Almost invariably, when a multinational branches out internationally that means employing people in a new country abroad. Doing this is always complex. Getting it right can be confounding. Whether we are talking about a domestic US business exploring how to set up its first foreign outpost in Canada, or a multinational conglomerate already operating across 56 countries and now planning to launch a new office in its 57th, identifying and following the local “rules of the road” in a new country, as to human resources and employment law compliance, is always daunting.

This discussion is designed as a toolkit for an employer (either a business or nonprofit) branching out operations into a new country and planning to employ people in that new jurisdiction for its first time ever. Our discussion breaks into three parts:

Part 1. “Floating” Employees Working in Overseas “Permanent Establishments” (addressing how to set up an employer presence abroad, with a focus on small start-ups without a lot of in-country infrastructure)

Part 2. Checklist of Issues for Launching HR Operations in a New Country (listing the human resources issues to address in a new overseas employer operation)

Part 3. Expatriate Checklist (listing the discrete issues that apply to any expatriate employees who will be posted or “seconded” from a home country to the new host country start-up operation)

Part 1: “Floating” Employees Working in Overseas “Permanent Establishments”

Multinationals entering a new foreign market in a big way, planning to employ lots of employees in some new local plant or operation, tend to invest the resources necessary to enter the new market without taking short cuts. They tend to spend the time and money to get it right, setting up a local representative office, branch, or subsidiary; getting it fully licensed; and complying with local corporate laws, tax laws, employment laws and immigration laws. Entering a new market in this way— “all in,” formally establishing a registered commercial presence and complying with all local laws, is always a best practice. The reverse—violating applicable law—is never a best practice.

But what about the employer new to an overseas market that plans a bare-bones operation with just one or two local in-country employees? What about the employer that will operate only temporarily in some foreign country? What about the non-profit executing some limited, tight-budget contract in the new country? And what about when an employee moves abroad for personal reasons, asking to work remotely from a new home in a country where the employer otherwise does not operate? Must all these employers always take the time-consuming and expensive “all-in” approach?

Not surprisingly, many businesses and many non-profits taking baby steps into a new overseas jurisdiction seem to shy away from the “all-in” model. They seem to prefer placing an employee into a target country without building all the infrastructure of a formal licensed and registered in country employer entity. We might call these arrangements “floating” employment, because the in country “floating” employee is not anchored to any local employer-entity infrastructure.

These days, there seems to be a marked upswing in floating employee arrangements. And from a practical perspective, this trend should come as no surprise: Technology facilitates the approach. In the old days (say, up to the 1980s), a multinational’s in country local representative would have needed dedicated office space, a secretary and other support staff. But today’s floating employee can work efficiently from home with little physical infrastructure beyond a computer, cell phone, express courier delivery and perhaps video conference software.

Technology may facilitate floating employee arrangements, but legal issues frustrate them. And the very same advances in technology allow tougher enforcement by local regulators. Floating employee arrangements are suspect and risky, because they often violate local laws—especially where the non resident employer entity is deemed to have an unregistered so called “permanent establishment” (local business presence subject to being taxed).

Multinationals’ overseas employment operations inevitably raise structuring issues: How do we employ someone in a foreign country? Which entity should be the employer? How do we get comfortable that the arrangement complies with local law? Generally the best advice is to avoid floating employee arrangements and get a local employer entity registered in each country where the employer employs people. But some employers see this full-registration approach as impossible. Fortunately, in certain circumstances there are legally-compliant strategies for engaging overseas floating employees—strategies such as “seconding” an employee to an up-and-running local employer or engaging a legitimate independent contractor. But implementing a legally-compliant strategy in this context requires addressing a number of disparate issues. Floating employee arrangements raise legal traps under local host country laws, including: commercial registration requirements, corporate income tax requirements, labor/ employment law (payroll, “secondment” and independent contractor issues) and immigration law. We address each in turn.

Commercial Registration

When a multinational has an employee who makes short, intermittent business visits into a country without establishing a local residence, without signing contracts and without generating in-country revenue, the employer may not cross the jurisdiction’s local “doing business” threshold and probably will not be considered a local “permanent establishment.” But once a multinational engages staff based in a foreign country to develop the local market—or even just to work on local soil for the worker’s own convenience—then the analysis gets complex. And it differs from country to country.

