Top Ten Tips for Employers when sending Employees Abroad

Before

1) Who should be the employer?

One of the first questions that needs to be asked is who should be the employer when the employee moves to a foreign office. It could either be the current employer or, alternatively, the Host employer if there is a suitable entity in the destination country, e.g. a subsidiary or sister company.

There will inevitably be an impact on tax and social security so that is likely to be a driving force in deciding on the right employer.

2) The Employment Contract

Whether the employee is remaining with the current employer, or transferring to the Host employer, the employment contract will need to be amended.

An employee will expect continuous service with the current employer to be preserved and this needs to be stated in the contract to avoid disputes. This is extremely important because it offers the employee protection from unfair dismissal and gives them the right to a redundancy payment, dependent on their service. Unilateral change cannot be forced on behalf of the employer, so all the changes need to be skilfully negotiated.

3) Key terms included in either the variation or the new contract

It is essential to specify the duration of the employee’s assignment abroad in their contract.

E.g. If the employee has a fixed term in the new country – “you will be based in Australia for a fixed term of 24 months.”
E.g. If the employee is based in the new country indefinitely – “you will be based in Australia for an indefinite term.”
E.g. If the employee is based in the new country on a fixed term with a notice period – “This arrangement will be terminable by either party giving to the other not less than [3] months’ written notice.”
E.g. Does the employee have the right to return to the UK when his assignment is terminated? This will need to be clarified – “It is expected you will return to x’s  London office at the end of the 2 year period.”

Should there be a “probationary”/trial period?

You know your employee but you do not know how they will adjust to life in a new country. Therefore, it is sensible to write a trial period into the contract. e.g. “subject to a formal review after the first [x] months it is intended you will be based in Australia from 1 July for a period of 24 months.”

During

4) Management during the assignment

It is imperative that the employer considers how local customs and laws in the host country will affect the employee’s work.

Hours – The hours of work may be different in the new country and the employee will be expected to follow local practice.

Holidays – The public holidays may be slightly different in the new country. An employer needs to decide who will authorise the holidays; will it be the normal line manager or the boss in the new country?

Cultural Issues – An employee who is transferring from London to the People’s Republic of China may need some cultural norms/expectations incorporated into the contract.

Reporting – An employer needs to decide who the employee will report to when working the new country.

Grievance and disciplinary issues – An employer needs to state who the employee should go to in the event of a grievance issue; will it be the normal line manager or the boss in the new country?

Training – An employer needs to decide whether their employee is subject to continuing professional development obligations. They also need to decide whether these obligations can be suspended when working in the new country and, if they cannot, will this involve them travelling back to their original workplace to fulfil training obligations?

Clawback Provision – An employer needs to consider what happens if an employee moves to a competitor firm once he arrives in the new country. If appropriate clauses are drafted into the contract it will be possible to retrieve some of the costs of moving the employee to the new country. If there are no clauses in the contract, this will not be possible.

5) Remuneration and allowances/benefits

The employment contract needs to explain the changes in salary and payment that will commence once the employee is working in the new country.

Is the current salary simply converted into the currency of the new country or will there be some new arrangement?
Is the pay period exactly the same?  Will it change to weekly or monthly?
What exchange rate will be used?
Is there a provision to review the exchange rate? E.g. every 6 months.  “And a new exchange rate will be applied to the conversion if the exchange rate moves by 10% either way”.

Housing

An employer needs to consider what the position will be with housing

Whose responsibility is it to find accommodation?
Whose responsibility is it to pay for accommodation?

Insurance (Health/life)

Will London schemes cover this or will this need to be replaced with a local equivalent?
The level of cover of insurance also needs to be documented in the contract.

6) Tax Reimbursement Policy

An employer must carefully consider, and make clear in the contract, any changes in tax procedures that will occur when working in the host country.

Will the employer deduct the tax in the source country?

Will the employee be paid gross and have to account for their own tax?

Is there a promise that the employee will be no worse off than if they were working in the UK?
e.g Tax equalisation / tax neutral position.

If the employee is removed from UK payroll and transferred to a new country, what will happen to their national insurance contributions?  It may be possible to make voluntary contributions – this is not a matter for the contract but it may be something your employee may expect advice on.

It must be completely clear who is paying what and when.

Does employee know what they will get at the end of 1st month and subsequently?

Is the employee clear what their responsibilities are?

Is the employer offering tax return services to the employee?

7) Liability and Insurance (Tax is not the only liability!)

As an employer, you have a duty not to expose your employee to unnecessary risk.
An employer needs to consider exactly what risks their employee will be exposed to, whether the premises are safe to work in and, if the employee is required to go onto sites to assess other projects, what health and safety measures will be in force onsite.

Although risk-assessments are crucial for an employer, they should be considered on a case by case basis. For example, there is no need to risk-assess a scheduled flight from London to New York.

Example: This is a case where an employer was accountable for the fatality of an employee. The employee moved to the Peruvian office of his firm. Whilst working, he and some other colleagues were taken to visit a site in the Peruvian mountains in a helicopter. Unfortunately, the helicopter crashed mid-flight into the mountains and all the workers on board died. The accident could have been prevented had the employer ensured that the correct health and safety checks were carried out. The employer was responsible for their employee’s safety and was liable for the accident.

8) Regulatory Issues

Is there a need for accreditation with the competent new country’s authorities?

–  If so, what is the process?

–  How long will it take?

–  Who is responsible?

You don’t want to find that the employee cannot work in the new country after all.

Ensure your employee is fully briefed as regards to the Bribery Act and other relevant legislation in the Host country.

After

9) Termination

This is an extremely important part of the contract to consider. Indeed, the greatest number of disputes arise in this area. The employer needs to make clear in the contract whether the assignment is ending or whether the employment is ending.

If the trial period doesn’t work and the employee is pulled back to the UK, it needs to be clear what will happen to the employee’s family. For example, if the employee has young children, will they be able to finish their school term before moving back to the UK?

The employer needs to make clear in the contract what would happen if the employee’s contract is terminated during the assignment, for example, if the employee was made redundant.

The employee may have accrued rights in the host country, as well as having UK employment rights. Both of these will need to be adhered to in order to avoid unfair dismissal claims.

Compromise and settlement agreements may well be needed in two jurisdictions with two sets of advisers.

10) Repatriation (a type of Termination)

If the employee is to return to his original employer, it is essential that his contract specifies what is to happen. For example, is the employee to return to their former role, or a different role?

The parties will need provisions dealing with post-termination obligations to assist e.g. with the recovery of money from tax authorities.

Conclusion

Why is it important to have an assignment contract?

It is essential to have an assignment contract when an employee works abroad. Firstly, the contract will help to manage your employee’s expectations and assist their understanding of the move. Secondly, the contract will help to reduce the likelihood of disputes. Thirdly, the contract will help to allocate and, in some cases, to contain costs.

Merrill April