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Multinational Employers and Cross Border p y Employment - - PowerPoint PPT Presentation

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Presenting a live 90 minute webinar with interactive Q&A Multinational Employers and Cross Border p y Employment Arrangements Evaluating the Options: Secondment, Transfer, GEC or Dual Employment WEDNES DAY, JUNE 8, 2011 1pm Eastern

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Presenting a live 90‐minute webinar with interactive Q&A

Multinational Employers and Cross‐Border p y Employment Arrangements

Evaluating the Options: Secondment, Transfer, GEC or Dual Employment

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1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific WEDNES DAY, JUNE 8, 2011

Today’s faculty features: Donald C. Dowling, Jr., Partner, White & Case, New Y

  • rk

Carole A. S pink, Partner, Baker & McKenzie, Chicago Thomas A. McKinney, S enior Counsel, Labor & Employment Law, International Specialty Products, Wayne, N.J.

The audio portion of the conference may be accessed via the telephone or by using your computer's

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Multinational Employers and Cross Multinational Employers and Cross- Border Employment Arrangements

Wednesday June 8 2011 Wednesday, June 8, 2011

Donald C. Dowling, Jr. International Employment Law Partner White & Case LLP Carole A. Spink Partner Baker & McKenzie Thomas A. McKinney Senior Counsel, Labor & Employment Law International Specialty Products White & Case LLP New York City ddowling@whitecase.com Baker & McKenzie Chicago carole.spink@bakermckenzie.com International Specialty Products Wayne, N.J. TMcKinney@ispcorp.com

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Multinational Employers and Cross-Border Employment Arrangements Employment Arrangements

Roadmap Roadmap

  • I. Options for structuring the expat assignment
  • II. Employer considerations
  • III. Documenting the assignment

IV T i ti th i t

6

IV.Terminating the assignment

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SLIDE 7

Context Context

IMAGINE: IMAGINE:

  • HQ of a multinational in (say) Chicago has

HQ l th d t th i 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

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  • 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
  • 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?” The question how should we structure an expat posting? has no single answer

  • Major multinationals use various structures depending on

context and specific needs context and specific needs.

To decide among the various possible structures, analyze the concepts/issues in play

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What are the various possible expat structures?

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  • I. Options for structuring the expat assignment

p g p g Five types of expatriate: 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

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  • 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) Glossary of Key Concepts (not necessarily terms of art)

  • “Accommodation”

– Limited host country exception to law allowing certain foreigners (diplomats, reporters, military, NGOs, non- profits) 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

  • peration 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

T titi (t ffili t i i l d t ) l t i lt l ith t – 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

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an employer s program

  • Expatriation “for the benefit of the employee”

– (As opposed to most expatriations, which are for the benefit of the employer)

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  • 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”

“Hib ti ” l t t

  • “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

I t i t

  • 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

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country

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  • I. Options for structuring the expat assignment

Glossary of Key Concepts (not necessarily terms of art)

  • Permanent establishment
  • 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
  • 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 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

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Employee s place of employment shifts abroad, perhaps by extending a long business trip, without legal/payroll or local HR accommodating the move

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  • 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

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  • 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-country-

entity “permanent establishment”? entity 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 foreign-

entity 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?

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  • 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

y p y p

  • 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

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y

  • But: Is FR entity now “doing business in” IL (permanent establishment)? Firing must also be

under FR procedure/severance pay?

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SLIDE 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-country-

Expat remains on home Expat is taxed in host country; Yes, if expat is Possible “permanent affiliate employed and paid country-affiliate payroll; works in host country; inter-affiliate reimbursement chargebacks sometimes structured home-country-affiliate may invoke social security totalization treaty providing services for host country affiliate 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 reimbursed

  • 2. Home-country-

affiliate employed/host- country affiliate paid Expat’s employer is home- country 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 t Essential Possible “dual employer” problem for host country affiliate (home- country affiliate deemed “doing business in” host country because it employs someone there? agreement

  • 3. Localized (host-

country-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 Home country employment Expat taxed in host country; Yes Expat has extra (home country

  • 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

t t ( id Expat has two simultaneous l t t May be tax benefits, but there ill b t d d l ll Essential Significant permanent t bli h t i k f h contract (paid on either home or host country payroll, or both) employment agreements: one with home country affiliates,

  • ne with host country affiliate;

may be dual pay, or intra- affiliate chargebacks will be tax and dual payroll contribution complexities. Seek dual-jurisdiction tax advice 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.