An employer that crosses a jurisdiction’s local “doing business” threshold and is deemed under local law to be transacting business locally generally must register in the country’s local “Companies Registry,” “Commercial Registry,” or other local equivalent to a US state’s secretary of state corporate registration office. Usually this registration means fulfilling the requirements for some category of locally-recognized corporate registration status. In the Philippines, for example, an incoming foreign corporation that wants to do business locally has three registration options: representative office, branch, or wholly-owned (locally incorporated) subsidiary. In countries such as Ethiopia, a company will need both to register locally and also apply for a “business license.”

Our question becomes: When does an employer operating abroad cross the “permanent establishment” threshold and become obligated to register itself in the local companies registry? The answer differs by locale. Malawi, for example, requires only those businesses with a “local established place of business” to register—but Malawi uses a broad definition for “place of business” that can include, for example, even a government department office that hosts a local company employee. Mexico looks to whether the business has a local physical presence or whether the business has local agents with power of attorney. By contrast, Qatar requires every natural or “juristic person” to register before “engaging in commerce”—but Qatari commercial registration law is murky as to what “engaging in commerce” means. Other countries, like Syria, set out illustrative lists of factors that determine when a foreign business triggers the local registration requirement. A Syrian decree sets out five factors:

  1. hiring workers paid by the employer (our “floating” employee situation)
  2. buying or renting local real estate in employer’s name
  3. opening a local bank account in employer’s name
  4. listing the employer in a local telephone directory
  5. subscribing to a post office box (in Syrian parlance a “telegraph address”) in the employer’s name

Once an employer’s overseas presence triggers the local country’s threshold for commercial registration, the question becomes: What must the employer file? Registration requirements differ from country to country and the requirements differ depending on the corporate status selected (representative office, branch, subsidiary). Requirements here can include:

  • providing a local address
  • naming a local-resident agent (and sometimes, such as for a branch in Malawi, even naming an entire board of directors—notwithstanding that a local branch technically is not a separate entity)
  • empowering a local authorized agent via an apostiled and translated power of attorney
  • registering with local tax, social security and other government authorities
  • opening a local bank account with a minimum required paid-in capital
  • issuing a bond locally in favor of third party claimants
  • making industry-specific filings (for example, special authorizations are required for engineering firms in Brazil, news organizations in Vietnam and retail sales operations in the Philippines)

This raises the question of compliance: What happens if an overseas-based employer violates these registration rules and operates an unregistered local permanent establishment? In countries such as Spain and Mexico, corporate registrations may be seen as largely notarial acts and a failure to register may mean only civil, tax and employment exposure. But in other countries local corporate registry officials have police power to investigate, charge and fine a foreign business that flouts local registration laws. The Democratic Republic of the Congo, for example, can seize assets and ban an unregistered business and its agents from operating in-country. The Philippines can sentence business people who sell products locally without registering under a local “retail trade” law to 6–8 years in prison.

Violations of corporate registration requirements are likely to come to light when a local employee quits or gets fired. Violations also get rooted out as advances in technology help enforcers scrutinize “floating” employee arrangements ever more closely. Non-compliance threatens financial costs that run higher than mere fines and lawsuits, in that failing to register impedes acts that require proof of commercial registrations—renting office space, opening a bank account, importing goods through customs, selling to a government entity. In Norway, for example, a business is virtually paralyzed without a registration number from the Norwegian Register of Business Enterprises. And an employer’s failure to get local commercial registrations can cascade into violations of other local laws, be they corporate tax requirements, employment rules, or immigration mandates. Each is discussed below.

Corporate Tax

Outside the few “tax haven” jurisdictions such as Bahrain and UAE that impose no corporate income tax, any enterprise operating somewhere through a “floating” employee—even an employer not generating profits from the local market and even an organization registered in its home country as a non-profit—exposes itself to liability under local corporate tax laws. In short, a local “permanent establishment” will have to file a local corporate tax return. Whether any corporate tax payment is actually due locally will be a fairly straightforward analysis if the local host country and the multinational’s home country have executed a tax treaty for avoiding double taxation. Where there is no treaty, local income tax laws will apply, with their local definitions of taxable income and their domestic principles of tax liability.

When a local floating employee triggers a corporate tax-filing requirement, the unregistered employer may argue that its local representative plays a non-revenue-generating role and triggers no permanent establishment. Whether this argument prevails turns on the facts and definitions under local corporate tax law. That said, if local (in-country) customers buy products or services or pay bills through the floating employee, the employer may have a tough time arguing its in-country operations generate no taxable local revenue—especially, but not necessarily, if the local employee has agency authority to bind the employer.

