expat assignment letter template

Best Practices for Writing a Global Assignment Letter Of Understanding

By Laura Wilkins, CRP, GMS

Those who have relocated globally can attest to the life-changing nature of an overseas assignment—often requiring that the employee sell a home in addition to moving their family to a new country and changing many of their typical routines. Your employee letter of understanding must cover a number of important topics sensitively but clearly—without increasing already high stress levels.

A letter of understanding outlines the details and benefits of an international assignment. This legally binding document, which all parties must sign, serves as an addendum to the employee’s regular employment contract and lays out any differing terms that apply. In addition to the assignment start and end date, job title, and location, the letter of assignment must specify all contractual agreements, a code of conduct, compensation, assignment-specific benefits such as moving expenses, and any repatriation allowance or tax equalization provided.

The letter of understanding should specify all pertinent details without leaving any room for interpretation. Lack of clarity can lead to misunderstandings and costly mistakes which drain resources and distract the employee, impacting the success of the assignment.

The key to drafting effective letters of understanding begins with knowing your employees and focusing on their needs and their families’ needs. You may find sample templates online to help you draft a letter of understanding, but unfortunately, many of them begin like this:

Dear Mr. Jones,

This letter is to inform you that you will be transferred effective [date] to our location in…

Considering the upheaval a relocation will cause in your employee’s life, this approach may come across as overly abrupt. Here are some best practices to help you write an effective letter of understanding.

Discuss the Global Relocation or Assignment First

Having a detailed discussion provides an opportunity to create enthusiasm about a new role by:

• Providing a platform to discuss your global mobility policy and company-provided financial assistance
• Clarifying the specific skill-building and learning opportunities available in the new role
• Showing that the company values the employee and wants to make an investment in his or her future
• Demonstrating that the employee is important to the growth of the business

Holding a preliminary discussion shows respect for the employee and allows you to craft a letter tailored to that individual. In turn, this will likely increase loyalty and productivity and reduce the chance of a declined relocation offer.

Outline the New Role

Your employee’s job title and responsibilities may remain the same in the new location. If so, make sure the letter of understanding includes the name of the person to whom the employee will report and the duration of the transfer or assignment. For employees taking on new responsibilities, you’ll also want to include the following:

• The employee’s new job title or position
• A description of any increased benefits, salary or bonuses

Similar in some ways to an employment offer letter, this portion of the letter of understanding focuses on the specifics of the new role. It documents the job title, salary, and related benefits to eliminate misunderstandings. The appropriate manager should sign and date the letter, and it should include the:

• Employee’s full name and current home address.
• Department names — both the current department and the new destination department.
• Effective date the employee should report to the new location.
• Anticipated end date in the case of an assignment.
• Name of the employee’s new manager.
• Expiration date for the individual’s relocation and assignment benefits.

After you provide this information, you can delve into the specifics of your company’s global mobility policy and explain the benefits the employee will receive. If you’re looking for additional resources on transfer notices, check out our page on 12 Employee Transfer Letter Tips. 

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Expatriate Assignment Agreement

This is a sample expatriate assignment agreement between a US company and an employee, including clauses pertaining to expatriation such as salary, employee benefits, mobility premium, housing and utilities allowance, goods and services allowance, language training allowance, furnishings and appliances allowance, pre-move trip allowance, household goods transportation and storage expenses, relocation travel expenses, relocation allowance, temporary housing, vacation, home leave air fare reimbursement, repatriation, immigration/visa assistance, will preparation, compensation leave, tax equalization, and tax preparation. This sample is in connection with the context of an employment agreement.

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Expatriate Agreement: Definition & Sample

Jump to section, what is an expatriate agreement.

An expatriate agreement is a contract between a company and a foreign or migrant worker where the employer offers an international job to the worker. In other words, an expatriate agreement involves a company relocating a worker from one country to another for business purposes. Typically, the expatriate agreement includes details about how many employees are to be hired, what their compensation will be, and whether they are contracted to work for a certain period of time or not.

This type of agreement ensures that the expatriate and employer understand the terms of the agreement. It also gives each party recourse in the event that any terms of the contract are violated.

Common Sections in Expatriate Agreements

Below is a list of common sections included in Expatriate Agreements. These sections are linked to the below sample agreement for you to explore.

Expatriate Agreement Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.29 2 dex1029.htm EXPATRIATE EMPLOYMENT AGREEMENT , Viewed September 15, 2022, View Source on SEC .

