In today's global economy, executives are increasingly called upon to navigate the opportunities and challenges of conducting business around the world. Far too often, however, international executives ignore or are unaware of the impact that cross-border employment may have on their compensation, benefits and personal liability. Below are some common employment issues for executives to consider when navigating international employment relationships.
Tax Equalization and Protection Strategies
Handling taxes for routine cross-border employment arrangements has become vastly more complicated for U.S. executives working internationally.
Understanding and planning for potential tax liabilities, including the dreaded double taxation, when income tax is paid twice, is crucial for international executives and often requires coordination between the executive's employment counsel and tax advisors. This coordination may include, among other protective strategies, the negotiation and implementation of tax equalization benefits, whereby executives are effectively kept whole, paying no more in taxes than they would have paid had their compensation been subjected to U.S. taxation only.
Rights and Obligations Under U.S. and Foreign Laws
Whether the employment arrangement is a traditional expatriate (expat) arrangement (i.e., an executive living and working outside the U.S.), or the executive is located in the U.S. and is employed by and/or affiliated with a foreign company, it is not uncommon for certain aspects of the employment relationship to be governed by more than one country's laws. For example, a U.S. citizen living and working overseas for a U.S.-controlled company remains protected by and subjected to certain federal anti-discrimination laws, including Title VII of the Civil Rights of 1964, the Age Discrimination in Employment Act, and the Americans with Disabilities Act. At the same time, the executive may also be protected by and have obligations under the anti-discrimination laws of the foreign jurisdiction.
Similarly, for an executive employed in the U.S. by the U.S. subsidiary of a foreign parent company, it would not be uncommon for the terms of the employment agreement to be governed under the laws of the applicable work location in the U.S. By contrast, the agreements governing the terms of the executive's equity grants and/or duties and responsibilities as a director and officer of the parent company are governed under the laws of the country where the company is legally located.
[SHRM members-only toolkit: Introduction to the Global Human Resources Discipline]
Employment Terms for the International Executive
In addition to the terms and conditions that should be addressed in all executive employment agreements (e.g., job title, duties, compensation, severance protections, post-employment restrictions), there are numerous other terms that should be considered in the context of cross-border and expat arrangements:
- Employing entity (U.S. entity, foreign entity or both).
- Reporting and authority within the U.S. and foreign entities.
- Applicable law and venue for dispute resolution.
- Location-specific defense and indemnification.
- Immigration and visas.
- Relocation (individual or family).
- Travel requirements or restrictions on travel.
- Housing and transportation.
- Security (individual or family).
- Family education costs.
- Repatriation.
- Scope of post-employment restrictions.
- Post-employment tax assistance.
With employment regulations that can vary significantly from country to country and the ever-changing tax landscape, even the most seasoned executives can find themselves over their heads when trying to navigate the waters of international employment matters. At a minimum, the executive should know the rules before trying to negotiate a favorable arrangement.
Brian J. MacDonough is chair of Sherin and Lodgen's employment department in Boston. He is a member of the International Forum of Senior Executive Advisors and collaborates with employment law specialists around the world.