‘Accidental Expats’ Pose Greater Compliance Risks

By Roy Maurer Sep 15, 2014

Emerging trends in international assignments are creating new compliance risks for human resource professionals at multinational companies.

Traditional expatriate assignments typically involve relocating the employee and his or her family and paying for housing allowances, cost-of-living differentials, cultural training and foreign language classes. Now what was the typical three-to-five year stint is transforming into a creative variety of shorter, project-based assignments lasting weeks or months.

“Companies are expecting their workforce to be more mobile than ever, but not mobile in the traditional sense because the assignments don’t always involve relocation,” said Kerry Weinger, a global employment partner based in Baker & McKenzie’s Chicago office. “We’re not consigning the existing models for international assignments to the history books yet, but the changes underway surely call for a radical rethink.”

Sometimes referred to as “accidental expats,” these workers include extended business travelers on assignment for up to three months and short-term assignees often working overseas for up to one year, to cross-border commuters who return home on weekends and global nomads who move from assignment to assignment without returning home.

These nontraditional workers have created unique tax, immigration and employment law challenges for their employers, Weinger said. “With a large percentage of their revenues now coming from overseas, companies have been forced to confront new regulations and stricter enforcement of how they move, manage and classify their workers. Companies must find new ways to track expatriate employees’ movement and make sure their cross-border trips and activities are compliant with a growing number of rules and regulations that span numerous legal and tax areas,” he said.

According to Baker & McKenzie’s The Future of Work Series: Global Mobility Report, accidental expats pose a particular risk for their employers because they move in and out of other countries frequently, often traveling as tourists or business visitors to avoid the expense and bureaucratic processes of getting work authorization. They typically fall outside of a company’s formal global mobility program, and are responsible for booking their own travel. HR managers at multinationals with thousands of employees working on hundreds of projects often don’t know where these accidental expats are until there’s a problem, Weinger said.

Short-term assignments may turn into longer-term assignments, inadvertently creating foreign income tax and social security withholding requirements. “It’s not just a matter of individual employees getting turned away at customs or penalized for tax violations, which is happening with much greater frequency,” said Weinger. “Even more concerning is that governments are increasingly going after companies for exhibiting a pattern of violating certain laws, such as sending large numbers of workers into their country without proper visas. Companies that are prosecuted for these types of violations face civil and even criminal action, penalties that can undermine their revenues and damage their reputation.”

According to Ernst & Young’s Frequent Business Traveler Survey Report 2012, 58 percent of companies have experienced an upward trend in frequent business travelers, while 59 percent of companies have no policy in place to ensure compliance in managing this type of worker while overseas.

Compliance risks include immigration, tax and social security requirements, data privacy mandates, employment laws, compensation issues, and anti-corruption restrictions, said Weinger.

Baker & McKenzie recommended the following practices to account for these risks and manage an increasingly nontraditional mobile workforce:

Communicate your business-travel policies. In today’s fast-paced business environment, it’s nearly impossible to know where all of your employees are at any given time and to monitor their activities, said Weinger. “That’s why it’s so important to establish a company travel policy and incorporate it into your employee handbook. Based on that policy, you should develop an education program for business travelers and their managers to inform them of the types of business trips your company will authorize and to instruct employees on relevant immigration, labor and tax laws of different jurisdictions so they don’t inadvertently violate them.”

Require a compliance checklist. Some companies have moved toward creating a standardized process for their short-term assignees and business travelers to detect and address immigration, tax and other compliance issues before they leave the country.

One way to identify immigration red flags is to have employees fill out an online questionnaire before obtaining travel authorization, Weinger said. “Before booking their tickets, employees must answer questions like: What is the purpose of your trip? Do you have the proper visa? Have you ever been stopped at customs? Have you or anyone on your team ever been detained? Do you have direct reports in the country you’re visiting? How many days have you spent in this country over the last year?”

The completed questionnaire should alert HR on whether or not a business traveler visa is sufficient or if further investigation is needed. The company’s dedicated travel agency could be tasked with this step.

“Having systems like this can not only help track employees and prevent compliance problems, but show enforcement authorities that you have a formal process for conducting immigration due diligence, which can work to your company’s benefit if you come under investigation,” said Weinger.

Establish travel review policies. Although the need for work authorization is usually based on the nature of the activity rather than the length of time in the country, the longer an employee is spending at an overseas worksite, the more it suggests that they are doing more than attending meetings or conferences, said Weinger. “That’s why travel to one country for an extended period or frequent trips should be evaluated by the HR department or general counsel’s office to determine whether work authorization is required,” he said.

According to Baker & McKenzie’s global mobility report, other approaches include creating formal short-term assignment and extended business travel programs that provide an enhanced level of oversight; training managers who frequently send their employees abroad on the types of activities that require work authorization and the consequences of noncompliance; and incorporating these nontraditional assignments into the company’s global mobility program.

Limit travel activities. One way to mitigate accidental expat risk is to track and modify employees’ activities so that they don’t do any substantive work that would trigger the need for work authorization or create adverse tax consequences. “With advanced planning and proper training, it may only take slight modifications in an employee’s activities to protect your company,” said Weinger.

Get weekly local regulatory updates. Since the global economic crisis, governments around the world have become stricter about enforcing their immigration laws, scrutinizing petitions and implementing new rules for getting visas to protect the local workforce, according to the report. “Because these rules change quickly, it’s easy to be surprised by a denial of an application in what is typically a routine filing for your company,” Weinger said. “That’s why you should receive regular updates on local developments from sources such as outside counsel that specializes in immigration law in particular regions, global mobility publications and business newsletters that cover these issues.”

Use immigration experts. Immigration laws vary widely from country to country. Weinger advised consulting with experts who know how to analyze the activities employees will be engaged in to determine the appropriate type of visa and reduce legal risk.

Roy Maurer is an online editor/manager for SHRM.

Follow him at @SHRMRoy

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