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Tayane M. Oliveira is a founding partner at Vannucci Oliveira. With a concentration in family law, Tayane is renowned for her commitment to providing compassionate yet powerful representation to her clients. Her experience as an associate attorney at Brodzki Jacobs & Brook, coupled with her unwavering dedication to her clients' welfare, prepared her for her current role at Vannucci Oliveira. Tayane's academic achievements are a testament to her rigorous intellectual curiosity and dedication to her profession. She graduated with a Bachelor of Arts degree in Criminal Justice, supplemented by a minor in Psychology, from Florida Atlantic University in 2013. The culmination of her academic pursuit came in 2017, when she earned her Juris Doctor degree, cum laude, from the esteemed Nova Southeastern University's Shepard Broad College of Law. Before co-founding Vannucci Oliveira, Tayane honed her skills in the heat of the courtroom, representing clients in an array of general civil litigation matters. This diversified exposure instilled in her an ability to tackle complex legal challenges, a skill she employs to benefit her clients in family law. Originally from Brazil, Tayane brings an international perspective to her practice. When not delving into legal briefs or advocating for her clients, she indulges in travelling, reading, spoiling her puppies, and exercising, activities that not only rejuvenate her but also provide her with a broader perspective on the world and her practice. *Supreme Court Certified Portuguese Speaking Mediator

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Expatriate Secondment Letter of Assignment

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Writing an assignment letter

So, how detailed should an assignment agreement be? The answer is as detailed as possible. The assignment letter should be a legally binding document, confirming the agreement between the company and the assignee with respect to the terms and conditions of the assignment. In reality, the most common approach is that the assignee remains employed with the home company and the home employment contract remains in place. However, the assignment letter serves as an addendum to the employment contract and confirms the terms and conditions which vary from the normal contract while on assignment. Any terms and conditions not specifically varied therefore remain as per the home employment contract.

Most of the checklist items opposite will require considerable scoping – particularly if no assignment policy exists, but making well outlined provisions will prove worthwhile. The extent to which each item should be explained is illustrated below for three key areas.

Compensation, tax and pension arrangements

This is possibly the most complex and important part of the assignment letter and must clearly explain how the assignee will be compensated while on assignment. If the company uses a build-up or balance sheet approach, this section of the agreement will confirm details such as the home notional salary, cost of living adjustments, assignment and location allowances and, of course, the assignment salary.   It should be confirmed whether the assignment salary is guaranteed net or gross, as well as where and how it will be delivered, i.e. through which payroll, in which currency, details of split pay arrangements, exchange rates, etc. If the company has a variable pay structure details of how bonus and incentive payments will be calculated and delivered while on assignment must also be included.   The process for salary reviews must also be explained, as well as the treatment of assignment compensation for tax and social security. Assignees will normally remain in home country social security plans while on assignment, subject to the relevant regulations, and this should also be confirmed in the assignment letter. This section of the agreement will also give details of the tax services provided to the assignee, e.g. departure and arrival meetings, tax return preparation, etc. And finally, the pension arrangements should be confirmed.   Of course, if the assignee is to be compensated according to a different approach, e.g. the assignment salary is based on the local compensation levels of the host location as opposed to the build-up method, similar details to the ones described above should be given, which confirm the assignment compensation and tax treatment

Assignment benefits

The most significant benefits, both in terms of cost to the company as well as value to the assignee, are education allowances for the assignee’s children and host country accommodation. The assignment letter should clearly explain the level of benefits provided and how they are delivered, i.e. in-kind or in cash, bearing in mind the most tax effective form of delivery for the company depending on host country tax legislation. Tax charged on assignment benefits can be considerable, sometimes up to 50% of total assignment costs.   With education benefits it is important to state the type of schooling for which the company will provide assistance. If there are limits on the amount up to which the company will pay for education, or limitations on the choice of schools, this should be confirmed.   Similarly, the limits up to which the company will pay for host country accommodation must be set out clearly. The letter should also clarify what happens if the assignee chooses accommodation below or above the set rental limits.

End of assignment

If there is the possibility of an assignment extension beyond the initially-agreed term, the applicable policy should be detailed here. Most importantly, a maximum duration beyond which the assignment will not be extended should be indicated. This avoids situations where employees become “permanent” assignees, remaining on assignment terms and conditions well beyond five years, which is generally the most common maximum assignment duration.   It is also good practice to give details of the company’s localisation policy in this section. It may well suffice to confirm that a localisation policy may be applied once the maximum assignment duration has been reached, without having to give too many details on the actual process. But by mentioning the possibility of localisation in the letter, assignees’ expectations are managed and they are aware that assignment terms will not continue indefinitely.   In the repatriation section the agreement should confirm the relocation assistance provided; e.g. shipping, temporary accommodation, relocation lump-sums, etc. Furthermore, this section should confirm the process and time scales for finding a suitable position for the assignee upon returning home.   Finally, assignment letters rarely differentiate between terminating or resigning from the assignment, as opposed to terminating or resigning from the actual employment with the company. It is good practice to include the relevant terms and notice periods for each of these scenarios here and to differentiate accordingly. Terminating the employment of an assignee can be complicated and this section of the agreement should be very well thought through. Unfortunately, the governing labour law is often unclear or not straightforward to determine. A company should always seek legal advice should a labour dispute arise.

Need help with assignment letters? ECA's  Consultancy & Advisory team  are on hand to critique your company's assignment letters or create  assignment letter templates  in line with your policy, as well as offer expert advice and guidance on content so that your assignment letters accurately manage the expectations of the employee and the company. If you'd like to speak with one of our Consultants, you can  request a callback here . 

Expatriate Assignment Agreement Template

This Expatriate Assignment Agreement Template offers a comprehensive framework for outlining terms and conditions related to international assignments. Ideal for HR departments and expatriates, efficiently manage agreements regarding overseas placements with clarity and ease.

