Who Is and Is Not an Expatriate
This is the first of four in an article series entitled How to Structure Global Mobility Assignments, Expatriate Postings and Cross-Border Secondments. It was written by international employment attorney Donald Dowling with Littler Mendelson P.C.
Because multinationals by definition operate internationally, they often post staff overseas. In structuring overseas postings, multinationals inevitably struggle with the interplay between expatriate assignment strategy and the legal ramifications of a particular foreign posting. Legal issues in play in structuring an expatriate assignment go beyond the need for a visa, and include compliance with payroll laws, employment laws and “permanent establishment” (corporate tax presence).
Multinationals sometimes jump to the conclusion that there must be one best way to structure all international assignments. And so they grab whatever expatriate package got used last time, change the names, make some tweaks, and move on. (“Hey, in February we sent Carlos to Brazil—let’s use Carlos’s assignment package as a template now, for posting Susan to Paris.”) This approach skips over the vital step of tailoring the cross-border posting to meet the employer’s human resources needs while complying with legal mandates.
There are several different global mobility and expatriate assignment structures, and they are not interchangeable. In a way, deciding how to structure an overseas employee posting is like deciding how to structure a business entity—whether a business should be a C corporation, an S corporation, an LLC or a partnership. Which of several possible structures is most appropriate depends on the specific situation at hand and requires strategic thinking about both structural and legal issues. (“You know, while we ‘seconded’ Carlos to our affiliate in Brazil in February, now we need to ‘localize’ Susan temporarily to our facility in Paris. So Carlos’s assignment package is the wrong model here.”)
Expatriate postings traditionally came about when a multinational tapped an employee to go work abroad for one of three reasons: to support a foreign affiliate, as a broadening assignment, or to work overseas for the home country employer’s own benefit. Today, though, multinationals increasingly see these “traditional” expatriate assignments as less effective—employers these days turn to new mobility models like commuter assignments, extended business travel, rotational assignments and “local-plus assignments.”1 We now see more “floating employees” moving abroad to work in countries where the employer has no registered entity, and we see more employee-driven international moves—expats convincing their managers to let them work overseas and telecommute for personal reasons, such as, for example, employees who have to move back to their home countries to nurse a sick relative, and so-called “trailing spouses” married to other companies’ expatriates.
The various types of cross-border personnel moves raise questions of how best to structure a given international assignment. To resolve these questions, we address each of the four threshold issues over the next several weeks:
- Who is and is not an expatriate?
- The four expatriate structures
- Selecting the best expatriate structure
- Written expatriate agreements.
Who Is and Is Not an Expatriate?
Not all globally mobile employees are business expatriates. Arrangements for international assignees who are not expats are easy to structure, while structuring assignments for bona fide expats can be complex. Before structuring any cross-border work assignment, the first step is to ascertain whether the mobile staffer is, or is not, an actual business expatriate.
Colloquially, an “expatriate” is anyone who lives somewhere other than his native country. For example, poet and essayist Phillip Lopate described American author James Baldwin as having “lived most of his adult life as an expatriate in Europe.”2 But here we are addressing business expatriates. A business expatriate is someone originally hired to work in one country but later reassigned to work in a new overseas place of employment temporarily. A business expatriate expects to return home or be “repatriated” at the end of the assignment—an overseas assignee who does not expect to repatriate is not a business expat but a localized permanent transferee.
- Inpatriates and third country nationals. Two common global mobility terms are in effect synonyms for “expatriate” that betray the speaker’s point of view: “inpatriate” and “third country national.” An inpatriate is an expatriate coming into a host country, while a third country national is an expatriate not working at headquarters on either end of the assignment. For example, if the Paris office of a Kansas City-based multinational were to assign an employee to work temporarily at the company’s Tokyo facility, the assignee would be an “expatriate” to her former Paris colleagues, an “inpatriate” to her new Tokyo colleagues, and a “third country national” to human resources back in Kansas City. For our purposes here, she is an expat.
Watch for false expatriates—internationally mobile staff who do not meet our definition of business expatriate and who therefore usually should not get structured as expats. Also watch for actual expats whom an employer misperceives to be non-expats. In separating out who is and is not a genuine business expatriate, account for the concepts of business traveler; stealth/accidental expat; place of employment; foreign hire; in-house expat benefits program; and Global Employment Company:
- Business traveler. Some short-term global mobility assignments get staffed by business travelers who are not true expats. A business traveler remains employed and payrolled by the home country employer entity, with a place of employment that remains the home country throughout the overseas assignment. Everyone recognizes that someone working overseas for just a few days or a couple of weeks is simply on an international business trip, but sometimes even a longer (yet still short-term) global assignment might also appropriately get structured as a business trip—even where the employer and assignee refer to the trip as an international “assignment” or foreign “posting,” even where the employer provides expatriate benefits and even where the host country requires a visa or work permit. Structure a short-term international assignment as a business trip whenever the home country will remain the assignee’s place of employment during the posting.