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SLIDE 17
  • II. Employer & Employee Considerations
  • II. Employer & Employee Considerations
  • Terms and Conditions of Employment

Terms and Conditions of Employment

– Professional Concerns Personal/Financial Concerns – Personal/Financial Concerns Open to negotiation or if employed by local

  • Open to negotiation or if employed by local

company, are terms covered by collective agreement? agreement?

  • Visas and Work Permits

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SLIDE 18
  • II. Employer & Employee Considerations
  • II. Employer & Employee Considerations
  • Professional

Professional

– Length of Assignment

  • Change in assignment? Possible extension?
  • Change in assignment? Possible extension?

– Clear Responsibilities

  • How evaluated

How evaluated

  • Identified and Measurable goals

– Effect on Career Effect on Career

  • Promotion vs. Lateral move
  • Company view on assignments

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– “out of sight, out of mind” or highly-valued experience

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  • II. Employer & Employee Considerations
  • II. Employer & Employee Considerations
  • Professional

Professional

– Doing the Job

  • Set up to succeed?
  • Set up to succeed?
  • Cross-cultural training
  • Support of organization (home and host country)

pp g ( y)

  • What policies apply – e.g., car, travel, etc.

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  • II. Employer & Employee Considerations
  • II. Employer & Employee Considerations
  • Professional

Professional

– Returning Home

  • Resignation of Local Corporate Positions
  • Resignation of Local Corporate Positions
  • Re-Integration into the home country
  • rganization – employment guarantee?
  • Recognition of new skills and perspective

– Promotion Salary – Salary

  • Effect on job performance and satisfaction after

return

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SLIDE 21
  • II. Employer & Employee Considerations
  • II. Employer & Employee Considerations
  • Professional

Professional

– Settling Disputes

  • Venue
  • Venue
  • Forum
  • Choice of Law

– Liability Issues

  • D&O

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SLIDE 22
  • II. Employer & Employee Considerations
  • II. Employer & Employee Considerations
  • Personal/Financial

Personal/Financial

– Salary

  • Currency
  • Currency
  • Standard of living
  • Local anomalies - e.g.,13th month

g ,

– Other Compensation

  • Bonuses – Limits on Discretion
  • Pension, 401(k), ESOP
  • Stock Option Plan, deferred comp

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SLIDE 23
  • II. Employer & Employee Considerations
  • II. Employer & Employee Considerations
  • Personal/Financial

Personal/Financial

– Vacation

  • Home vs host country
  • Home vs. host country

– Tax Issues

  • Tax equalization

Tax equalization

  • Tax preparation assistance

– Housing Housing

  • At home and abroad
  • Relocation (both ways)

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– Car

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SLIDE 24
  • II. Employer & Employee Considerations
  • II. Employer & Employee Considerations
  • Personal/Financial

Personal/Financial

– Benefits

  • Health Insurance Prescription Life
  • Health Insurance, Prescription, Life
  • STD/ Sick time, LTD
  • Injury/ Accident – Foreign Voluntary Workers

j y g y Compensation

  • Emergency extrication / safety issues

– Other Family/ Trailing Spouse Issues

  • Trips Home

Child ’ d ti

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  • Children’s education
  • Social life - expat community or on their own?
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SLIDE 25

III Documenting the Assignment

  • III. Documenting the Assignment
  • Once the structure of the expat assignment is

Once the structure of the expat assignment is determined, it is critical that the appropriate documentation be prepared.

  • Examples:
  • Assignment letter

g

  • Employment transfer letter (consent)
  • Secondment agreement
  • Local employment agreement
  • Repatriation letter

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SLIDE 26

III. Documenting the Assignment III. Documenting the Assignment

  • Depending on the structure, one or more

Depending on the structure, one or more documents may need to be executed with multiple parties.