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📝 Included Sections:

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Expatriate Assignments – The 18 Mandatory Requests

• Post author: Alan L Sklover
• Post published: 01/18/06

“Some travel advice, from one who knows: take twice the cash, and half the clothes.” – Anonymous

ACTUAL CASE HISTORY: Dennis was considered a rising star in the field of financial management software. At 39, he’d risen steadily over the years, and now worked for the third largest financial management software distributor in the U.S. As his company’s National Sales Manager, he had taken company sales higher and higher for four years straight. He’d also expanded sales into the area of financial management for non-profit organizations, a fast-growing niche. His future seemed very bright.

His company’s sales in Europe, though, had lagged repeatedly. Despite several changes in their European sales leadership, sales volume continued to disappoint. When the company’s CEO asked Dennis if he’d consider a two-year stay in Germany to rebuild the European software sales team from the ground up, Dennis was receptive. His wife was supportive, and since the kids were just 5 and 8, they seemed still young enough to be very adaptable. Dennis and his wife viewed the assignment as a great career opportunity, as well as a great family adventure. And that it was.

Four months later, Dennis, his wife and the kids had arrived in Dusseldorf, Germany, a charming yet vital city. They’d leased their home in Dallas for the two-years they were to be away. The kids were in an English-speaking school attended by other elementary-age sons and daughters of other expatriate parents. Their Dusseldorf house was leased for them, and even the household help were arranged by the company’s local representatives. Dennis planned to revamp the European sales team from the bottom up, one by one, with local salespeople to be identified by local executive recruiters. Initial hiring efforts were promising.

Then came the truly unexpected: seven months into the new assignment, with little warning of any kind, the company was sold to a French conglomerate, with their own ideas about European software sales, and their own Director of Sales, too. Dennis was notified that his services were no longer needed, but that he would be given a fair and reasonable severance package. Dennis inquired about arrangements for his family’s return to Dallas, including such things as return flights home, shipping the family’s belongings, and finding his family a home in the Dallas area. He was assured that all of his concerns would be addressed.

The rest was, as we say, “not nice.” Dennis was presented with a separation agreement that, he was told, had to be signed before he could find out what assistance he and his family would receive in returning home. When Dennis balked at signing it, his salary payments were halted. Then tuition payments stopped. Even their housekeeping services were withdrawn. The people who’d assured him he’d always be treated like “family” were, themselves now “divorced” from the company. HR representatives who he knew for years told him they were powerless to intervene. Dennis was now dealing with people at the new parent company he’d never worked with before. Unfortunately, he had nothing in writing that would give him a legal right to anything.

LESSON TO LEARN: An overseas, “expatriate” assignment can be a “feather in your cap,” a step in the path toward being assigned greater responsibilities. But going “expat” involves a multitude of risks, and unusual ones at that. If there’s ever a time to “fold your parachute first,” it’s before you “fly away” on an overseas assignment, taking your family, your household, and your career with you. While the vast number of expatriates who travel overseas come home with fair, reasonable and proper treatment, those who get into difficulties in this regard find themselves in some of the most difficult and harrowing circumstances you might imagine. Before you make the move to an overseas assignment, there are certain requests you must make, and certain written assurances you shouldn’t leave home without. Whether your company has a comprehensive expatriate program or none whatsoever, before agreeing to take the overseas assignment offered to you, consider our “Expatriate’s18 Mandatory Requests.”

WHAT YOU CAN DO: These are the items we suggest our clients raise, and hopefully resolve in a written agreement of some kind, before agreeing to take an overseas assignment.

A. Finance and Career-Related

1. Salary Differential: You may find that, while your present salary suffices to provide you and your family with a comfortable lifestyle stateside, that same salary wouldn’t provide anywhere near that standard of living in, say, Singapore, Hong Kong or Tokyo. Your best bet is to speak with other American “expats” presently living in your country of assignment to get their view of the comparison, and necessary differential.

2. Tax Equalization: How would you like to be hit with income tax bills based on your compensation from each of two different countries? That may happen unless someone with expert knowledge makes sure it doesn’t, and will be there in case it does. Most companies provide “tax equalization,” which means that they’ll make sure that your after-tax income – no matter what – is equal to what it would have been if you’d stayed stateside. These are very tricky calculations, made only by very few accountants with special knowledge and expertise in this field, who need to be familiar with the laws of many countries. Only three or so large firms do this kind of work. It’s doubtful your own personal accountant can help you here. Remember that for the calendar year 2006, for example, you may need this specialized assistance – at the company’s expense, hopefully – for a tax audit in 2010.

3. Minimum Term and/or Notice: Knowing that you will be employed for at least a minimum period of time, and/or knowing that you will have at least a certain amount of notice before termination, are two important “risk-limiters” we always seek. Nowhere are they more important than in expatriate assignments. Whether it’s until the end of your children’s semester at private school, or the time you think it might take to find a new position – from 5,000 miles away – you should seek these.

4. Currency Swing Risk: Do your remember the Russian bond default of 1998, or the Asian currency crisis of 1997? They each wreaked havoc in currency markets around the globe. If such things do happen again – and you can depend on that happening, sooner or later – who is more capable of absorbing the risk of your salary becoming insufficient to pay your bills in another country: your family or your employer? This substantial risk should be addressed before you venture overseas.