Labor/Employment Law (Including Payroll, “Secondments,” Independent Contractors)

Countries everywhere extensively regulate employment relationships, imposing rules on such topics as:

  • Employment contracts/fixed term agreements/ probation periods
  • Compensation (wages/overtime/ bonuses/profit-sharing)
  • Personal income tax withholdings/social security/ social insurance contributions/other social funds
  • Part time/temporary work
  • Caps on work hours/overtime pay/wage-hour rules
  • Vacation/public holidays
  • Health/safety
  • Firings/severance pay

Local employment laws will generally reach a single employee local start-up operation of a foreign-owned employer—a floating employee— even if employer and employee had agreed on a choice-of-law clause that purports to apply the law of the employer’s headquarters country. (Local employment protection laws almost invariably reach a multinational’s in-country employees by force of public policy regardless of employee citizenship and regardless of a choice-of-foreign-law clause in an employment agreement.)

Native local employers in an overseas market may be predisposed to comply with local employment laws, but an overseas-based employer new-to-market with no local infrastructure will face employmentlaw compliance challenges, for two reasons: (1) Full compliance with local employment laws is difficult when the local rules are not readily-available and are foreign to the employer’s institutional culture; and (2) keeping a local floating employee off the books prevents compliance with mandates like payroll withholdings/contributions.

Employment-law liabilities arise when local government labor enforcers bring employment claims, or when a floating employee sues in local labor courts (the local labor courts will generally exercise some form of “long arm” jurisdiction over non-resident employers on which they can serve process). Indeed, these employment liabilities can be contagious: In Brazil, for example, an employer entity that fails to contribute to mandatory local social security and unemployment funds will expose sister affiliates to its own debts to these employee funds.

Payroll. A special employment law compliance problem in the “floating” employee context involves local laws related to payroll. An unregistered overseas employer with no local taxpayer identification number will find itself unable to contribute to the local tax authorities and local “social funds” (state retirement, housing, unemployment, socialized medicine, workers’ compensation and other mandatory welfare agencies). Outside payroll providers can tender these payments, but payroll providers cannot administer payroll until the client gets its required employer payor numbers. Violations of payroll requirements can come to light in an audit and are especially likely to emerge when an employment relationship terminates. Arrearages, plus interest and fines, can be surprisingly expensive.

Secondments.” A common strategy for sidestepping all these local registration and payroll hurdles is for the overseas employer to “second” (post) the local resident floating employee onto the payroll of some already up and running local employer, such as: a corporate affiliate sister entity, one of the multinational’s local commercial agents or distributors, or even a provider of HR staffing services (say, one of the international staffing firms Adecco, Manpower, Inc., Randstad, or a local-market provider).

Under a carefully-structured secondment arrangement, the in-country employee gets employed by, and goes onto the payroll of, the local business partner, while serving the non-resident principal. The principal reimburses the nominal employer for costs (plus, usually, an administrative premium; in India, for example, staffing companies tend to charge about 15 percent). Secondments of this sort can be an ideal way to resolve many of the legal issues inherent in a floating employee arrangement, but they introduce other problems, including: the extra expense, the principal’s lack of direct control over the employee, the employee’s reluctance to work for a third party (expect professional employees to be particularly reluctant to work for a staffing firm) and “dual employer” challenges. Also, even a business operating in-country through a seconded employee remains susceptible to a charge that it runs a local “permanent establishment” subject to commercial registration and tax requirements, especially if the seconded employee transacts business on the principal’s behalf and has agency authority to bind the principal.

Independent contractors: Another strategy for sidestepping local employment law hurdles is for the multinational employer to engage a local services provider not as a floating employee but as a floating independent contractor (or “consultant”). The principal can get an extra layer of protection here if its independent contractor incorporates locally and if the parties enter a business-to-business services contract with the contractor’s company, not with the contractor personally.

But independent contractor status is fragile and a contractor can easily be held a de facto employee. Structuring an independent contractor relationship instead of hiring someone directly is a less-thanideal solution where the arrangement seems a subterfuge. Always ask: If an independent contractor relationship is such a great idea, then why don’t we also engage this person’s counterparts, back home, as independent contractors? Often there will be a simple answer: Because that would never fly—these people obviously work as employees, under the applicable tests. If the set-up would fail the employee vs. independent contractor tests back home, it will also likely fail the tests in the host country: These tests are surprisingly similar from country to country. The law tends not to defer to parties’ choice of labels when determining the true nature of the relationship, but rather imposes a “facts and circumstances” test. (All this having been said, though, in countries like Israel and India the analysis may be theoretically similar, but the level of scrutiny may be much less.)

