Sending employees overseas is becoming increasingly common in today’s global market. You should be aware of the considerations that go into selecting an employee for international assignments and what’s involved in managing the assignment. Here are 10 considerations.
- Find the right people
It’s costly to send an employee overseas. Obviously, you want to make sure your candidate has the knowledge and skills needed to perform the job. But it’s also important to determine if the candidate has a personality that will adjust to working in a foreign country. Are there any spouse or family needs to be considered prior to commencing the assignment?
Employees working in foreign countries will require additional compensation. Allowances for housing and higher costs of living are common. Employers often provide tax preparation services in the United States and abroad and adjust pay to offset the increased tax liability. Concerns such as education and spouse employment need to be considered as well.
- Assignment letter
This is a critical step in the overseas assignment process. The assignment letter should spell out the agreement between employer and staff, with clear explanations of position and duties, the period of assignment, and the terms of compensation.
- Know and comply with local employment and immigration laws
Failure to follow rules related to immigration and work visas can result in deportation or worse. When sending an employee overseas, most employers handle immigration matters pertaining to visas and work permits themselves.
- Cultural assimilation
Foreign assignments work best when employers take steps to make sure that employees understand the language and culture of the country where they’ll be working. Cultural sensitivity training is important, and language barriers must be overcome, either through training or by providing a translator.
- Risk management
Not every overseas assignment is “April in Paris.” Employers sometimes need to send employees into countries where they might face safety and health risks not typically encountered in the United States. In these situations, employers need to be up front about the risks and provide information and services as needed to reduce risk and help staff return home safely.
- Tax equalization
A tax equalization policy attempts to neutralize any adverse tax effect on employees posted overseas. The employee contributes an amount toward his worldwide tax liability equal to the obligation if still working in the United States. The employer makes up the difference.
- Payroll and HR administration
Employers need to understand the tax withholding obligations in the host country. Both parties need to agree and understand where pay will be delivered, either in the employer’s home country or the host country for the assignment. In some cases, a “shadow payroll” may need to be maintained if pay is delivered in the United States but host country taxes are required to be remitted.
- Social security considerations
An international assignee is typically subject to social taxes in both the home and host countries. The United States maintains “Totalization Agreements” with 24 countries to avoid double social taxes where possible. It’s also possible to structure the international assignment to eliminate the international assignee’s requirement to continue to participate in the U.S. social security system. However, this will limit the international assignee’s access to the U.S. company’s employee benefits including participation in its 401(k) plan.
The international assignee’s need to be tax equalized may continue for two to three years after the assignment ends.
Whether it’s your company’s first foray into a new country or the 400th, these 10 steps cover the due diligence to make sure the overseas experience benefits both your company and international assignee.