5. A Job When You Return: This is one of the most difficult requests to make, and to get written assurances about, but nonetheless the largest risk you face in taking an overseas assignment. Once you’re “out of sight,” you tend to become “out of mind,” and at times available positions become few and far between. Will a position be found for you, no matter what? That’s the question.

Before you even consider “leaping” to another country, get a copy of our 138-Point Master Guide and Checklist for Employees Contemplating Expatriate Assignments . Everything you forgot to ask about, and for, and then some! To obtain a copy, just [ click here .] Delivered by Email – Instantly!

B. Travel and Moving Related

6. Flights, etc.: Necessary flights you may need include (a) for initial house hunting, (b) your actual relocation, (c) flights home 2 or 3 times a year for holidays and the like, (d) flights home for family and medical emergencies, (d) flights home for reverse house hunting, and (e) for your return, preferably to the U.S. city of your choice (as your next job may be in a different city than you came from.) Your flight-rights will need to cover your immediate family, at the least. For those with kids in college, you may need to arrange special trips for them to come to visit you. Will you fly first class or red-eye in coach? Will you be provided tickets, or reimbursement one year later?

7. Shipping and Storage of Household Goods: Beware of limits to be placed upon the extent of your moving household goods. Expect that you won’t be provided any assistance for storage, unless you ask. Consider seriously requesting either a greater allotment for shipping, an allotment for storage, or simply a budget for purchasing new household goods in your country of assignment.

8. Home Sale Expense and Loss Protection: It is not unusual at all for an employer to cover the home-sale costs and potential losses an employee may suffer in taking an overseas assignment. These commonly include realtor fees, legal costs, and local transfer taxes. For senior executives, in particular, these may include the increased price of buying an equivalent home after repatriation.

9. Emergency Leave Policy: Over the course of a year or two, you can expect emergencies of one type or another to arise that require that you travel to your home. These may include family illnesses, deaths of friends or loved ones, even lawsuits. Some companies cover the cost of travel in these circumstances, some subsidize such travel, and some don’t help at all. Don’t be shy about asking about your company’s policy, if any, and don’t be shy, again, if it is not to your liking.

C. Local Life and Housing Related

10. Housing Allowance: It’s uncommon for a temporarily-assigned executive to purchase a home during a relatively short-term assignment. Some companies own homes they provide to “expat” executives, but most expect their executives to find and rent their own housing. Especially for a family with children, this often proves prohibitive. In addition to outright salary differential, a specified housing allowance is preferable, and should be requested.

11. Tuition Allowance: Those with school-age children need to make arrangements for local schooling. Most cities of significant size have English-speaking private schools for expatriate children. In smaller cities, private tutoring may be the only education alternative. Both of these alternatives will require sufficient tuition allowance.

12. Local Club Memberships: In locales where the local culture is very different than your own, or security is a grave concern, it’s not uncommon to see social clubs set up for the international expatriate community. One good example is Saudi Arabia, where socializing in “public” is really not feasible. The social clubs are often quite expensive; their dues should either be paid for you, or at the least subsidized.

Look Before You Leap! We offer a Model Memo Requesting All Necessary Clarifications and Protections When Considering an Expatriate Assignment that you can adapt for your own use. “What to Say and How to Say It.”™ To get your copy, just [ click here .] Delivered by Email – Instantly!

13. Local Critical Care and Support: If a problem of a critical nature arises, will your company provide you with (a) local legal help, (b) local medical help, (c) emergency flight for distant medical help, (d) private security if appropriate, (e) evacuation in tense political, weather or earthquake situations? We often forget how fortunate we are in the U.S., and how those in other countries have daily concerns like these.

D. Legal and Technical Matters

14. Immigration Matters: When crossing borders, visas, work permits and the like can be maddening. In some countries, under certain visas you cannot remain in the country more than 24 hours after you’ve lost your job. Will the company provide you with immigration attorneys BOTH when you leave and when you come home? Will they reimburse you for your own immigration expense? Don’t ever expect sympathy or flexibility from border guards, or immigration officials.

15. Identity of Employer: This issue usually surprises people, because it is just so unanticipated. Many companies operate overseas through local subsidiaries for tax, regulatory and legal reasons. To accomplish this, expatriated executives are sometimes “assigned” or “seconded” to the local subsidiary, who employs them. This can have profound consequences to the executive, including the loss of protection of U.S. laws, the cessation of stock and stock option vesting, and removal from the parent company’s other benefit plans (such as long term disability, pension, and bonus.)

16. Continuing Obligations: In our efforts to limit risks, we request that the matters noted in this memo be raised with employers sending employees on overseas assignments. Certain of the obligations that we ask employers to assume are different than the others, in that they need to expressly continue past any possible employment termination. This is so because after employment ends, unless it is agreed otherwise, all obligations from employer to employee, and vice versa, cease; there’s no implied agreement to continue providing services or fulfilling obligations. As just two examples, (a) if your employment is terminated by your employer, will your employer pay for the accountants to prepare your “equalized” tax returns in the following year?, and (b) if your employment is terminated by your employer, will your employer pay for the costs of breaking a local apartment lease? The items in this list that, more than others, need to expressly survive employment termination are 2, 6, 7, 8, 10, 11, 12, 14, 15 and 17.