Even a business operating in a country through a legitimate independent contractor remains susceptible to a charge that it runs a local “permanent establishment” subject to commercial registration and tax requirements, especially if the independent contractor transacts business for, or has agency authority to bind, the principal. Liability for getting this wrong, either mischaracterizing a de facto employee as a contractor or ignoring the “permanent establishment” ramifications, can be huge. Exposure becomes especially likely when the relationship ends. Yet in those situations where a principal can implement a legitimate independent contractor relationship that avoids being held a local permanent establishment, the independent contractor approach might be an excellent resolution to the floating employee conundrum. Usually this will be possible where the overseas services provider is truly an independent agent, free to work for others, paid by the task, not subject to the principal’s supervision or discipline, not identified as an employee of the principal and not compensated like an employee.

Immigration Law

A multinational faces immigration law challenges when a floating employee (or independent contractor) will live outside his home country, such as when the employer sends an expatriate to the new start-up operation. Non-citizen resident employees in a new host country need a residence visa, a work permit, or both and any foreign assignment—no matter how brief—needs to address immigration. In countries including Brazil, Saudi Arabia, UAE, Kuwait and Qatar, an inbound expatriate immigrant needs to find some local national (or locally-registered business) to act as a visa/work permit sponsor. Often the sponsor must hire the expatriate and the visa/work permit is tied to the job. In these cases, our “secondment” scenario (out-of-country principal employer arranges secondment with in-country visa sponsor) poses a problem if the local visa/work permit prohibits the sponsored employee from serving another employer. Another issue is caps on immigrants: A number of countries (Brazil is one) cap the percentage of workplace that can be foreign citizens.

Part 2: Checklist of Issues for Launching HR Operations in a New Country

Having looked at start-up issues largely from a corporate perspective, we can now turn to an inventory of the human resources issues that arise as an employer begins to employ its first employees in a new country. This is a checklist of the HR questions that can arise when a business expands into new jurisdiction. Answers to the questions, of course, vary according to the country at issue.

This checklist is broken into five stages of starting up a new operation abroad. (We do not address expatriate issues, which are the focus of Part 3.) The stages are:

Stage 1) Business structure and contracting

Stage 2) Benefits/compensation

Stage 3) Local-hire issues

Stage 4) Written employment contracts

Stage 5) HR administration

Stage 1: Business structure and contracting

  • Employer corporate entity: When entering a new country, the first legal question is Which corporate structure to use for in-country operations—a representative office, a branch, or a subsidiary? Although this is a corporate law question, employment issues come into play. Carrying on business overseas may well subject the parent entity to local tax liability as a “permanent establishment” and expose parent-company assets to host-country claims. Set up any such local entity before doing any hiring, to avoid later having to transfer staff into some separate entity, which can raise difficult issues of transfer liability. (See discussion, Part 1.)
  • Subsidiary structure: Where incorporating a local subsidiary makes more sense than registering a local branch or representative office, structuring a host-country subsidiary will trigger employment issues. Different types of host-country corporations (in Germany, for example, AG vs. GmbH) can carry different collective labor/employment obligations. In Latin America multinationals sometimes incorporate a local “services” company—separate from the local operating subsidiary—to manage liability under local employee profit-sharing laws that require paying employees a percentage of annual employer profits. Account for these issues in setting up the local entity.
  • Agents/officers: Setting up a host-country corporate entity presence usually requires designating in-country shareholders, selecting incountry directors, issuing local powers of attorney and appointing local agents for process. On-theground, in-country employees are usually the most logical choices to fill these positions. But the problems tend to arise later. Multinational headquarters have been held hostage overseas by disgruntled ex-employees clinging onto stock interests, directorships, powers of attorney, or agency controls over a local subsidiary corporate entity because, under law in many countries, firing an employee does not automatically dissolve these separate corporate relationships. Before bestowing corporate powers on host-country employees, work out an exit strategy, in case of an unfriendly separation.
  • Independent contractors: When taking first steps in a new country, engaging “independent contractors” instead of employees may seem like an attractive strategy. However, a “freelancer” working abroad as a de facto employee can be deemed an employee by operation of law, regardless of the text of the contractor agreement—thereby exposing the principal to significant tax and other liabilities. And even if the contractor is held to be a self-employed agent, local laws may still impose restrictions on termination. Plan accordingly. (See discussion, Part 1.)
  • Vendor partners: A business entering a new country often needs to contract with local partners if only to outsource functions like payroll, accounting, or janitorial services. Factor in the employment law exposure here if outsourced employees might later claim also to work for the principal as a “dual employer” (a particular issue in Latin America). Separately, some countries (chiefly Brazil) expressly limit outsourcing of this sort.
  • Foreign entity monitoring: Some multinationals’ overseas heads-of-office have “gone bad” and abused autonomy, paid bribes or embezzled money. These problems arise more often after headquarters has put the foreign office on “auto pilot.” Cede no more autonomy to an overseas office head than to a domestic counterpart. From the beginning, put in place tough accounting, oversight, audit, Sarbanes-Oxley and Foreign Corrupt Practices Act controls.

