International HR Decision Support Network Bloomberg BNA s resources will change the way you do business

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1 //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// International HR Decision Support Network Bloomberg BNA s resources will change the way you do business

2 Managing Expatriate Assignments: Letters of Assignment By Jason Exley, Regional Vice President, MSI Mobility Jason Exley, Regional Vice President, Western Region, is an international human resource professional (PHR) with a background in corporate global mobility. His areas of expertise include expatriate HR management, expatriate tax, talent mobility, global immigration, international and domestic relocation, policy development and administration, international benefits, vendor management, and global payroll. Jason has also served on the Steering Committee for the Worldwide Employee Relocation Council s Global Symposium Planning Committee, ORC Worldwide s Energy, Mining, and Engineering annual policy benchmark survey ( ), and holds the Six Sigma yellow and green belt certifications. Please note that the information provided below is intended for general informational purposes only and does not constitute legal advice or serve as a substitute for legal counsel. No action should be taken based on the content of this white paper without seeking the appropriate legal advice. Written only as a general guide, this white paper is geared to U.S. employees of U.S. based firms. It describes the benefits of the LOA for both employer and employee, types of LOAs, the provisions that can be included (depending upon the company s needs and assignment type), and other considerations. When asked to take over the regional accounting manager position at his company s Beijing office, Ryan immediately agreed. This was the opportunity he d been hoping for both a promotion and an international assignment. The previous manager had abruptly quit, the company was in a bind, and Ryan seemed like the logical choice. He d been to the office several times and spoke Mandarin. He was quickly dispatched and all went well, at least initially. Several weeks into the assignment, however, Ryan realized it hadn t been well planned. He was still struggling to find suitable housing, as no formal housing budget had been set, and learned he was in country under the wrong visa (business vs. work). He also wasn t sure when he d be able to take home leave, as this had never been discussed. 1

3 After talking with other expats, Ryan saw that he d put himself in a bind, as he d never signed a letter of agreement (LOA). This, a document that outlines the specific terms, conditions, and benefits associated with an assignment, is typically agreed to and signed by the company and employee before deployment. With an LOA, Everyone Wins International assignments are highly complex -- more so than employers and their assignees often realize. To clarify and provide guidance, Letters of Assignment are essential. They re designed not only to benefit the employee, but also the employer and any third-party providers (tax and payroll, for instance). An effective LOA takes into consideration each factor that can impact the assignment s success, especially in any area of potential financial or reputational risk for noncompliance, and thus protects all parties involved. It minimizes the risk of assignment failure by ensuring, as much as possible, that all terms, conditions, and policy provisions are clearly spelled out. In addition, it addresses the many unforeseen and challenging situations that can arise with regard to licenses, permits, medical issues, schooling for dependents, etc. Beyond this, the LOA will often be among the documents needed to obtain visas and work/residence permits in the foreign country. It must be noted, however, that an LOA issued for an employee of a U.S. entity working abroad should not be considered a legally binding contract, as employment in the U.S. is at will and can be changed as business needs require. Employer Benefits While a well-written LOA should reflect the fact that the company is considering the welfare of the assignee (and, if applicable, any accompanying family members), it should also include provisions that help to ensure standardization and cost control. Often employers establish tiers of expatriate benefits for different levels of employees. Although different employee tiers may receive different benefits, those within the same tier will ideally receive the same general treatment. The LOA should clearly establish in detail what the company will and will not pay for within a given tier. When these components are not articulated through an LOA, it can be much more difficult for the company to contain costs. Once the assignee and family arrive in the host location 2