17. Binding on Successors and Assigns: In most every commercial agreement, the parties provide that the obligations are binding on the parties’ successors and/or assigns. That means that, if a company buys your employer, or even its assets, then the purchasing company is responsible for the obligations of the purchased company. In these days of mergers and acquisitions, this is a very important risk limiter for expats.

There are many rewards to taking on, experiencing and fulfilling overseas assignments. But in every transaction, there’s something more than “rewards” that we need to focus on: “risks.” In our employment negotiations, a critical part of our efforts is always devoted to “risk limitation.” That’s why it’s always a central part of our negotiating Method, SkloverWorkingWisdom™. Those considering expatriate assignments must pay special attention to risk limitation, and this is how they need to do that.

These are not all of the risks faced by expatriate executives, but they are the primary ones that we’ve seen cause our clients the most serious problems. Every person, every assignment, every company and every transition has unique problems. You should try to customize your solutions to the particular concerns you have about your particular circumstances.

P.S.: Stuck Far Away and Under Trying Circumstances? We offer a Model Letter to Senior Management and Board of Directors regarding Untenable Expat Circumstances that you can adapt for your own situation. “What to Say and How to Say It.”™ To obtain a copy, just [ click here .] Delivered by Email – Instantly!

SkloverWorkingWisdom™ emphasizes smart negotiating – and navigating – for yourself at work. Moving upward in salary and in position over time take more than luck, and even more than success. It takes care and prudence in avoiding costly errors and mistakes, too.

Always be proactive. Always be creative. Always be persistent. And always do what you can to achieve for yourself, your family, and your career. Take all available steps to increase and secure employment “reward” and eliminate or reduce employment “risk.” That’s what SkloverWorkingWisdom™ is all about.

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Short-term international assignments: How to achieve consistency

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This article looks at how to structure employment arrangements and ensure the right policies and processes are in place to effectively manage short-term assignments.

We previously discussed how in today's fast-paced business environment, the need to deploy employees to work outside of their home country can sometimes lead to many short-term assignees travelling on a business visa to avoid the expense and bureaucratic process of getting work authorisation. In addition, many managers may inadvertently create ‘stealth’ expats by asking short-term assignees to stay on for another month or two, thereby creating host country tax and social security withholding requirements, and possibly immigration infringements too. 

ECA has also observed more ‘floating employees’ sent to work in countries where the employer has no registered entity and this potentially could create a corporate tax presence for the non-resident employer. To account for these risks and to keep pace with an internationally mobile workforce, companies need to rethink how they structure employment arrangements, policies and processes accordingly.

Important issues to consider include:

Contractual arrangements

When an employee is sent on a short-term assignment, the individual is typically issued with an 'assignment letter', or 'assignment agreement'. This letter outlines the benefits (allowances, reimbursements, etc) that the employee is entitled to receive during the period of assignment to the host entity. However, it is important to consider how any underlying employment contract, with the home company, interplays with the separate assignment letter. In general, an employee on a short-term assignment remains an employee of their home company during the length of the assignment, but with certain rights and benefits suspended/hibernated and replaced by relevant terms and conditions contained within an assignment letter. Hibernating a home country contract can, however, complicate potential dismissals as the home country contract has not been terminated, but will ‘spring back to life’ at the natural end of an assignment or once an assignment has been terminated. 

The role of an assignment letter (agreement)

Short-term assignments are highly complex. Hence, it is crucial to have proper documentation in place to clarify and provide guidance. An effective assignment letter not only benefits the employee, but also the employer (HR, legal, tax and payroll, for instance). The assignment letter should clearly spell out the compensation and benefits (per diems, reimbursements, serviced accommodation costs etc) that the employee would receive during the short-term assignment, thus making all parties aware of assignment entitlements and mitigating any dispute or retroactive negotiations in the future. 

An appropriately drafted assignment letter can also minimise potential financial or reputational risk for non-compliance and help mitigate potentially adverse corporate tax implications. So, it is important that the assignment letter documents the responsibilities of the home and host country companies if the economic employer principles discussed below are to be avoided. Hence, it should address such issues as:

• The assignment start and intended end date;
• The employee’s specific duties while on assignment;
• The employing entity while on assignment;
• To whom does the employee report while on assignment?
• Who determines the holidays and work hours of the employee?
• Who will be responsible for any disciplinary issues during the assignment? 
• Who can terminate the contractual arrangements entered into with the employee? 

How long an assignment is anticipated to last has an important bearing on immigration and tax compliance regulations. For example, in the United States, it is possible to exclude certain travel, meals and accommodation expenses from federal tax if an assignment is expected to last less than 12 months. However, should the assignment length change from less than one year to greater than one year, the expenses previously considered non-taxable would be deemed taxable from the date of the change in ‘intent’. Consequently, the anticipated or intended assignment duration should be supported through appropriate language in the assignment letter. 