  • Examples:
  • employee/home-country-affiliate

p y y

  • employee/host-country-affiliate
  • home-country-affiliate/host-country affiliate
  • e cou t y a

ate/ ost cou t y a ate

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SLIDE 27
  • III. Documenting the Assignment
  • III. Documenting the Assignment

Typical provisions: Typical provisions:

  • Term
  • Duties/responsibilities
  • Duties/responsibilities
  • Relationship of parties

Compensation

  • Compensation
  • Benefits (including return trips, family benefits)

W k th i ti

  • Work authorization

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SLIDE 28
  • III. Documenting the Assignment
  • III. Documenting the Assignment

Typical provisions: Typical provisions:

  • Tax Equalization
  • Employer protections (confidentiality/IP/non-

Employer protections (confidentiality/IP/non solicitation)

  • Data protection
  • Charge backs
  • Termination/repatriation

Translations required/recommended?

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SLIDE 29
  • III. Documenting the Assignment
  • III. Documenting the Assignment

Applicable law: Applicable law:

  • Extraterritorial application of U.S. laws

Extraterritorial application of ADEA Title

  • Extraterritorial application of ADEA, Title

VII, ADA (U.S. citizens only)

  • No extraterritorial effect of FLSA FMLA
  • No extraterritorial effect of FLSA, FMLA,

OHSA, most state and local anti- discrimination laws

  • Application of local laws

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SLIDE 30
  • III. Documenting the Assignment
  • III. Documenting the Assignment

Documentation for the 5 expat structures Documentation for the 5 expat structures H t ffili t l d d id

  • Home-country-affiliate employed and paid
  • Amendment to existing employment

agreement (consent to transfer)

  • Inter-affiliate agreement (secondment)

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SLIDE 31
  • III. Documenting the Assignment
  • III. Documenting the Assignment
  • Home-country-affiliate/host-country

Home country affiliate/host country affiliate paid

Amendment to existing employment

  • Amendment to existing employment

agreement (consent to transfer) I t ffili t t ( d t)

  • Inter-affiliate agreement (secondment)

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SLIDE 32
  • III. Documenting the Assignment
  • III. Documenting the Assignment
  • Localized (host-country-affiliate employed

Localized (host country affiliate employed and paid)

Termination of existing employment

  • Termination of existing employment

agreement New employment agreement with host

  • New employment agreement with host-

country-affiliate

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SLIDE 33
  • III. Documenting the Assignment
  • III. Documenting the Assignment
  • Localized with “hibernating” home-country

Localized with hibernating home country affiliate agreement

Amendment to existing agreement to

  • Amendment to existing agreement to

suspend until repatriation New employment agreement with host

  • New employment agreement with host-

country affiliate

  • Inter-affiliate agreement
  • Inter-affiliate agreement
  • Repatriation letter

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SLIDE 34
  • III. Documenting the Assignment
  • III. Documenting the Assignment
  • Dual employment contract

Dual employment contract

  • Amendment to existing employment

agreement/assignment letter agreement/assignment letter

  • New employment agreement with host-

country affiliate country affiliate

  • Inter-affiliate agreement

Repatriation letter

  • Repatriation letter

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SLIDE 35
  • IV. Terminating the Assignment
  • IV. Terminating the Assignment
  • Terminating expatriates is a topic for a

Terminating expatriates is a topic for a separate program

  • But anticipate the possible need to terminate

mid-assignment (i.e., before repatriation). This should always be a factor in selecting an expat assignment structure

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SLIDE 36

Contact Information

Thomas A. McKinney Senior Counsel, Labor & Employment Law I t ti l S i lt P d t International Specialty Products Wayne, N.J. McKinney@ispcorp.com Carole A. Spink Partner Baker & McKenzie Baker & McKenzie Chicago carole.spink@bakermckenzie.com Donald C. Dowling, Jr. International Employment Law Partner White & Case LLP

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New York City ddowling@whitecase.com