Companies that frequently assign employees abroad may have an international assignment policy, which provides a framework for employment terms and payroll arrangements. Often, these policies are general guidelines, and may not take into consideration rule differences between countries.
When a client engages our Employer of Record (EOR) service, we try to merge their existing policy (if they have one) to fit the host country laws and employment requirements. This creates a clearer set of policy terms that we are confident will be in full compliance, while also addressing the employee’s concerns about their assignment.
How to Handle Specific Clauses
There are several key clauses in an international assignment policy that Shield GEO reviews to ensure that they are compatible with the host country employment laws, and are integrated with the local EOR’s payroll practices. This is important because the EOR becomes the de facto, legal employer in the host country, and the employee is also subject to local labor, tax and payroll laws.
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Employees on foreign assignment may expect that they will continue to be paid on the home country payroll. However, our client needs to inform their employees that Shield’s EOR will only payroll in the host country, and is required to remit all local taxes and social security payments based on the entire compensation paid.
- Shield GEO doesn’t handle shadow or split payrolls, which means the entire payroll is in the host country, and that should be stated in the policy.
Another issue that comes up is that of employee taxation in the host country. In some countries, taxes may be significantly different than at home, and the employee may request some type of hypothetical or ‘hypo’ tax (as if they were still on the home country payroll and using home tax rates). The Shield GEO EOR cannot structure a hypo tax for our client’s employees on assignment, if it violates local tax laws.
If a client wants to offer hypo tax or tax equalization to employees, we recommend they seek external tax advice, since it does entail both host and home country tax laws and rates.
- Employees are taxed locally according to host country tax rates, and the EOR cannot deviate from those rules. The policy should reflect this fact and the reasons why.
Expat Medical Insurance
Health or medical insurance needs to be valid in the host country, and in compliance with local insurance mandates. Some companies have global or regional insurance they provide to all of their expats, which is usually a more generic policy with a fixed amount of coverage.
In some countries a global policy might not offer enough coverage, and they may also need to get a local insurance policy that meets the host country requirements. For example, Australian visa holders must hold local medical insurance that meets specific immigration requirements for expats.
- So, the international assignment policy would clarify that insurance will be offered that is sufficient in the destination country, in addition to the global insurance coverage.
Home leave might be important for expats on long assignments, and some companies offer flights back for their employees. The issue that comes up with this is whether flights home are a taxable benefit in kind. With the help of our EOR and local experts, we give the client the host country requirements and advise them if this benefit is taxable and to be included in payroll.
- The policy can state whether home leave is offered to the employee, how often, and the taxability in the host country.
Once again, the taxation of allowances for housing, meals, transportation and education will be determined according to host country tax laws. We will check with our EOR and confirm if these allowances can be offered legally. Next, we will tell the client if there are taxable or non-taxable allowances and if they meet the statutory requirements of the host country.
- The policy can then include the taxable allowances that would be included in payroll.
If there are required statutory pension contributions to be made on behalf of the employees, then those need to be spelled out in the policy. Those amounts need to be incorporated into the total cost of employment for employees, and managed in the host country payroll.
- The policy should detail how pension contribution are being paid, both in the home and host country.
Sick leave and Annual Leave
Most countries have very specific statutory sick leave and annual leave rules, and the EOR will need to adhere to those. This also applies to unpaid leave that is accrued, and how that is taken care upon repatriation.
- The assignment policy should be in line with the host country requirements, and offer the minimum statutory leave in the host country where the employee is working.
Many countries have very specific termination rules regarding notice periods, cause and severance. Even an unplanned repatriation could violate those statutes, and it helps when everyone knows the requirements for termination.
- The assignment policy should reference those rules so that the employee understands the process in the host country, which may be different than at home.
Home Employment Management
Companies should think about whether to keep the home employment active or hibernate whilst the employee is on the EOR payroll. This will depend upon whether it is long or short-term assignment.
- In either case, this needs to be included in the policy, so the employee understands the employment relationship while in the host country.
Shield GEO: An Employer of Record for International Assignments
Integrating your existing assignment policy to conform to host country laws is one way that we help you and your employees to stay in compliance abroad. Although every country has different rules, we have local partners and experts already in place to assist you in the payroll and employment of your staff. Shield GEO makes international employment simple for your HR department with a comprehensive solution for your assignments.
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