The choice of language used in an assignment letter can also have implications for the taxability of certain allowances and benefits. For example, there is a distinction between an employee sent to Japan for business travel and one sent under a secondment arrangement. An employee ‘seconded’ on a short-term assignment to Japan cannot exempt income from taxation under the 183-day rule, whereas a ‘business traveller’ or ‘visitor’ can potentially do so based on facts and circumstances. An assignment/secondment agreement for employees sent to Japan for short-term projects should therefore use consistent terminology to qualify for the preferential tax treatment. 

Cost allocation

Who picks up the costs of a short-term assignment can be a source of much debate in many organisations when an employee is temporarily assigned to work in another country. This is because costs need to be borne in the correct location to ensure that the appropriate tax deductions can be claimed by the group. 

Consider the potential tax risks when an employee is being assigned internationally to another company within a group. Certain tax authorities adopt an ‘economic employer’ approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article (economic employer is discussed further here). One of the conditions of Article 15 states that if the assignee’s salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the ‘economic employer’ and therefore the employer for the purposes of interpreting Article 15. In this case, tax relief would be denied and the employee would be subject to tax in the host country even if the individual spends less than 183 days there. Short-term assignments can also create a corporate tax liability in the host jurisdiction if cost allocation is not carefully managed.

To help minimise any unexpected tax surprises, it is advisable to put an agreement in place, which specifies how costs will be managed during an assignment. An inter-entity agreement should be drawn up between the host company and the assignee’s home company. This agreement governs how costs associated with the assignment will be funded. An inter-entity agreement is in addition to the assignment letter (agreement) between the employee and the home company.

Short-term assignments now take all shapes and forms, with short-term projects, weekly commuters, and extended business trips becoming more common. A written short-term policy can be a cost-effective tool as it provides discipline and a framework that enables equity of treatment amongst assignees and reduces the number of employees negotiating their own packages. It can set out logically the steps to be taken in any relocation and the procedures to be followed.

It is advisable that each category of short-term assignment be housed in a separate policy document, as there is a possibility that employees will attempt to leverage off the best parts of other packages to suit their particular circumstances. Additionally, a short-term policy should be regularly evaluated against the current industry trends as well as the company’s business goals to make sure it is fit for purpose.

The short-term policy should address the following key issues:

• Should any host country tax liability arise, will the assignee receive any tax assistance?
• Will the assignee be on the host country payroll, home country payroll, an international assignee payroll, or multiple payrolls?
• Will the assignee’s pay be protected from exchange rate volatility?
• What happens when short-term assignments are extended and change from one assignment category to another? 
• Managing exceptions

Exceptions to policy can be difficult to manage, requiring negotiations between the mobility team, the assignee and the business line for approval. They can also be costly, triggering unaccounted-for expenses and untracked ‘budget creep’, the impact of which is rarely calculated or consolidated across the business functions. 

Exceptions should only be granted under very limited circumstances and require written explanations and approval of the executive board or HR director. If carefully monitored, the number of exception requests can indicate that a particular process or policy component requires re-design or further instruction to a vendor. 

To ensure global equity and minimise budget creep, consider: 

• Creating a detailed policy governance process for identifying and capturing deviations to policy or process with a view to reducing or eliminating exceptions;
• Setting up a centralised system to manage and approve exceptions to help minimise expenses;
• Establishing a process owner for short-term assignments, someone with responsibility and authority to monitor and report on trends in exceptions;
• Creating a formal short-term assignment policy, as mentioned above, to minimise exceptions and foster consistency and clear communications.

Tracking potential risks

Tax and immigration irregularities are common for employees on short-term assignments. Accordingly, it is important to develop an education programme for employees and their managers to inform them about the risks of cross-border work and the consequences of non-compliance. 

Work permit and immigration infringements should not be underestimated as the penalties for individuals working outside their home country without the appropriate work authorisation can be harsh. Not all short-term assignees need immigration approval, but then again, some do. It is important to note that just because an employee may not trigger any host country tax liability it doesn’t follow that they are exempt from immigration requirements. Indeed, staying on the home payroll is one of the most common areas of risk for short-term assignees and it is not an indication that immigration approval is not required.  

For many companies, technology has become the key to achieving and maintaining compliance. Without proper monitoring, an employer may unwittingly be exposed to tax and social security risks. Diligent tracking of short-term assignees and a solid process to be able to identify risks up-front are key to ensuring compliance. 

Once a company’s short-term population reaches a certain size, manual tracking of policy exceptions using Excel spreadsheets is unlikely to be sufficient to ensure compliance with now greater information sharing among tax and immigration authorities. So, if companies want to be ahead of the curve in managing short-term assignees, they need to start tracking them. This will require communications to be established between the business units, tax, HR, legal, payroll, etc early in the assignment planning process, as well as when any assignment extension is contemplated.

Coordination with payroll 

At the heart of the administration process is the payroll team and it is essential that the appropriate home and host country payroll personnel are involved in planning for short-term assignments. They are ultimately responsible for ensuring the accurate and timely delivery of the assignment package to employees, while managing the local jurisdiction compliance requirements with regard to tax and social security withholding. 

The home country payroll must be informed of the intended assignment duration and assignment package to be paid to the employee. The home payroll will need to understand whether the allowances and benefits will or will not be considered taxable to the employee. 

