of the dismissal by the court is required only in two participating countries: the Netherlands and Ecuador. Only in a limited number of countries is the employer able to dismiss an employee without the possibility of reestablishment of the employment by a court ruling.
- In almost all of the observed countries the key factor for determining employee dismissal costs is the employee’s seniority (number of years worked for the employer). More than 60% of the countries have a set maximum length of the notice period, amount of redundancy payment or both. In the Czech Republic the cost differences after three years of the employee’s activity for the employer are usually based only on the salary amount, but in other countries seniority is more differentiated.
- In almost all countries the legal regulation of employment dismissal knows the concept of dismissal for serious reasons and contains protection of certain employee categories against dismissal (e.g. due to maternity, study leave, discharge of public office etc.). In the Czech Republic, protection against dismissal applies in particular to pregnant employees, employees on maternal or parental leave, employees on sick leave or employees caring for a sick child or another member of their household.
- In certain countries, termination of employment is possible only for reasons explicitly set by the law. These countries include the Netherlands, Latvia, Croatia or Slovenia, as well as the Czech Republic.
- The comparison of all dismissal scenarios with objective reasons on the part of the employee or the employer shows that the dismissal costs differ significantly between the individual jurisdictions, without any common denominators within a specific region.
- In the comparison of all scenarios of dismissal without objective reasons we find the highest costs in certain European countries, even though there are huge regional differences here as well.
- The biggest increase in costs related to dismissal consists in redundancy payment, or compensation for illegal dismissal in the event of dismissal without an objective reason.
- Limited comparison possibilities for the participants from Latin American and Asian countries – this starting sample so far hardly allows for comparing regions or drawing general conclusions.