Stage 2: Benefits/compensation

  • Benchmark: To hire people into an operation in a new country requires attracting in-country employees into a business which, as yet, lacks a market presence—and an “employment brand.” Under these conditions attracting hostcountry talent without overpaying requires careful benchmarking of local benefits and compensation. Get a breakdown by “minimum expected package,” “standard expected package” and “rich expected package.” And before setting initial compensation, factor in vested rights: Countries tend to restrict an employer’s flexibility to roll back pay or benefits granted up front.
  • Statutory benefits costs: Engage an experienced in-country payroll provider and then ask about total payroll costs beyond wages. Budget for applicable “statutory benefits” and “social costs” like social security, housing funds, disability funds, profit sharing, provident funds, premium-paid vacations and thirteenth-month bonus. These can add a surprising amount to base pay.
  • Customary benefits: Most countries offer government payor (“socialized”) medicine, so employer-provided health benefits may not be an issue—except that, increasingly, employees in certain countries expect supplementary health insurance. Separately, the social security retirement benefit in some countries replaces a high enough percentage of final average pay that in some (not all) positions, private pensions may be unnecessary. But in many countries employers are expected to give other customary benefits, ranging from bus transportation to meals to cars to housing. Find out which benefits are customary and how much they cost.

Stage 3: Local-hire issues

  • Hiring strategy: Expatriates aside (expatriates are addressed in Part 3), find out which strategies and tools will work in the target country to attract and retain bilingual multinational-quality local talent. How effective are host-country recruiters?
  • Job application form: Adapt an organic in-country job application form for the new operation, or else modify the headquarters application form appropriately. Ensure any globally-accessible Web-based job application complies in-country. 
  • Background checks: In many countries data privacy and criminal laws tightly regulate background checks and pre-hire screening—and limit the availability of good information about applicants. Formulate a host-country background check strategy, factoring in what can be done legally and practically.
  • Affirmative action: Diversity has gone global. Some jurisdictions actually impose affirmative action hiring requirements that outstrip US rules: South African affirmative action regulations force employers to file sensitive government reports that distinguish “African” employees from “Coloureds.” German laws require hiring the disabled or paying for an exclusion. Indian laws promote hiring low-caste employees. Further, many multinationals have adopted their own inhouse global diversity policies. Be sure to comply.

Stage 4: Written employment contracts

  • Contractual document: Laws in many countries require signing some employment contract or agreed-offer letter or, at least, giving employees a written “statement of terms and conditions of employment.” Even where not mandated, written employment contracts outside the US protect employers by disproving employees’ version of what was the oral employment arrangement. In many countries a detailed employment contract also plays the role that employee handbooks play in the US. But do not transplant a US job offer form letter with a US employment-at-will clause. Use an organic in-country form contract, or else modify a US form appropriately. A new in-country start-up should add in a right to assign the relationship to an entity incorporated later (in case of any corporate shuffle), plus a right to change the place of work (in case of an office move).
  • Probation: Employee probation periods, where available, can offer employers flexibility (at the outset of employment) from rigid restrictions against firing. But understand the limits: In Japan, for example, even a probationary employee is not employed at-will.
  • Fixed-term: Fixed-term employment contracts, rolled over for successive terms as necessary, can also offer flexibility. But most countries restrict serial roll over of consecutive fixed-term contracts. Check local limits. China and France recently issued fairly complex rules in this regard.
  • Job titles: In place of the US-law distinction between “exempt” and “nonexempt” employees, employment rights outside the US can tie into job position. Bestowing a title like “Managing Director” can affect whether certain host-country employment laws, agency powers and “sectoral” collective agreements reach an employee. Account for this in bestowing titles.
  • Restrictive covenants: If non-compete/ confidentiality/non-solicit restrictions are important, get a locally-enforceable clause. Never transplant a restrictive covenant clause from abroad, because enforceability will turn on national law. Many countries require paying extra consideration in exchange for non-compete obligations. France and Germany impose especially tight restrictions in this regard.
  • Employee inventions: In the absence of special contract provisions, Japan, Argentina and some other countries grant generous rights to employees who develop and register intellectual property—even while working on the clock. Ensure employment contracts quantify and contain any such exposure.
  • Mandatory retirement clause: In most countries—even many with age-discrimination laws—mandatory retirement remains legal and widespread, but can be tricky to implement. In October 2007 the EU Court of Justice affirmed that forced retirement does not violate the EU age-discrimination prohibition of EU Directive 2000/78. If mandatory retirement makes business sense for a new in-country operation and is consistent with the company’s code of conduct, be sure to build any retirement mandate into individual employment contracts from the beginning.

