Multinational Employers and Cross-Border Employment Arrangements

Transcription

1 Presenting a live 90-minute webinar with interactive Q&A Multinational Employers and Cross-Border Employment Arrangements Evaluating the Options: Secondment, Transfer, GEC or Dual Employment THURSDAY, JULY 19, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Donald C. Dowling, Jr., Partner, White & Case, New York Carole A. Spink, Partner, Baker & McKenzie, Chicago Thomas A. McKinney, Senior Vice President, Human Resources, CareOne, Fort Lee, N.J. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

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5 Strafford Multinational Employers and Cross- Border Employment Arrangements Thursday, July 19, :00 pm 2:30 pm EDT Thomas A. McKinney Senior Vice President, Human Resources CareOne, LLC Fort Lee, NJ Carole A. Spink Partner Baker & McKenzie Chicago Donald C. Dowling, Jr. International Employment Law Partner White & Case LLP New York City

6 Multinational Employers and Cross-Border Employment Arrangements Roadmap I. Options for structuring the expat assignment - Overview of 5 structures - Key concepts - Considerations - Pros/Cons II. Employer considerations 6

7 Context IMAGINE: HQ of a multinational in (say) Chicago has a HQ employee they need to run their subsidiary in (say) Rome for two years They also have an employee in (say) their Tokyo operation they need to send to run their operation in (say) Beijing for two years 7

8 I. Options for structuring the expat assignment Some thoughts on an approach The common request for a sample or form expatriate agreement is misplaced Never ask do you have a form expat agreement? until you can answer: what kind of expat structure is most appropriate here, for this particular expat assignment? The question how should we structure an expat posting? has no single answer Major multinationals use various structures depending on context and specific needs. To decide among the various possible structures, analyze the concepts/issues in play What are the various possible expat structures? 8

9 I. Options for structuring the expat assignment Five types of expatriate: 1. Home-country-affiliate employed and paid 2. Home-country-affiliate employed/host-country-affiliate paid 3. Localized 4. Localized with hibernating home country affiliate agreement 5. Dual employment contract 9

10 I. Options for structuring the expat assignment To decide among the five possible expat structures, understand the concepts in play (the issues that drive different structures) Glossary of Key Concepts (not necessarily terms of art) Accommodation Limited host country exception to law allowing certain foreigners (diplomats, reporters, military, NGOs, nonprofits) to work on foreign (home country) payroll Charge-back Intra-affiliate payment to reconcile payroll payments one entity makes on behalf of an affiliate s beneficial employee Choice of law Selection of a country s law to apply to an expat arrangement either overt contractual selection or selection by operation of law (in Europe, Rome Convention); in some expat arrangements, 2+ jurisdictions employment protection laws apply simultaneously, because of the public policy of mandatory application of employment protection laws Dual employment or co-employment Two entities (two affiliates or a principal and an outsourcer) employ an expat simultaneously either overt contractual selection or after-the-fact determination designation Expatriate Hired in one country and later assigned to work abroad for the same employer or an affiliate: Distinguish participating in company expatriate program : Not all actual expatriates are designated as expatriates under an employer s program Expatriation for the benefit of the employee (As opposed to most expatriations, which are for the benefit of the employer) 10

11 I. Options for structuring the expat assignment Glossary of Key Concepts (not necessarily terms of art) Flying under the radar Noncompliant payroll: Expat is paid on a home country payroll, which violates withholding/reporting/payroll laws of host country, without a shadow payroll Foreign hire Employee hired in one country to work a local job in another country: Avoid structuring as an expat, even where the business arrangement is to pay expat-like benefits Global employment company (GEC) Swiss incorporated, or other, subsidiary that employs a team of mobile permanent expatriates Hibernating employment agreement Not terminated, dormant legacy home country employment agreement predating the expat assignment, currently superseded by an expat arrangement with host country employer entity; hibernating agreement springs back to life upon termination or repatriation Inpatriate Coming from a foreign country operation to work at HQ Long business trip Employee renders services for a period in a host country, but place of employment remains the home country 11

12 I. Options for structuring the expat assignment Glossary of Key Concepts (not necessarily terms of art) Permanent establishment Doing-business-in corporate entity tax presence: An expat employed and paid by a home country entity that otherwise does not do business in the expat s host country may trigger a permanent establishment finding, making home country entity liable for host country corporate registrations and tax filings requirements Secondment Employee works and is paid by one entity while lent out to (rendering services for) another (in the expat context, across borders); the entities might be affiliates or merely business partners or principal/outsourcer Secondment (or expat) agreement vs. inter-affiliate assignment agreement A secondment (or expat) agreement is between an employer and an expat; an inter-affiliate assignment agreement is between a home-country employer entity and a host country affiliate entity (expat is not a party) Shadow payroll Local payroll deductions/reporting/withholding issued on paper and charged back to foreign employer entity, which pays employee in home country (to comply with host country payroll laws) Social security totalization treaty Bilateral treaty by which expatriates stay on (employers contribute to) home country social security system for up to (usually) 5 years: Does not affect income tax withholding obligations Stealth expat Employee s place of employment shifts abroad, perhaps by extending a long business trip, without legal/payroll or local HR accommodating the move 12

13 I. Options for structuring the expat assignment Glossary of Key Concepts (not necessarily terms of art) Third-country national Expat from a foreign-country office (not HQ) sent to another office in a different (third) country Transfer Localized to a new entity (in the expat context, to an overseas affiliate) Visa/work permit Every expat and foreign hire must comply with host country immigration/foreign worker requirements 13