4 and experience the challenges of day-to-day life, requests for additional considerations and benefits can increase significantly. Without an LOA, companies may be forced to capitulate, since their negotiating leverage has been diminished and they re unwilling to risk what has already been invested in the assignment. With an LOA, the company is less likely to be put on the spot when issues arise, and the employee is less likely to feel a lack of support. This minimizes the risk of a failed assignment and ensures a greater return on the organization s investment. Employee Benefits In addition to spelling out the assignment s parameters, LOAs can help employees plan for the future. Because assignment duration is usually a key component of an LOA, employees know that they will be employed for at least a minimum time period (assuming that all goes well). If they will not be returning to a previous job, they will generally have ample time to secure another internal position or find employment elsewhere. That said, termination that occurs before the end of the assignment is another matter. To avoid headaches for all involved, the process should include a notice period which is spelled out in the LOA and gives employees enough time to relocate and find another job. The LOA should also include provisions for the employees (and their dependents) return. Another component of the LOA that can facilitate advance planning is one that both employers and employees might not initially consider. This consists of requiring that employees have basic legal protections in place such as wills, guardianship documentation, travel letters, health care proxies, and financial powers of attorney. 1 Types of LOAs Different assignment types require different LOA provisions. Although LOAs often have many elements in common, such as employment and assignment status, sponsorship of visa and work/residence permits, and details on compensation and benefits, other components depend upon the assignment type. For example, commuter, rotator, and short-term assignments generally do not include provisions for dependents and may also 1 3

5 treat expenses differently, with a per diem allowance as opposed to the submission of expenses for reimbursement. In addition, there is generally no shipment of household goods for these types of assignments. A long-term assignment, on the other hand, is usually a far more extensive package, and can include provisions for education for accompanying dependents, spousal or partner assistance, auto lease/purchase assistance, household goods shipping, property maintenance for the home country residence, and orientation/home finding trips. These assignments can also include destination services such as settling-in and tenancy management. Other services, such as language and intercultural training, are often included in the longterm package as well, but can be authorized for other assignment categories based on need. It should also be noted that business travelers defined as those traveling to the host location for up to 60 days, depending upon the country typically do not receive letters of assignment. LOA Components Depending upon the assignment type, areas covered in a letter of assignment may include, but are not limited to, the following: Terms and conditions: These spell out the specific conditions associated with the assignment. The LOA will most likely state that the assignment offer is contingent upon the employee obtaining a resident/work visa in the host location. It may also state, depending upon location, that the employee must meet certain health standards. He or she may be told not to take any irreversible actions such as canceling leases, renting his/her home, or selling an auto until the company has communicated the required approvals. Other terms and conditions can include cessation of benefits and repayment of expenses upon termination of employment or resignation, as well as the use of companydesignated mobility and other service providers. Authorized dependents: This names those who fall into this category for accompanied assignments (for example, spouse, partner, or children under age 24). 4

6 Pre-assignment processes and arrangements: This includes language and intercultural training for the employee and any accompanying dependents, a pre-departure familiarization/home finding trip, and a tax briefing. The latter, usually conducted by a third-party provider, covers tax compliance matters. Visa and work/residence permits: This section typically states that the company will sponsor the applicable visa and work/residence permits for the employee and any accompanying dependents. It may also require that the employee track expiration dates to ensure that the renewal process is initiated on a timely basis. Mobilization and demobilization: Here details are provided on point of origin and airfare (e.g., direct flight at the lowest cost, etc.) for both the beginning and the end of the assignment. Duration: This specifies assignment length. A best practice is to state the timeframe and note that: a) assignment duration cannot be guaranteed, b) the employee or the company, with or without notice, may terminate employment at any time, and c) the LOA does not constitute an employment contract. Employment details: These will include the individual s title, job description and scope, job location, individual that he/she reports to, company (division) employed by, and performance reviews. Working hours, PTO, and holidays: This includes paid time off eligibility and accrual rates (usually the same as before the assignment), and company paid holidays. Secondment status: Secondment status is defined as the temporary transfer of a worker to another position or employment in another country. In some cases this can protect the home country entity from paying corporate taxes in the host country, if structured correctly. Home leave: This provision will depend upon the assignment type and can include the length of the leave, when it may be taken, whether it is accompanied or unaccompanied (as applicable), and what expenses the company will cover (e.g., round-trip economy airfare). Home leave may also require management approval and, depending upon the 5