Assignment income, such as a short-term allowance or per diems, is often paid through the home country payroll to comply with standard tax treaty rules. Typically, if income is to be exempt of host taxes, the payroll costs should not be borne by a permanent establishment in the host country. 

If an employee triggers a tax liability, many host countries will require withholding of income taxes through a local payroll. Consequently, the host country payroll will need to be informed of the assignment package the employee is receiving to understand if these may be considered taxable in the host country, even if they are not taxable in the home country. The host payroll will also need the relevant social security applications to be made to ensure that contributions are paid to the appropriate tax authorities. 

Our three-part series of articles on short-term assignments has highlighted some of the complexities in structuring short-term assignments, and some of the challenges concerning immigration, payroll reporting and tax compliance. With proper planning and administration, short-term assignments can be an effective and efficient means of increasing the pool of potential employees for the international assignment programme.

If you haven't already done so, you can read the first two articles of this three-part series on short-term international assignments:

• Key considerations when structuring short-term packages
• Compliance challenges involved with short-term assignments

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Total cost estimate services

Why does it matter?

Expatriate assignments are expensive…but just how much do they really cost?

International assignments are a significant component of the total cost of your global business strategy. As a strategic partner, having an accurate estimate is vital for HR when providing a budget to management. Calculating the estimated cost of expatriation will help you determine whether an assignment is financially viable, and lead to cost savings for your company.

• Strategic planning
• Determine opportunities for cost-cutting
• Eliminate surprises
• Opportunities for less expensive alternatives - such as short-term assignments or hiring local nationals
• Comparative cost modeling
• Management buy-in on policy changes

How can Mercer assist you?

Mercer helps you simplify your planning with accurate, transparent, detailed assignment cost projections.

Total Cost Estimate Reports provide you with accurate, detailed international assignment cost projections, using the AssignmentPro™ tool, under a licensing agreement with Equus. Cost projections can be calculated for a variety of assignment types, length, and locations, quickly providing a complete picture of total assignment costs.  

Cost projection components

• All compensation-related elements
• Relocation costs (using either company specific data or Mercer standard assumptions)
• Estimated worldwide tax and social security liability
• Assignment costs by year and in total
• Incremental assignment costs
• Detailed breakdown of compensation, relocation expenses and taxes
• Reports delivery in home or host currency, or in US dollars

Contact us or your consultant to request a Total Cost Estimate Report today.

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Getting started

The Vault is an amazing collaboration of the Expat Academy Community’s finest work. We are constantly refreshing and adding to our templates and documents based on contributions from our members and partners.

What is the Vault?

The Vault is Expat Academy’s exclusive content hub, filled with useful technical updates, tools, templates, and documents to help Global Mobility Professionals.

Since launching the Vault , we have actively encouraged our members to provide contributions to the content. We have a team of experts who adapt the best practice examples we receive to create anonymous generic template documents for the whole Expat Academy community to make use of.  Everyone is far too busy to have to reinvent the wheel and with the Vault you don’t have to!

The documents you’ll find in the Vault are all in standard MS Office format so you can easily swipe and deploy those that you require and then tailor them to your own needs.

What type of templates are included?

Our most popular Vault items to date have been our policy templates. We’ve also created a brilliant resource of paragraph variations so you can cut and paste what you need into your policies to tailor them to your exact business requirements.

Our checklist section is also greatly used with our expatriation and repatriation checklists being downloaded and put to use often.

What else will I find?

RFP templates, assignment letter templates, technical tax and immigration information, information on international pensions, glossaries, presentations, cross cultural webinars, articles on topical industry information, and the latest global mobility trends.

To learn more about the Vault or book an on-line tour with one of the Expat Academy team, contact us today: [email protected]

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Managing Termination Risk During Expat Assignments

NEW YORK—Organizations should manage employee termination risk long before an expatriate assignment comes to an end, to avoid potential claims under home- or host-country protection.

“Expats should always have a shadow HR person from their home country or a very savvy local HR person who understands what the risks are associated with expats,” said Laura L. Becking, a partner in compensation and benefits who leads the global equity and employment team at Orrick Herrington & Sutcliffe in New York, speaking March 25, 2014, at the New York Totally Expat Show.

Additional issues to be aware of include employees becoming localized without ending a contract, people becoming “accidental expats,” and tax liabilities that remain after an employee is terminated.

Claims Under Home-Country Protection

Here’s an example of how potential claims might arise under home-country protection:

Pat, a long-term employee in the London office, is sent on a two-year expat assignment to New York. As part of the process, the U.S.-based vendor conducts a standard background check. Pat is asked to work much longer hours than she does in the U.K. and isn’t paid overtime since her manager considers her an exempt employee in the U.S.

Pat’s performance goes downhill. Her N.Y.-based manager and HR team move some of her reports to another manager. A U.S. performance improvement plan is put in place. Pat’s manager warns her that if her performance doesn’t improve within a month, she’ll be terminated. Pat fails the plan and is fired, then claims unfair dismissal protection under U.K. law.