Stage 5: HR administration

  • Handbook/policies: Bringing employees on board in a new country requires having an HR structure in place, which means policies. A US-style employee handbook is often a bad substitute for organic incountry policies. Instead, issue locally-required HR mandates, such as the “work rules” of Japan and Korea. Use any locally-advisable HR forms, such as the UK’s overtime opt-out. Actively check to be sure the new local policies are consistent with any globally-applicable code of conduct or policies that headquarters may have issued.
  • Translations: English is not quite the lingua franca it may seem to be. Laws in some jurisdictions (for example France, Belgium, Quebec) mandate that HR communications be in the local language. Penalties for violating these language laws can be severe, especially under France’s Loi Toubon. Even where there are no such laws, local-language HR communications promote comprehension and enforceability in court and before government agencies and employee representatives. Translate accordingly.
  • Compliance: Comply with host-country labor/ employment laws. Start by checking what laws affect “on-boarding” employees, such as mandates as to: hours; breaks; holidays/vacations; weekend closings; paid days off; parental leave. In Europe it is illegal to withhold benefits from part-timers. If the new start-up operation has no in-country office as yet, research applicable laws regarding working at home.
  • Employee representatives: US “union avoidance” strategies are rarely exportable. Overseas, worker representatives (trade unions, works councils) can be ubiquitous and “sectoral” collective agreements often reach even nonsignatory employers. In countries like Mexico, some employers actually invite in acceptable “white unions.” Tailor a collective employee representation strategy.
  • Human resources data: Data protection/ data privacy laws in many places restrict transmitting employee data out of country, even to an employer’s own headquarters. Implement compliant practices such as under European Union “model contractual clauses” (or “safe harbor” or “binding corporate rules”).
  • In-country insights: The best “ounce of prevention” is learning from the mistakes of those who went in before you. When gathering answers to the questions on this checklist, ask your local in-country contacts a catch-all question: Which human resources and compliance mistakes do you most often see being made by companies coming in from abroad?

Part 3: Expatriate Checklist

A multinational launching an operation in a new country often determines that it needs to post into the new location one or more expatriates (be they experienced company people from headquarters or “third country nationals” from upand- running operations outside the headquarters country), to oversee the launch and sometimes to stay on indefinitely. But “seconding” an expatriate opens Pandora’s box—especially if this will be the organization’s first-ever expatriate posting, at least into this new country. Most large multinationals with big expat populations have already opened this Pandora’s box and confronted the demons that flew out, having promulgated expat policies—sometimes 50 pages long—and having created form “secondment” agreement templates and other “global mobility” infrastructure. At other employers, though, expat assignments are less frequent—and so tend to get patched together on an ad hoc basis.

Any multinational launching an employment operation in a new country with no existing procedures for expatriate assignments—but that now needs a way to send an expat into the new start-up— almost invariably starts by asking around for other employers’ form expat policies and agreements.

And expat forms, of course, can be helpful. But expat assignment terms and offerings diverge so widely from company to company that replicating someone else’s programs, by cloning their forms, can be dangerous. Warren Heaps, a New York-based international compensation consultant with the Birches Group, says that because expat “assignment policies are really very tailored to” each employer and are “designed with specific business objectives in mind,” expat “benchmarking is of less value” because “the market may provide certain benefits or allowances which may be unneeded” at certain organizations—especially across industries. So when placing an expatriate into a start-up operation in a new country, never clone other employers’ forms. Instead, craft organic expat policies and agreements that reflect the organization’s own actual policies and needs. Here is a checklist that touches on most of the issues a multinational should address in an expat assignment into a new country (although some of the topics on this list will be less relevant to smaller organizations sending abroad mid-level expats).