7 assignment type, recommend that the leave coincide with a business trip to the company headquarters or other specified location. Compensation: This area will include base pay, incentives/bonuses, salary reviews, cost of living adjustments/allowances, hardship and danger pay. It will also note the currency in which the employee will be paid. Expenses: Reimbursement and/or coverage of assignment expenses can be handled in several ways: a lump sum to cover costs, an approved per diem amount for meals and incidentals, and/or a reimbursement process for actual and reasonable costs without a per diem limit. If there is a review process for expense amounts, this would also be noted here. Tax: Areas covered in this section include tax policies, the tax equalization process (which ensures that that the tax burden doesn t exceed that of a U.S. based employee), details on home or host country recordkeeping requirements, filing dates, and requirements for tax planning implementation. Benefits: Medical and dental insurance (including coverage for dependents), life and accidental death insurance, retirement plans, and profit sharing are covered in this section. Details should include processes for handling medical and dental expenses, required immunizations and physicals, and any processes or steps that may be necessary when repatriating. Temporary living: This section will outline any temporary housing that will be provided to the family. It should include number of days allocated, what is covered (accommodations, meals, incidentals, etc.), exception policy, and any requirements for expense reimbursement. Settling-in Services: This includes any assistance that is typically provided by a local destination services provider for setting up the daily lifestyle in the host country (for instance, help with driver s licenses, banking, country-specific registrations, insurance, utility hook ups, etc.). Household goods shipping and storage: This section will specify the to/from location for household goods shipments, weight limit, and storage and insurance details. This 6

8 may also note items that should not be shipped as well as those that are not the company s responsibility. In addition, a specific provider may be designated. Housing: A section on housing should be included and can cover provisions for home search (during a pre-assignment home finding trip, for example), as well as the type of accommodations to be provided and whether utilities will be covered by the employer. If the employee is responsible for any costs, such as utility usage beyond what is customary, this would be noted here as well. Housing arrangements can range from the provision of housing directly by the company to coverage of housing costs incurred by the employee. If the employee is a homeowner, depending upon the circumstances, this section may also cover the benefits associated with the sale of the departure home. Transportation: If transportation assistance is to be provided in the host country it should be outlined in this section. This can range from per-diem amount for public transit to a car and driver for work-related travel, and/or a transportation allowance. There may also be separate provisions for personal travel. Educational assistance: If the employee has dependent children and educational costs will be covered, the reimbursement or direct payment of costs incurred for schooling should be listed here. In addition to tuition, this can include transportation, registration fees, and any related expenses for dependent children from pre-kindergarten through grade 12. Companies may also authorize educational consulting services, which include coordination of the school selection and admission process by a third-party provider. Spouse/partner assistance: Spousal and partner assistance can range from tuition payment or reimbursement for any academic studies/programs that enhance professional, technical, or other career-related areas, to guidance on career options, strategies, and local resources. For those who cannot work in the host country due to visa restrictions, assistance can also be provided to secure volunteer positions. 7

9 Property management: For employees planning to maintain a primary residence in the home country, this provision covers professional property management services. It typically includes the specific services to be provided (lawn mowing, leaf removal, and snow shoveling, etc.) whether the property must remain vacant or can be occupied, and any parameters around cost. Emergency assistance: Should a medical or other emergency occur, or if there is a need for a security evacuation, this section will provide instructions for obtaining assistance from organizations such as International SOS. Termination: Termination practices vary, depending upon several factors: country-specific regulations around notice periods, etc., and whether the termination is voluntary or not. This should all be covered in this section. In some situations, the employee may be liable for expenses such as the airfare for the return home and repayment of company-paid expenses. Repatriation: Repatriation provisions are typically among the core elements of the LOA. The repatriation portion will most likely cover, at a minimum, household goods shipping and travel expenses. Other benefits may be included such as temporary housing, home finding, educational assistance for dependents, and spouse/partner career assistance. Repatriation benefits can vary considerably, depending upon the company. That said, many employees must be repatriated, unless they opt to localize. In some instances, a separate repatriation LOA will be provided that includes all of the above, as well as changes in compensation and benefits. Other Considerations In addition to customizing the LOA to the assignment type, it is also important to customize it to the location. For example, some countries may require medical examinations as a condition for living and working there. Local employee rights and employer obligations, which vary by location, must also be taken into consideration. These include such areas as work hours, termination practices, and maternity leave. Although U.S. citizens working overseas for U.S-based employers are subject to both these and U.S. regulations, host country laws generally take precedence where there is a conflict. Companies should therefore make every effort to adhere to local 8

