Quirky Question #258, Ex Pat Trailing Partners
Fred, one of our technical IT specialists, just told us that his partner volunteered for a European assignment. Fred’s a great guy and we need him but he earns less than his partner and wants the experience of working abroad. If we don’t help him, Fred will probably look for overseas work with a competitor and he’s sure to get it. Is there any reason why we shouldn’t say yes and keep Fred on our team? Is Fred worth it?
Answer: By Juliet Carp
Before committing it would be a good idea to take a close look at Fred’s value to the business and the real costs of setting up a special arrangement to allow him to work in Europe. An international assignment is still an international assignment if the employee is a volunteer – and international assignments are not cheap.
Here are some things you might want to think about:
- Where would Fred be based and how long for? First base is to find out when and where Fred would work in Europe. Each European country has its own employment, tax and social security laws and some locations are more accessible than others. How easy will it be to fly back to head office?
- Can Fred’s job be done from that location? Managers would naturally consider the practicalities of remote working carefully. Assuming they think the proposal is workable, they should be encouraged to cost out any adaptations that would be needed. For example, the business might need new IT licenses or to facilitate supervision by setting up a video conferencing facility.
- Is there an operation there already? If you already have a local subsidiary or office in the host location that will be a great help, not only for sourcing local information and keeping an eye on Fred, but because much of the necessary infrastructure is likely to already be in place. For example, a local subsidiary is likely to already have local payroll arrangements, office space, administrative support and relationships with local advisors.
- Is immigration going to be a block? If Fred can‘t work in the host location lawfully the assignment won’t get off the ground. If Fred has useful European ancestry this may be an easy base to clear. If not, it would be worth checking with a local immigration specialist before spending money on anything else. Be sure to check the availability of immigration clearance via Fred’s partner’s role as well. (If Fred’s partner is a high flyer, the partner’s employer may well pay for this.)
- Can the business lawfully employ staff in the host location? The odds are that you will be able to employ staff in the host location but there may be registration or other administrative hurdles to jump.
- Are there any corporation or other tax issues to consider? Given Fred’s role this may not be a problem but it is worth checking to see whether there is a risk that Fred’s European work will create a new “permanent establishment” and, if so, whether there are any steps that can be taken to reduce the risk of bigger corporation tax bills. If Fred is likely to create valuable intellectual property advice should cover that too.
- Personal tax and social security: Given Fred is a volunteer, the business probably won’t offer him a fancy tax equalization package. Some information about likely income tax and social security consequences would still be helpful. Bear in mind that employers’ social security contributions, if applicable, can be eye wateringly high in some European locations. Employer costs may be reduced if tax and social security are considered before the assignment is structured. As a minimum the business is likely to need to put in place local payroll / tax withholding arrangements.
- Benefits: Given this is not a business driven assignment, expatriate benefits designed to “put the employee right” and “settle in” such as cost of living allowances, housing assistance etc. are unlikely to be appropriate. As a minimum appropriate insurance is still likely to be required, e.g., to cover medical treatment or injury at work. Medical cover might be provided by Fred’s partner’s employer.
- What happens if things go wrong? As with any new employment arrangement, it is important to try to anticipate what might happen if things go wrong. For example, how easy would it be to dismiss Fred if things don’t work out? Can a recoupment arrangement be introduced so that costs are mitigated if Fred decides not to relocate after the business has spent a lot of money on him? Who will bear any repatriation costs?
- Documentation: Documented employment terms are required by every European jurisdiction. Employment “at will” will not be an option and in many locations mandatory collective agreements apply to set minimum terms. It is worth spending time checking local requirements and ensuring appropriate paperwork is in place from the outset.
Sending someone to work abroad is not a decision to be taken lightly. Considerable financial – and investment – and management time – is likely to be needed. Before saying “yes” to Fred it would be worth doing some homework. You might also want to consider compromise options, e.g., a promotion, pay rise, sabbatical or more holiday to encourage Fred to stay put.
Sometimes it makes more sense to let the employee walk away.