14 I. Options for structuring the expat assignment Questions to ask in deciding among the five types of expat structure: Will the expat s place of employment become the host country, and if so does the host country impose mandatory payroll laws requiring deductions, withholdings, contributions, reporting? Where a home country entity employs or pays the expat, might that trigger a home-countryentity permanent establishment? Can some in-country employer entity available issue payroll or a shadow payroll? Can the expat be employed by a GEC (global employment company)? Does a social security totalization treaty (or some other accommodation) facilitate foreignentity payroll? Which entity (or entities) will benefit from the employee s services? That is, who is the expat really working for? Is this an expatriation for the benefit of the employee? What procedures will be necessary apply if the expat needs to be disciplined or fired? 14

15 I. Options for structuring the expat assignment Having considered these concepts, assess: Pros and cons of each of the 5 types of expatriate Imagine an inbound expatriate scenario, such as a French multinational assigning a French expat to work a two-year broadening assignment in Chicago 1. Home-country-affiliate employed and paid But: Violate U.S. tax withholding, social security law (unless treaty), IL workers comp., IL unemployment comp. 2. Home-country-affiliate employed/host-country-affiliate paid But: Is FR entity now doing business in IL (permanent establishment)? Firing must also be under FR procedure/severance pay. 3. Localized But: Will FR employee accept the transfer and agree to resign from home country entity? 4. Localized with hibernating home country affiliate agreement But: Firing must also be under FR procedure/severance pay? 5. Dual employment contract But: Is FR entity now doing business in IL (permanent establishment)? Firing must also be under FR procedure/severance pay? 15

16 I. Options for structuring the expat assignment Expatriate Structures Type of expatriate Structure Tax/payroll Issues (beyond tax/social security treaties) Inter-affiliate agreement a best practice? Other issues 1. Home-countryaffiliate employed and paid Expat remains on home countryaffiliate payroll; works in host country; inter-affiliate reimbursement chargebacks sometimes structured Expat is taxed in host country; home-country-affiliate may invoke social security totalization treaty Yes, if expat is providing services for host country affiliate Possible permanent establishment for home country affiliate in host country; possible deemed dividend or other deemed payment between home country affiliate and host country affiliate if the value of the services is not reimbursed 2. Home-countryaffiliate employed/hostcountry affiliate paid Expat s employer is homecountry affiliate; pay is delivered by host-country affiliate Expat is taxed in host country; host country affiliate makes mandatory withholdings. Home country affiliate may invoke social security totalization agreement Essential Possible dual employer problem for host country affiliate (home-country affiliate deemed doing business in host country because it employs someone there? 3. Localized (hostcountry-affiliate employed and paid) Expat resigns from home country affiliate, simultaneously hired by host country affiliate Expat taxed in host country; host country affiliate makes mandatory withholdings No Undesirable to expat (unless no expectation of repatriation); seniority recognition and social security accrual issues 4. Localized with hibernating home country affiliate agreement Home country employment agreement expressly suspended until repatriation; expat hired by host country entity Expat taxed in host country; possible dual-jurisdiction tax ramifications; some home country (e.g. Brazil) payroll contributions obligations persist Yes Expat has extra (home country contract) rights when terminated or repatriated, significantly complicating terminations 5. Dual employment contract (paid on either home or host country payroll, or both) Expat has two simultaneous employment agreements: one with home country affiliates, one with host country affiliate; may be dual pay, or intra-affiliate chargebacks May be tax benefits, but there will be tax and dual payroll contribution complexities. Seek dualjurisdiction tax advice Essential Significant permanent establishment risk for home country affiliate. Significant legal complications on separation: If terminated or repatriated, expat may invoke legal rights under both home and host country laws. 16

17 II. Employer & Employee Considerations Terms and Conditions of Employment Professional Concerns Personal/Financial Concerns Open to negotiation or if employed by local company, are terms covered by collective agreement? Visas and Work Permits 17

18 II. Employer & Employee Considerations Professional Length of Assignment Change in assignment? Possible extension? Clear Responsibilities How evaluated Identified and Measurable goals Effect on Career Promotion vs. Lateral move Company view on assignments out of sight, out of mind or highly-valued experience 18

19 II. Employer & Employee Considerations Professional Doing the Job Set up to succeed? Cross-cultural training Support of organization (home and host country) What policies apply e.g., car, travel, etc. 19

20 II. Employer & Employee Considerations Professional Returning Home Resignation of Local Corporate Positions Re-Integration into the home country organization employment guarantee? Recognition of new skills and perspective Promotion Salary Effect on job performance and satisfaction after return 20

21 II. Employer & Employee Considerations Professional Settling Disputes Venue Forum Choice of Law Liability Issues D&O 21

22 II. Employer & Employee Considerations Personal/Financial Salary Currency Standard of living Local anomalies - e.g.,13 th month Other Compensation Bonuses Limits on Discretion Pension, 401(k), ESOP Stock Option Plan, deferred comp 22

23 II. Employer & Employee Considerations Personal/Financial Vacation Home vs. host country Tax Issues Tax equalization Tax preparation assistance Housing At home and abroad Relocation (both ways) Car 23

24 II. Employer & Employee Considerations Personal/Financial Benefits Health Insurance, Prescription, Life STD/ Sick time, LTD Injury/ Accident Foreign Voluntary Workers Compensation Emergency extrication / safety issues Other Family/ Trailing Spouse Issues Trips Home Children s education Social life - expat community or on their own? 24