What went wrong? Becking said the company should have done the following:

In advance of the assignment: Briefed the host-country manager and HR and included a home-country HR person in major HR decisions so they understand “that this person is not your plain-vanilla U.S. employee,” Becking said. For example, they could have discussed whether a background check itself may give rise to a claim since checks “are far more limited outside the U.S.,” and Pat may have a potential claim under the laws of the U.K.

During the assignment: Included the home-country HR person in major HR decisions and assessed whether negative actions such as a demotion, change in reporting line or change in duties could be viewed as disciplinary. It also should have assessed whether home-country performance management rules should apply. When the N.Y.-based manager and N.Y.-based HR team decided to move some reports away without first discussing the action with Pat, that could be viewed as a disciplinary action and give rise to claims under U.K. law.

At termination: Followed the home-country termination process, if required. Also, if a separation or release agreement is entered into, make sure it covers and is effective in both the host and home countries. When Pat was terminated, she filed an unfair dismissal claim under U.K. law. Among other things, she cited that the company did not put a disciplinary procedure in place that gave her a fair opportunity to improve her performance. “The regime [under U.K. law] is very clear,” Becking said. “You have to go through a series of two to three disciplinary procedures.”

Claims Under Host-Country Protection

Potential claims can arise under host-country protection as well. The key is at what point does the “nexus” between the home and host countries become tight enough that the person can bring claims.

Rob is sent from the U.S. on a one-year assignment to France. At Rob’s request, his contract is extended for another two years, which is not unusual. Rob is fully integrated into the French office and reports to a manager in France.

He follows the French holiday schedule but continues to receive expat perks (e.g., housing allowance, school allowance for children, home visits and tax equalization). Rob requests and is given an extension for another two years.

But before long, the business changes and Rob’s skills are no longer needed in the U.S. or France. He’s terminated with six weeks’ severance, based on applicable U.S. rules. He claims protection under French laws and seeks compensation for wrongful termination based on his total compensation, including equity compensation grants, under his expat package, which is “usually quite big,” Becking noted.

In advance of the assignment: Established a localization policy that clearly documented home-country choice of law and jurisdiction, as well as clearly delineated between base salary, perks and variable compensation.

“You should not have the Robs of the world say, ‘I think I’ll do another year, I think I’ll do another year,’ ” Becking explained. When base salary, perks and variable compensation are lumped together, “it’s more likely you will be paying the severance and damages on the basis of total compensation,” she added.

During the assignment: Tracked whether the link with the home country was being lost and re-established it where possible, as well as followed a localization policy or implemented one as requests for extensions came. Rob’s example is not uncommon. Because he has been in France for about six years, although he may still be able to make claims under his home-country jurisdiction, “he certainly will be able to make claims under his host-country jurisdiction,” Becking said.

At termination: Considered repatriation, although that’s not without risks because in this example, an employee might turn around and say it’s a de facto termination. The company also should have assessed its risk for host-country claims and managed the exit negotiation accordingly, Becking said.

Localization Without Ending the Expat Contract

Claims also can arise when an employee is localized without an expatriate contract first being ended.

For example, Niek takes a two-year expat assignment from Brussels to the Houston office. Two months into the assignment, his dream job opens up in Houston. He applies and gets the position.

At Niek’s request, and with his new manager and HR’s agreement, his expat assignment is amended to apply to this local role and he stays on his expat package. But four months later, there’s a performance issue and the manager is upset about the high cost associated with Niek.

It’s important to remember that Niek is a local hire at this point; this is not an expat role. If he’d been properly localized, as he should have been for a local position, “we’d be under U.S. law and everything would be good,” Becking said. It won’t be easy to terminate Niek. The company will have to follow procedures that apply in Belgium, which aren’t going to be as straightforward, she explained.

Accidental Expats

Some people can become accidental expats.

Take Gerard, a long-term employee who works out of the London office, but is originally from the Netherlands. His employer doesn’t have a corporate presence in the Netherlands. For the past two years, he’s frequently worked remotely from Amsterdam, eventually spending 80 percent of his time doing so. He has been productive, and his manager agrees that he can continue working remotely. Gerard continues to be processed through U.K. payroll. But five years later, things aren’t going well and Gerard’s employer wants to terminate him. He claims full protection under Dutch labor laws and flags tax compliance issues and corporate permanent establishment risk.

There may be tax compliance issues since Gerard has been processed through U.K. payroll and has had taxes withheld in the U.K. Although he hasn’t had all the expat perks, he has the ability to “shop” for claims where he’d like to be protected. And the Netherlands would offer far better protection than the U.K., Becking said.

Decisions like the ones made in this case “shouldn’t be made on an individual manager level,” she noted. “There should be company policy on remote working across borders” and very clear guidelines on income and corporate tax issues, she said.

Trailing Tax Liabilities

Trailing tax liabilities after an employee is terminated are another problem. Employers should clearly document what tax responsibilities will exist at the end of an assignment, including in case of termination. At the end of an assignment, post-employment obligations of both parties should also be clear.

“We see that quite a lot with tax-equalization deals in place,” Becking noted. “Twelve months after termination, there may be funds owed back to the company by the individual and we find those are hard to recoup because people have moved on.”

Pamela Babcock is a freelance writer based in the New York City area.

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