10 requirements since noncompliance can result in fines, penalties, and other sanctions. In addition, the LOA must also be provided in the local language in some jurisdictions to meet certain legal requirements. In the appendix below is a sample letter of assignment for an employee who will be transferred to Canada for a two-year assignment. 9

11 Appendix: Sample Letter of Assignment Dear Stephanie, I am pleased to offer you the position of at ABC Company s XYZ Division in Toronto, Ontario, Canada. This Letter of Assignment (LOA) summarizes the terms of your international assignment and highlights elements of ABC Company s International Long Term Assignment Policy. Assignment Your assignment in Canada is for a period of two (2) years, years commencing on (date to be determined) and subject to obtaining proper work authorization. During your assignment, you will remain an employee of ABC Company and will continue under the same terms and conditions of employment as though you were in the United States, hereinafter referred to as the home country, except as modified by this letter. The period in Toronto will be treated as a period of continuous employment with ABC Company and will count toward any service related entitlements, including employee benefits. Compensation and Benefits Base Pay: Your base pay will be $ per week, which equates to $ per annum effective on your transfer date. You will be paid on the home country payroll with current payroll deductions. Your direct deposit will continue. You will be eligible for a salary review in, based on your performance at XYZ Division. Management Incentive Plan Bonus: You will be eligible for the Management Incentive Plan for FY2016 at a target of % with performance measured on. The award payment will be made in U.S. dollars through the U.S. payroll. Long Range Performance Incentive Plan Bonus: Your FY2016 LRPIP target will be at $ based on ABC Company s performance. The award payments will be made in U.S. dollars through the U.S. payroll. Stock Options: You will continue to be eligible to participate in the ABC Company Stock Option Plan. Your fixed dollar target remains at $ and the option price used to derive your stock option award will be the closing price on the date of grant. This target will be divided by the stock option price on the grant date and subject to the approval of the Executive Compensation Committee of the Board of Directors. 10

12 Medical and Dental: You will retain coverage under your benefits plans for medical, dental, life and long-term disability coverage. You will need to have coverage under for the duration of your assignment. You will be reimbursed for doctor and hospital expenses in accordance with your current medical plan features. ABC Company will reimburse for any out of pocket expenses for medical exams and immunizations necessary for expatriation to the United States if required. 401(K) and Executive Savings Plan: You will remain eligible to participate in the U.S. 401(k) and Executive Savings Plan. Holidays/Vacation: All country holidays will be in accordance with Canadian local practice. You will retain eligibility for four weeks of vacation per year on your current anniversary schedule. Home Leave: ABC Company will reimburse you for two round trip economy airfares per year for you to your home country location. As an alternative, you may elect to receive the lump sum payment equivalent, based on a 30-day advance ticket price to your home country location as quoted by Travel. Bereavement Leave: In the event of a death of a close relative, ABC Company will provide round trip airfare back to the United States and appropriate leave. Allowances Goods and Services Allowance (G&S): You will receive a G&S allowance while on assignment in Canada. The G&S allowance takes into account your base pay and family size and includes the costs associated with food, household supplies, clothing, telephone, household furnishings and recreation and entertainment. The G&S index from Los Angeles, CA USA to Ontario, Toronto, Canada for a family size of one is USD. As a result, there will be no reduction in your overall salary. Your G&S will be delivered net of taxes as follows: Annual G&S allowance deduction from the USA payroll: $ ($ U/week). Annual G&S allowance payment in the Canada payroll: $ ($ /bi-monthly). The exchange rate used for this calculation is 1 USD = CAD. The G&S allowance will be reviewed annually for changes associated with pay increases, G&S index and exchange rate changes. 11