Expat program structure

  • Inclusion of stakeholders: involve all necessary in-house players such as home and host country line management; home and host-country human resources; relocation; travel; finance/tax; benefits/ compensation; risk management/insurance; legal
  • Types of expatriates: distinguish “career expat” vs. project-based assignee vs. expat to start up operation and train successor vs. “commuter expat”
  • Types of assignments: distinguish long-term vs. short-term vs. long business trips vs. “commuter”
  • Exclusion of “cross-border employees”: implement some mechanism for excluding from the expat program: voluntary/requested overseas transferees; locally-hired headquarters-country citizens; overseas-company-hired “trailing spouses,” etc.
  • Expat employer entity: distinguish home country/headquarters entity vs. host country affiliate vs. dual employers vs. global expat services affiliate; account for the “permanent establishment” issue if a home country entity will employ abroad
  • Corporate payor entity: which affiliate will tender base pay? expat benefits? bonuses? as to each element of expat compensation paid by home country entity, how to handle host country withholdings and social contributions?
  • Intra-company payment/chargeback logistics: design logistics for intra-company expat reimbursements; design a process for intracompany chargebacks; address corporate tax treatment
  • Form intra-company “secondment” agreement (between home and host country entities, expat is not a party): write up an agreement between the expat’s home and host country employer entities that addresses: reporting; supervision; power to discipline/terminate assignment; tendering payments/benefits to expat; intra-company chargebacks and apportionment of liabilities
  • Form expat assignment agreement (between employer entity and expat personally): design an employment assignment agreement for the expat that dovetails with the expats’ existing employment agreement/policies (or else expressly “hibernates” them); address special issues like restrictive covenants, alternate dispute resolution, etc., as enforceable across borders
  • Non-discriminatory expat selection procedure
  • Protocol for when/how to “localize” expats: devise some method for extinguishing the expat assignment relationship if and when the expat is to be “localized” (to defer this issue will make it much tougher to “localize” later, because the expat will push back)

Expat dependents

  • Dependent visas: apply early for visas for expats dependents, such as any “trailing spouse,” unmarried partner, children, dependent parents, household help/servants; will dependents’ visas be work visas, or residency only?
  • Dependent-specific benefits: placement assistance; education/tuition/arrange schooling; compensation for career interruption; support for special-needs dependents
  • Contingency for family emergencies and divorce/separation
  • To what extent do dependents get expat logistical support and benefits? separately account for each element addressed below, as to dependents

Foreign assignment logistics

  • Expat visa/work permit: apply very early
  • Pre-decision trips (and how reimbursed?)
  • Foreign payroll/benefits delivery logistics: where paid? how to comply with host and home country reporting/withholding/social contributions obligations? how to comply with currency/foreign exchange and payroll laws? (for example, in Mexico, pay every 15 days)
  • Medical, security and personal-injury claims exposure
    • Medical exams/clearances; vaccinations; access to medical care and medication abroad (routine and emergency); participation in local government (“socialized”) medical system; expat medical insurance; medical-crisis evacuation to home country
    • Disability accommodation
    • Personal security; legal representation abroad; kidnap/emergency response; emergency evacuation
    • – Strategy for minimizing exposure to overseas-arising personal injury claims: workers’ compensation bar; “supplementary/ voluntary” workers’ comp coverage; duty of care; defense strategy for expat and dependents’ personal injury claims arising outside work hours/off-premises
    • – Expat insurance (beyond medical and workers’ comp): life; disability; evacuation; kidnap; directors and officers
  • Legal compliance
    • Tools enabling expat to comply with destinationspecific business laws
    • Compliance strategy as to mandatorilyapplicable home country laws (extraterritorial reach of US/home country discrimination laws; US laws applicable to business abroad like Sarbanes-Oxley accounting provisions and Foreign Corrupt Practices Act; etc.)
    • Compliance strategy as to mandatorilyapplicable local host-country employment laws (local host country caps on hours and other wage/hour laws; break times; leaves; profit sharing; 13th month pay; termination procedures/notice/severance pay; payroll/ currency laws; laws capping percentage of non-citizens in workplace; etc.)
    • Choice-of-law provision backfiring (a choice-ofhome- country-law clause in expat documents rarely works to divest the application of host country employment laws, so devise a strategy to curtail the expat’s power to “cherry pick” the more favorable rules from two legal regimes)
    • Local caps/rules: comply with host-country rules on expatriates (Brazil and other countries put caps on the percentage of foreigners in a workplace; Middle Eastern countries prohibit paying expats more than locals; in China, different employment laws can govern expats vs. locals)
    • Workers’ compensation: a too-often-ignored but potentially big-ticket expatriate issue is the very real risk of expats (or their families) getting injured or killed and then bringing an uncapped personal injury or wrongful death claim; where possible, preserve the workers’ compensation bar affirmative defense; get “voluntary supplemental” workers’ compensation insurance; on US government jobs, comply with the Defense Base Act of 1941; heed the duty of care; consider waivers or acknowledgments.
  • Vacation and holidays: reconcile home vs. host country vacation policies while complying with local vacation laws; address extra home leave for regular vs. “hardship” assignments
  • Cultural training and/or language training and/ or destination counseling (for expat and particularly family): one-off intensive course vs. ongoing training?
  • “Buddy”: assign a company point person/mentor and/or HR liaison in home and host countries and develop tools for expat to maintain a working link to home country office
  • Mail forwarding
  • Expense management; expense approval; reimbursement processes

