Not yet a Member?
HR Magazine is highlighting the next generation of HR leaders.
Is your employee handbook ready for the New Year? With SHRM’s Employee Handbook Builder get peace of mind that your handbook is up-to-date.
30+ HR education programs, including 4 NEW programs on hot topics, are available for registration.
Join us in Chicago for the latest trends and technology in talent management, and what to expect in the future.
Multinationals inevitably post expatriates abroad. But in setting up expat postings, employers too often either ignore the question of how best to structure the expat assignment or else they struggle with the expat structuring issue. The reflexive or default approach to structuring expat assignments is simply to grab whatever expat assignment package got used for the last expat posting, change the names, make some tweaks and move on. But this approach is dangerous. When posting an expatriate, focus instead on the most ideal structure for the particular assignment.
Expatriate assignments traditionally came about when a multinational tapped an employee and assigned him to go off to work abroad for one of three reasons: to support a foreign affiliate, as a broadening assignment, or to serve as a “foreign correspondent” performing tasks overseas for the benefit of the home-country employer. But multinationals these days increasingly see these traditional expatriate assignments as less effective.
The wider range of expat postings we see today raises ever more questions of expatriate assignment structure. How best to structure a given expatriate assignment requires addressing four topics:
Who Is, and Is Not, an Expatriate?
It is always dangerous, and almost always needlessly expensive, to structure a nonexpatriate’s employment as if he were an expatriate. Before structuring any expatriate assignment, first verify whether the candidate really is a business expatriate.
Broadly speaking, an “expatriate” is anyone who lives in a foreign (non-native) country. Relevant for our purposes, a business expatriate is an employee originally hired by and working for a multinational in one country whom that employer now reassigns to work temporarily abroad in a new overseas place of employment. A business expatriate always expects to return home—to be “repatriated”—at the end of the assignment. An overseas assignee with no expectation to repatriate is a “permanent transferee,” not a business expatriate.
Watch out for false expats—internationally mobile employees who are not genuine business expats and who should therefore not get structured as expats. For example, some short foreign postings and assignments get staffed by business travelers who, as mere travelers, are not genuine expats. A business traveler remains employed and payrolled by his home-country employer entity, and his place of employment remains his home country. The traveler goes abroad to render services, sometimes on a “posting” or “assignment” of several months that requires a visa or work permit. But his time working abroad is short enough that the host country never becomes his place of employment, not even temporarily.
When a business traveler stays overseas long enough, as a matter of host-country law his place of employment shifts at some point to the host country. He then becomes a so-called “stealth expat” or “accidental expat.” Stealth/accidental expat status is an internal misclassification that triggers legal problems under host-country immigration, payroll and employment laws, as well as “permanent establishment” issues. Multinationals should of course be careful to classify stealth/ accidental expats as actual business expatriates. On the other hand, multinationals should also be careful not to classify mere business travelers as business expatriates.
Another example of a false expatriate is the foreign hire. Multinationals often recruit candidates in one country for jobs in another country. For example, American multinationals recruit security guards and technicians in the United States to work jobs overseas on compounds in the Middle East or oil fields in Africa. And Silicon Valley tech companies recruit graduates from universities in India to come stateside to work jobs in California. These are foreign hires, not business expats—these employees may be emigrants and they may need visas to work in their places of employment, but they are not business expatriates because all their work for the employer is performed at one place of employment in one country. Some foreign hires get to participate in rich company expat benefits plans, but—contrary to a widespread misunderstanding among human resources professionals—eligibility under a company’s expat benefits program does not convert a foreign hire into a business expatriate.
Always clarify internally who is, and is not, a genuine business expatriate. Never structure nonexpats (like business travelers and foreign hires) as expats, even if they get to participate in an expensive expat benefits program.
Understanding the Four Expatriate Structures
Only genuine business expatriates should get structured as expats, but how best to structure an expat assignment? There is no one single best way to structure an intracompany business expatriate posting because there are four viable types of expat structures. Different circumstances point multinationals to select various options among these four. And yet in one way or another, all business expatriates end up falling into one of these four categories: direct foreign posting, secondment, temporary transfer/localized, and dual-/co-/joint-employment.