- Stealth/accidental expat. When a business traveler stays abroad too long, as a matter of host country law the place of employment at some point may shift to the host country and the would-be business traveler risks becoming a so-called “stealth” or “accidental” expatriate. Another stealth/accidental expatriate scenario is the internationally mobile telecommuter: An employer lets an employee telecommute from home locally, and at some point the telecommuter slips away (moving abroad and continuing to telecommute from a new country).
Stealth/accidental expat status is an internal misclassification that can trigger legal problems under host country immigration, payroll, employment and “permanent establishment” law. As soon as a business traveler’s or telecommuter’s place of employment shifts abroad, consider reclassifying the employee as an expatriate.
- Place of employment. The concepts of business traveler and stealth or accidental expat turn on “place of employment.” Under the law of most countries, each employee has a single “place of employment” at a time with each employer (“place of employment” is a legal concept or status, analogous to “residence” and “domicile”). But ascertaining a given expat’s place of employment can be difficult.
The inevitable question that gets asked in the mobile employee contest is: How long can we post a business traveler abroad before the host country becomes the “place of employment”? There is no easy answer because “place of employment” is a construct of more than just time—in sharp contrast to the completely separate legal concept of tax residence, which usually gets triggered at 183 days worked in a country in a single tax year. Unlike tax residence, place of employment can attach in a matter of minutes: A new hire almost always acquires an in-country place of employment on the first morning on the job, and a transferee usually acquires an in-country place of employment on the first morning after the reassignment. The place of employment of a mobile employee moving from a home country to a new host country is a question not only of time worked in the host country, but also of October 2017 4 visa status, intended future repatriation date, place of payroll and link between tasks worked and the local market. This said, after a mobile employee has worked in a host country for more than several months, that country might plausibly take the position it has become the place of employment, if only temporarily.
Synonymous legal concepts. Having said that “place of employment” is a discrete legal concept or status, this concept varies in some jurisdictions. Where European law applies, the Rome I Regulation3 on choice-of-law controls; instead of “place of employment,” Rome I looks to where an employee “habitually carries out his work.” And UK case law in certain contexts looks to an employee’s “connection” to the place of work or the “nature” of where the job is based. For our purposes here, principles like these are roughly synonymous with “place of employment.”
In structuring a short-term global mobility assignment, decide whether the employer can plausibly maintain that the home country will remain the place of employment throughout the posting. When structuring a short-term assignee as a business traveler, guard against the stealth or accidental expat scenario.
- Foreign hire. Business travelers aside, another breed of false expatriate is the foreign hire. Multinationals occasionally recruit candidates in one country to work jobs overseas. As some examples, recruiting on global websites attracts candidates in different countries. Construction contractors in the Middle East constantly recruit laborers and carpenters from Indonesia, the Philippines and other developing Asian countries. Silicon Valley technology companies frequently recruit graduates from top universities in India for jobs in California. American multinationals often recruit American security guards for jobs in the Middle East and recruit American technicians for jobs at oil fields in Africa. All these employees are foreign hires, not business expatriates, because they work for their employer in just one country. They might be emigrants. They might need visas. Some of them might qualify for company expatriate benefit packages (paid housing and drivers, for example). But foreign hires are not business expatriates because they work for their employer in just one country. Their border-crossing status relates to recruitment, not employment.4 Avoid structuring foreign hires as expatriates.
- In-house expat benefits program. An expatriate benefits program is an organization’s package of paid global mobility extras like moving expenses, housing allowance, tax equalization, international tax preparation, spousal support, children’s tuition, car and driver, social club membership, hardship pay, flights home, expat medical insurance, repatriation costs, immigration services and the like. Not all business expatriates get to participate in expat benefits programs (think of telecommuters moving abroad for personal reasons). And not everyone who receives expat benefits is a true business expatriate (think of foreign hires recruited to work in “hardship” locations5).
Many multinationals use the term “expatriate” to mean participant in their in-house expat benefits program (as in: “Tiffany is transferring to our London office for a year, but she asked for the posting herself and we’re accommodating her request—so she won’t be an expat”). This usage lulls employers into misclassifying false expats who happen to be eligible for expat benefits and can lead to stealth or accidental expats who happen to be ineligible for expat benefits. It is best to avoid this dangerous usage. Instead, distinguish “structural expats” from “expat-benefits-eligible assignees.”
- Global employment company. Some multinationals employ corps of “career expats” who migrate from one posting to the next, spending little or no time working in any home country or headquarters place of employment. Sometimes these multinationals incorporate—often in a tax-advantageous jurisdiction like Switzerland or the Cayman Islands—a so-called “global employment company” (GEC) subsidiary with the raison ďêtre of employing and administering benefits for career business expats. GECs offer logistical advantages, particularly as to pension administration. Contrary to a widespread misperception, though, GECs are not expat structures unto themselves. (And a GEC cannot stop the mandatory application of host country employment protection laws.) The arrangements for an expat employee of a GEC ultimately must be structured just as any other expat.
This is just the first in a series of four articles explaining how to structure global mobility assignments, expatriate postings and cross-border secondments. The next entry will deal specifically with the four expatriate structures. Those include:
- Foreign correspondent
- Temprorary transferee/localized
This piece is largely based on an article originally published by Littler Mendelson, P.C., who holds the copyright. It can be read here.