Expat compensation and benefits offerings

  • Select which one of the three possible expat compensation philosophies applies: 1. replicate home country package; 2. replicate host country package; 3. replicate packages among company expats worldwide
  • Cost containment philosophy: “lean and mean” vs. generous vs. somewhere in between
  • Cost-of-living adjustments (“location differential”)
  •  Expat compensation package “fit” with local pay practices: justify pay differences in advance; omply with local laws requiring equal pay among similarly-situated employees and laws prohibiting paying foreigners more
  • “Hardship allowance”/location differential (use “hardship” ratings such as those available from International Civil Service Commission, ORC, AIRINC)
  • Currency exchange (when compensation set in one currency and paid in another)
  • Home country home disposition: pay broker fee? support rental? pay mortgage?
  • Host country housing: facilitate search? reimburse expenses? employer guarantee lease for employee vs. employer signs lease as tenant? provide loan? caps?
  • Moving expenses: packing? ship appliances or fund new purchases? sea or air shipment? cap quantity moved? special items like pets, wine, guns? storage of goods? electrical conversion? vs. flat moving expense
  • Travel: class of service; extra paid trips home (regular vs. “hardship” assignments); dovetail with company business travel policy; policy for how to handle requests that payment for trips home be diverted for foreign travel to equal/less expensive destinations
  • Settling-in assistance (and local facilitation smoothing bureaucratic/cultural barriers)
  • Company-provided personal servants including bodyguard; driver (or contrast local company car/local driver’s license facilitation/local auto insurance)
  • Club memberships
  • Company-provided cell phone/ BlackBerry/laptop
  • Incidental expenses: hotel, phone hook-ups, telephone calls home, etc. vs. lump sum option

Expat tax, social security, pension

  • Tax policy: tax equalization; tax gross-up; effect of tax credits; tax treaties; taxation of expat benefits; dual-jurisdiction expat tax-return preparation (address each by tax year, not by term of expat assignment)
  • Compensation elements beyond base pay: bonuses, savings plans, stock options/equity; local plans vs. continued participation in home-country plans; tax treatment
  • Social security: mandatory social security contributions in host country; social security equalization; effect of social security totalization treaty; compensation for loss of home-country credits
  • Pension continuation: local pension participation; pension equalization; host-country tax treatment of contributions to home country pension plan/§ 401k

Repatriation

  • Repatriation job guarantee: contrast no guarantee vs. flat guarantee vs. express employer reservation of no right to repatriated job vs. employer “best efforts” to place in repatriated job
  • Disposition of host-country house and car
  • Return travel (including job/house-hunting trips; dependents; pets)
  • Repatriation expense reimbursement: items covered: moving, brokers, rental expenses, extra mortgage; temporary living expenses; reimbursement procedures
  • Tools for reintegrating expat into home company: how to leverage expat overseas experience? how to temper “reverse culture shock”/prevent “repatriation failure”/tackle postrepatriation retention challenges?
  • Integration vs. termination: for each of the above, distinguish repatriation support for expat returning to home-country company job vs. repatriation support for a terminated/resigned expat

This article was published in a slightly different form in the 2009 issue of Aspen Publishers’ 2009 Employment Law Update