Direct foreign posting. In a direct foreign posting, a business expatriate remains employed and payrolled by the home-country employer entity but his place of employment shifts to a new foreign host country. The expat renders services directly for the home-country entity, not for a local host-country affiliate. Direct foreign postings are easy and attractive to set up, but compliant ones are rare, because host-country immigration and payroll laws make this a fragile status tough to structure legally.
Secondment. “Secondment” means “employee loan.” Not all secondees (lent-out employees) are expatriates, and not all expatriates are secondees. In an expatriate secondment, the expat remains employed by his home-country employer entity. He moves abroad to a new host-country place of employment and starts rendering services for a new host-country employer entity, usually an affiliate or joint venture partner of his home-country employer. The secondee might be payrolled by either the home or host-country entities, or by both (via a split payroll). Some secondees stay on the home-country payroll while the host-country entity issues a “shadow payroll” to comply with local payroll laws.
Temporary transferee/localized. An expatriate transferee, also called a “localized” expat, moves abroad and gets both hired and payrolled by a new host-country employer, often an affiliate or joint venture partner of the home-country employer. The transferee resigns from his home-country employer and simultaneously signs on with the host-country entity, which usually extends retroactive service/seniority credit. While working in the new host-country place of employment, the transferee renders services exclusively for the new employer without retaining any lingering employment relationship with the old home-country employer, other than perhaps a side-letter or e-mail addressing post-assignment repatriation expectations. Yet an expat transferee’s localization is temporary; he expects some day to repatriate and get relocalized at his original home-country employer location.
Dual-/co-/joint-employee. A dual-/co-/joint-employee expatriate is an expat who simultaneously serves two masters, the home and host-country entities, essentially on a moonlighting basis—one employee simultaneously working two jobs, or working one job actively while retaining status as “on leave” from another employer entity. A dual-/co-/ joint-employee expat may be payrolled by either or both employer entities via a split payroll.
Selecting Among the Four Expatriate Structures
With these four distinct expat structures, the question becomes: Which of the structures is most appropriate for a given expat assignment? Answering this is a lot like selecting among business entity structures—sole proprietorship, closely held company, publicly traded company, limited liability company or partnership. We actively select the best business entity structure each time based on specific needs—not on how we may have structured some other entity at some time in the past.
So with expat assignments, always select the most appropriate of the four expat structures for the particular assignment, without regard for whatever may have been the best selection last time. Your last expat may have gone off to a country where you have an already-operating host-country entity affiliate, whereas this current expat may be off to a place where you have no on-the-ground infrastructure. Or your last expat may have participated in your company expat benefits program, whereas this current expat may be transferring abroad for personal reasons that render him ineligible for a company package. Or your last expat may have gone abroad to serve an overseas affiliate, whereas this current expat may be off to work as a foreign correspondent directly for the home-country entity. In posting a given expat abroad and selecting among the four expat structures, factor in three sets of variables: immigration laws, payroll law compliance and corporate tax presence. How these three variables play out as to any given expat posting will point to the structure most appropriate for the particular expat assignment.
Having selected the most appropriate of the four types of expatriate structures for a given expat assignment, a multinational next needs to decide how best to memorialize (document) its expat assignment. There are two very different kinds of expat agreements: an expat assignment agreement between the expat and the employer and an inter-affiliate assignment agreement between a home-country employer entity and a host-country affiliate entity, to which the expat is not a party. Document an expat assignment using one or both agreements, as appropriate.
Donald C. Dowling is a partner in the New York office of White & Case.
Republished with permission. © 2013 White & Case. All rights reserved.
SHRM Online Global HR page
You have successfully saved this page as a bookmark.
Please confirm that you want to proceed with deleting bookmark.
You have successfully removed bookmark.
Please log in as a SHRM member before saving bookmarks.
Your session has expired. Please log in again before saving bookmarks.
Please purchase a SHRM membership before saving bookmarks.
An error has occurred
Recommended for you
CA Resources at Your Fingertips
SHRM’s HR Vendor Directory contains over 3,200 companies