Structuring Expatriate Assignments and the Value of Secondment

By Rosemarie Lally, J.D. April 8, 2020
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Multinational employers needing to post staff overseas can struggle to structure an expatriate assignment to meet business needs and legal mandates.

Although there are several viable expatriate assignment structures, "they are not interchangeable," cautioned Donald C. Dowling, Jr., an attorney with Littler in New York City.

Essentially, all expatriates fit into one of four categories, according to Dowling:

  • Foreign correspondent. An expatriate remains employed and paid by the home country employer entity while working abroad. The place of employment shifts to the host country, but there is no local host country employer entity and, thus, no in-country visa sponsor. This structure violates payroll laws in many countries.
  • Secondment. An expatriate remains an employee of the home country employer entity but is assigned to render services to a host country entity, usually the employer's affiliate or business partner. The place of employment shifts to the host country. The home or host country entity—or both—may pay the expat, or the home country entity may pay the worker and the host country entity may issue a "shadow payroll," reporting the expat's income to authorities to comply with local laws. Then, the host country would reconcile the amount paid each payroll period with the home country employer.
  • Temporary transferee or localized expatriate. An expatriate transferee resigns from the home country employer, moves overseas, and then is hired and paid by a new host country employer, which is often an affiliate of the initial employer but may be a third-party employer.
  • Joint employee. An expat is simultaneously employed by the home and host country employer entities, or actively works for the host country employer entity with the home country employment agreement suspended or "hibernating." The place of employment usually shifts to the host country. The host country employer can sponsor a visa.

[SHRM members-only toolkit: Introduction to the Global Human Resources Discipline]

Advantages of Secondment as Expatriate Strategy

Secondment is popular among Fortune 500 firms, as it often fits their business needs, Dowling explained. It allows them to "lend out" an employee to work in a foreign affiliate or subsidiary and still maintain the expat as an employee of the home country employer entity.

"A seconded employee is generally asked to handle a project-critical assignment in another country with the added benefit of maintaining home country salary and employment benefits, plus coverage of most or all local country costs," noted Courtney Noce, an attorney with Greenberg Traurig in Atlanta.

Ciara Muldowney, an attorney with Lewis Silkin in London, observed that in addition to providing employees with an opportunity to gain new skills and experiences, "secondments enable employers to move individuals around the business to use skills where they are needed, and to build relationships and networks by deploying employees to other organizations."

The secondment structure offers advantages, such as allowing an expatriate to continue participating in a company's 401(k), pension, and health benefit plans, as well as in the social security program, Dowling noted, although there are inevitably payroll complications to address.

Maintaining the expatriate as an employee of the home country entity—assuming it is a U.S.-based company—is also advantageous to the employer, as U.S. employment-at-will rules generally favor the employer. Nonetheless, a choice-of-law clause in an employment contract doesn't usually block more-favorable host country employment rights, Dowling said.

Structuring Secondment Agreements

Employers must exercise care to protect their interests in structuring a secondment. Muldowney said employers should document the secondment arrangement and have two secondment agreements in place: one between the host organization and the home country employer, and the other between the home country employer and the worker. The agreements should state that there is no direct relationship between the expatriate and the host entity.

"Both agreements should clarify the scope and duration of the secondment and the secondee's duties and responsibilities," Muldowney said. Both the home country employer and the host country entity will owe duties to the expatriate related to health and safety, and both entities may be liable for any discrimination claims arising during the secondment, she noted, so making a contractual agreement about who will bear any liabilities concerning the worker is appropriate.

"Employers will also need to consider issues in relation to data protection, confidential information and restrictive covenants, intellectual property, immigration, and tax requirements," she advised.

Secondment agreements must be tailored to the employment laws of the host country, Noce cautioned. For this reason, she suggested, have the agreements drawn up by a host country lawyer who specializes in this area.

Further, Noce said, employers "must consider the worst-case scenario—a need to terminate an employee during the expat assignment—and insert the necessary contingency clauses into the agreement to limit liability." 

Sarah Harrop, an attorney with Addleshaw Goddard in London, explained, "It is important to set out how long the secondment is expected to last, what will happen at the end of the secondment, and what happens if the secondment ends early." Further, agreements should specify any additional benefits or payments the expatriate will receive in connection with the secondment.

Because expat packages "often include valuable benefits, such as private-school fees, return flights and accommodation, which would not be available to a local recruit, it is helpful to include in the agreement a date after which the expatriate switches to local terms or returns home," Harrop suggested.

She stressed that agreements should also address the impact of the secondment on an expatriate's terms of employment in the home country. For example, agreements should provide for the treatment of an employee's taxes while overseas. "Employers also need to be aware that employees may have statutory employment rights in their home country and their host country," she said.

Dowling cautioned, "Structure expat arrangements with your eyes open. Choose the best option for your specific business needs among the four choices, and set it up properly."

Rosemarie Lally, J.D., is a freelance legal writer based in Washington, D.C.

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