International assignments: Key issues to consider
Gareth Wadley, February 26, 2015
What legal issues do you need to consider when it comes to sending employees overseas?
The number of employees working abroad is increasing. As it becomes more common, some assume this will lead to greater standardisation, with template assignment letters the norm.
However, the legal, tax, pension and other variables involved in international assignments require a more bespoke approach, leaving little room for standard documentation. We outline some key issues to address below.
What is an assignment?
Also referred to as a secondment or transfer, an assignment might be internal (to a different role abroad with the same employer) or to an external employer. A key characteristic of an international assignment is that an employee from one legal entity and country ('home' country) temporarily performs services in another country ('host' country).
Potential assignment structures
There are a number of different ways in which assignments can be structured and documented. Which approach is appropriate will depend on a range of issues including employment law, tax, pension, social security and regulatory implications as well as the expectations of employees. Five frequently used assignment structures are:
- the employee continues to be employed solely by the home employer;
- the contract with the home employer is suspended and the employee enters into a local employment contract with the host employer for the assignment;
- the contract with the home employer is terminated with a promise of re-employment at the end of the assignment. In the meantime, the employee enters into a local employment contract with the host employer;
- the contract with the home employer is suspended and the employee enters into a contract with an international assignment company (IAC) within the employer group; or
- the contract with the home employer is suspended and the employee enters into a contract with both an IAC and the host country employer.
Which is best?
When deciding on the best structure for the circumstances, some questions to consider are:
- Do the host country’s laws require employment by a local entity, ruling out sole employment by the home employer?
- Where there is no contract of employment in place with the host employer, could local laws presume that the host is the de facto employer?
- If the home contract is “suspended”, is the home employer prepared to accept the legal uncertainty, in employment law terms, that this status brings?
- In a dual contract structure, who will bear the greatest risk of being liable for employment claims – host, home (or the IAC)?
- Will the employee accept the termination of his/her home contract?
- What is the impact on pension and benefit schemes, social security and tax?
Are there key terms in the home contract that require special consideration and protection, for example, restrictive covenants and confidentiality?
Which national law applies, when and to what? Which courts would have jurisdiction in the event of a dispute?
Who pays for, and manages, the employee during the assignment and will the employee return to the home country?
It is inevitable that documenting assignments will become a smoother process as employers become more familiar with the issues involved. However, the range of significant personal, legal and financial implications will mean that a degree of tailoring will always be necessary, in order to avoid negative repercussions.
Gareth Wadley is principal associate at Eversheds