The Expatriate Agreement – Yes or No?

Author:
Chuck Csizmar – CMC Compensation Group

Recently I was asked by a US client to explain why I recommended that they create an international assignment letter for their expatriate employees.  After all, they only had a few employees overseas and previously had resisted the call to what they described as “playing the lawyer card”.  They felt that management could effectively deal with the circumstances of each individual expatriate situation as matters came up, and were reluctant to lose what they considered their prerogative – to set terms and conditions as they thought appropriate for each employee.

This is not the first time I have been asked that question, as it is not unusual for small companies or non-profit organizations to send an employee overseas with little more than a verbal agreement and a series of vague assurances.  These organizations wish to avoid bureaucracy and move quickly.  However, in most cases these casual and hurried arrangements have proved painful and expensive experiences for all concerned, largely because:

• The shock employees and their families faced when they came to grips with actually living in a foreign country, vs. simply visiting.  The local realities of daily life, combined with cultural differences compared against “back home” became quite a wake-up call when they were no longer insulated by the transitory nature of a business trip.

• The constancy of unforeseen and confusing localized situations arising (medical claims, driving licenses, bank accounts, schooling, language, etc.) proved such a frustrating distraction for the employee that they often lost focus on the job – the reason they were there in the first place.

• Relationships with headquarters suffered as the employee asked for more and more consideration (increased payments) to redress what they considered coverage gaps in their terms & conditions.  The trust element was weakened as employees felt they were being short-changed by management.

Coming from an environment where every expatriate was given a detailed assignment letter “before” getting on the plane, I was at first taken aback by the client’s question – because the absence of mutually agreed terms and conditions is almost certain to eventually prove very expensive to companies trying to take a “short cut.”

Here are some reasons why providing an assignment letter is a good idea:

• Protection:  Like any contract, confirming the terms & conditions of the assignment protect both parties from misunderstandings, misinterpretations and assumptions – before expenses are incurred.

• Clarity:  Accepting an overseas assignment is a major step for any employee, as well as for their affected family members.  The more you are able to clarify exactly what the terms and conditions of the assignment are, the more likely you are to ensure a smooth assignment for all parties involved.

• Cost control:  Defines those expenses that the company will pay for and conversely what they will not pay.  An agreement here will mitigate issues rising once the expatriate is on the ground in the host country.  Concerns raised once the assignee is relocated usually result in increased company costs, as negotiating leverage is lost and the company feels compelled to avoid alienating a very expensive investment.

• Standardization:  Your international policy, whether written or only a matter of case law precedent, should strive to treat all expatriates in the same fashion.  Unique circumstances do occur but the basic principles should be repeated for every assignee.

So how bad can it be, playing it by ear and leaving terms & conditions to be developed over the duration of an employee’s international assignment?  Flexibility and quick thinking are positive management traits, are they not?

Unfortunately, when you court the inherent risks that accompany an undocumented assignment, you should be prepared for:

• Increased costs that you have not planned for

• Constant negotiations that attempt to improve the lot of the expatriate

• Disgruntled employees and / or affected family members

• Greater risk of failed assignment

Taking that short cut usually limits the financial and emotional protection the employee and their family are going to rely on, at the same time that the company has committed a substantial amount of money to place them in an overseas location.  That is not a good management practice.

When preparing an international assignment letter, what elements should be included?

• Title, compensation and assignment duration – critical elements of status and reward in the host country

• Housing and cost of living allowance considerations – should include the amounts involved (as applicable) and the frequency of review

• Benefit coverage (medical, dental, life, vacation, holidays etc.) – how will home country benefit protections be handled in the host country

• Relocation considerations – the back and forth policy coverage for the employee’s residence, to include movement of household goods overseas

• Property management (as applicable) – what will happen to the home country residence?

• Tax preparation – employee obligations in both countries.   Usually a statement of company liability for “additional” taxes is included.

• Home leave – how often, and in what circumstances?

• Schooling, language, cultural orientation (as applicable)

• Repatriation – a balance is usually struck here between the employee’s strong concern and the company’s natural vagueness for what the future might bring

• Connection to international assignment policy – refer to the policy as the source of company rules and procedures

• Unique and individual circumstances (as applicable) – if it’s different from the norm, write it down!

The items listed above represent only a portion of the questions that your expatriate candidate will have, and the list is not all-inclusive.  So should your company consider taking a casual approach to sending an employee overseas, unsupported by a signed assignment letter, be aware of the risks involved.

Is there a scenario of an employee being asked to live overseas where circumstances would not require an international assignment letter?

I don’t think so.

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