The Expatriate Agreement – Yes or No?

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.

More About Chuck:

7 responses to “The Expatriate Agreement – Yes or No?

  1. Chuck is correct.
    I would only amplify the need for consistency in policy application, which a LOA will provide.

  2. Read your article on agreements for ex pats and thought there is someone I would like to hear more from….

  3. Dear Chuck,
    I’ve worked for a number of international non-profits where expatriate contracts are standard. I agree, contracts are for the protection and clariify to the employee and employer what their benefits and allowances up front. Contracts also help determine/track accurate budgeting which may be required by donors. The contract is an essential!

  4. Suzanne Kayzer

    Hi Chuck,

    I agree that it is always a good idea to explicitely describe the assumptions that the parties involved have about the goals, terms and conditions of the assignment, for all the good reasons that you mention. I’d like to add 2 more reasons:

    – to obtain visa and work and residence permits an employment contract is almost always a prerequisite. If it is not the company’s intention to establish a local contract in the host contry, you cannot do without an assignment letter;

    – drafting a contract is a good moment to discuss the consequences of the agreed terms and conditions with specialists. International employee mobility is an area that is often much more complex then companies and their employees realise. Consequences for taxation, social security, career management, pension, etc., etc, can be easily overlooked and difficult to repair. Also, benchmark information may be valuable input to agree on the terms and conditions.

    Drafting a template contract can be described as a kind of mini policy as it sets the landmark for futute assignments. When a company starts to assign more employees it is often better to draft a real international mobility policy.

    Suzanne Kayzer

  5. I totally agree and I can only imagine that a novice (employer and employee) with no input from experienced expats or consultants like yourself, would ever accept an expat assignment without a letter of agreement. Even with a LOA there are often disputes about what expense, compensation, or benefit is covered and what is not covered. As an HR professional having been through numerous expat disputes, I can personally attest that the LOA has proven to be the document that not only protected the expat, but the employer as well.

  6. Having been an Expat myself; and managed the process for many inbounds as well as outbounds I definitely agree with your recommendations. Once the employee is on site and out of country it becomes very difficult for the company to say “no” without causing major morale issues with the employee and or the spouse. A written policy or assignment letter will help set the boundaries and should cover most issues. The myriad of issues that will come up often require fast decision making and companies that have not thought about these before will have to make decisions that will potentially have long term consequences. Going over with predermined conditions will make the experience less stressful for all.

  7. I totally agree , a contract and a company wide policy have always saved the day for both parties. It also ensures a standard way of conducting business accross loactions, that eliminates favourtism and all that accompanies such.