13 Car Allowance: You will continue to be eligible for a U.S. car allowance. As of the start of your assignment, your allowance will increase to $ per year (level X) which will be paid on the U.S. payroll on a weekly basis. Housing and Utilities: A monthly housing allowance of up to $ per year ($ per month) to include rental expense, utilities and reasonable cost of furniture rental will be provided through the Canada payroll. Expenses that exceed the housing allowance will be your responsibility. Wire Transfers/Banking: ABC Company will cover costs associated with one wire transfer per month from your U.S. bank to your Canada bank as an expense item if required. Disposition/Transfer of Automobiles: If you decide to sell your U.S. vehicles, you are eligible for reimbursement of up to 20% of the U.S. Blue Book value per vehicle, to assist in the disposition or lease cancellation fees for up to two automobiles owned in the U.S. at the time of transfer to Canada. If you decide to drive your vehicles to Canada, ABC Company will cover the costs associated with U.S. car compliance standards. Relocation to Toronto, Ontario, Canada Relocation to Toronto, Ontario, Canada will be according to our International Long Term Assignment Policy and services will be coordinated through our outside vendor. A counselor will be assigned to you to assist with your relocation. Travel Expenses/Home Finding Trip: ABC Company will reimburse you for reasonable expenses associated with travel for two familiarization trips up to 4 days, 3 nights for you. During this trip, you will be provided with 2 days of home finding assistance, arranged by ABC Company, and reimbursed for all normal and customary finder s fees. You will also be reimbursed for business travel, including, mileage, airfare and hotel accommodations in accordance with WMI T&E policy. Temporary Living: ABC Company will reimburse you for reasonable temporary living for up to 30 days in Toronto, Ontario, Canada while your household goods shipment is en route. Settling-in Services: You are eligible for two(2) settling-in orientation services, which include banking, drivers license, social security, etc, which will be arranged through. Miscellaneous Relocation Allowance: You will receive a one-time Miscellaneous Relocation Allowance equivalent to 2 weeks salary ($ ), payable at the commencement of your 12

14 assignment. This allowance is intended to cover incidental expenses plus any other expenses not otherwise covered by ABC Company under the relocation policy. Shipment of Household Goods: Your relocation counselor will assist with the shipment of your goods from Los Angeles, CA, USA to Ontario, Toronto, Canada. will provide insurance at full replacement value up to $ for the shipment of household goods. will arrange for surface shipment of your household goods, up to a 20-foot container/6500 pounds provided you are moving into unfurnished housing, including up to 30 days of storage in transit. A small shipment of 400 pounds is also authorized, including up to 30 days of storage in transit. Relocation Travel to Host Country: ABC Company will cover one-way transportation for you to relocate to Ontario, Toronto, Canada in economy class, including reasonable incidentals including luggage handling, tips and entry duties, if applicable. Maintenance and Management of Home in Home Country: If you wish to rent your home country property, it will be your responsibility to arrange for a real estate company to assist with the rental process. ABC Company will reimburse you the fee charged by the real estate company. You will be responsible for mortgage, insurance, maintenance, and taxes on the property. Should you decide not to rent your home country property, ABC Company will cover monthly costs for a property management company to look after your home. Taxes: ABC Company intends to ensure that you are neither better nor worse off financially by virtue of your transfer to USA. ABC Company has engaged to ensure that all home and host country compliance requirements are addressed on ABC Company s and your behalf. This approach is known as Tax Equalization. Dependent upon the length of your assignment, you will either have actual or hypothetical tax withheld via USA payroll. In all circumstances, ABC Company will arrange on your behalf the payment of all host country withholding taxes including any balancing payments that may be required. All host country taxes on your employment income, (including any payable on accommodation, allowances, flights, etc.) will be met by ABC Company on your behalf. Tax Equalization Policy and Tax Preparation: ABC Company s Tax Equalization Policy will require a reconciliation of your actual Canada tax position to be carried out by 13

15 to ensure that you have paid the appropriate level of tax and the corresponding income that you would have received had you remained in the U.S. You should note that any foreign tax credits paid and any subsequent refunds of tax due from either the U.S. or Canada tax authorities are the property of ABC Company and as such, you will be required to forward such refunds to ABC Company immediately upon receipt. This will also apply if you receive any refunds after you have left ABC Company. You will continue to pay U.S. taxes via payroll and Social Security will continue to be paid. ABC Company will also arrange for payment of the necessary Canada taxes. You are responsible for providing all necessary information to on a timely basis in order to complete the appropriate returns. Failure to do so may result in you becoming responsible for any penalties or interest charges, which may be imposed. In signing this letter, you also agree to ABC Company and its tax advisors to release, for legitimate purposes, personal information required about your tax arrangements during or after the assignment of your employment. will prepare required personal income tax returns in the home and host country during the assignment. Tax Orientation Meetings: Tax orientation meetings will be provided by. These meetings will include a review of ABC Company s tax policies, the tax equalization process, details on home or host country specific record keeping requirements, filing dates and requirements for tax planning implementation and scope of services offered to you by. You are eligible for and required to participate in a pre-departure tax orientation meeting with. You will also be eligible for 2 hours per year of tax consulting with while on assignment. Immigration: Your assignment is contingent on obtaining a valid work permit to legally work and reside in Canada. ABC Company will coordinate arrangements to work through our immigration services provider to obtain your work permit. Conditions of the Assignment: As a condition of your temporary assignment, you hereby agree; a) this assignment shall not alter the at-will nature of your employment; b) the laws of the home country shall govern all aspects of your employment relationship with ABC Company, including but not limited to your temporary assignment to perform work in the host country; c) you shall make no claim nor initiate any legal proceedings against ABC Company relating to this assignment or the terms and conditions of your employment 14

16 with ABC Company in the courts of the host country; and d) that any claim that you shall make against ABC Company relating to this assignment or the terms and conditions of your employment with ABC Company shall be asserted only in a court of competent jurisdiction in the home country. During the assignment, you must abide by all laws of the host country and the ABC Company Code of Conduct. You are also expected to conduct yourself in a professional manner at all times and carry out your duties and responsibilities to the high standard expected throughout ABC Company. Termination of Assignment If termination of employment with or without cause should occur while on assignment, ABC Company will cover costs incurred in relocating you and your family back to the United States. ABC Company will not cover relocation costs if you voluntarily terminate while on assignment. Completion of Assignment Upon completion of the international assignment, you will be returned to Los Angeles, CA, USA for reassignment. Every effort will be made to return you to a level role, or a mutually agreed position in Los Angeles, CA, USA, consistent with satisfactory performance, career interest, and length of service. We wish you every success in your new assignment and appreciate your contributions to the business. ACCEPTED AND AGREED: Date Stephanie Employee Date NAME, President, ABC Company 15

17 ABOUT MSI: MSI is a global talent solutions company and the leading provider of global talent mobility services to corporations worldwide. Through the alignment of its global mobility solutions (including global compensation and immigration services), talent management capabilities, and global expansion services, MSI enables companies to grow, compete, and globalize by helping them strategically develop, mobilize, and retain their talent. This alignment between global mobility, talent management, and global expansion services is increasingly critical as corporations face mounting challenges with regard to employee recruitment and retention in today s competitive marketplace. MSI focuses on delivering services that yield measurable outcomes to both the employee and the business. MSI s tri-regional operations centers in the Americas, EMEA, and Asia Pacific enable it to provide a one-stop solution for talent mobility in over 190 countries and territories. 16

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