Tag Archives: law

Ten Tips to Develop a Global Code of Conduct – Part 2

Mariana Villa da Costa – Littler Mendelson

A few weeks ago in the first post of this series, I provided five tips to get you started in the development of a Global Code of Conduct.  In this post, we are back with five more tips to help you finish your Code.

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Ten Tips to Develop a Global Code of Conduct – Part 1

Mariana Villa da Costa – Littler Mendelson

What is a Global Code of Conduct?  Everybody talks about them, and they have become a necessity for global businesses in today’s environment, but truly, drafting one can be a big mystery and a lot of work.  Who should draft them? A lawyer? Human resources personnel? The CEO?  What content should be included? What language?

These questions, and many others, will be answered with my ten tips to develop a Global Code of Conduct.  The first five tips are in this post; the remaining ones will follow soon in a follow-up post. Here we go:

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Global HR Issues That Keep Executives Up at Night – Part 2

Guest Author:
Jacqueline Vilet – TriNet

Editor’s NoteWe are pleased to welcome Jacque Vilet as a guest author for the International HR Forum. Jacque is a Global HR/Benefits Consultant for TriNet, providing global Human Resources services to SME’s with international operations.  She has over 20 years experience in International Human Resources with both local nationals and expatriates, and has been an expat twice during her career. Jacque holds the Certified Compensation Professional (CCP) designation from WorldatWork, and the GPHR (Global Professional in Human Resources) designation from the Society of Human Resources Management.

In Part 1 of “What Keeps Executives Up at Night”, we talked about the importance of employment contracts and how requirements vary from one country to another.  But employment contracts are only one of the major labor issues that companies face when doing international business.   Terminating local national employees can also create major problems.

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Global HR Issues That Keep Executives Up at Night – Part 1

Guest Author:
Jacqueline Vilet – TriNet

Editor’s NoteWe are pleased to welcome Jacque Vilet as a guest author for the International HR Forum. Jacque is a Global HR/Benefits Consultant for TriNet, providing global Human Resources services to SME’s with international operations.  She has over 20 years experience in International Human Resources with both local nationals and expatriates, and has been an expat twice during her career. Jacque holds the Certified Compensation Professional (CCP) designation from World at Work, and the GPHR (Global Professional in Human Resources) designation from the Society of Human Resources Management.

Everyone has heard the question “What keeps you up at night?”   The answer usually depends on the context.   If we ask  C-level executives, the answer might cover such topics as market share, profit margins, stock price, ROI, etc.

Executives might also worry about their international operations – whether they picked the right people to run them, whether these managers are making inroads into the company’s potential customer base, hiring the right employees and remaining on target to meet business goals that are so important for expanding the company’s global market.

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International Employment Law “Quick Facts”: India

Mariana Villa da Costa – Littler Mendelson

Hello Readers! Sorry about the radio silence, but I am back with another edition of our  “International Employment Law Quick Facts”! Based on our readers requests, I have chosen India for the next in this series.

India is a place of exotic food, beautiful architecture and Bollywood! But, it’s also a developing country with the world’s second largest labor force and an economy that is taking over many others, and becoming one of the best places for global companies to invest. One important observation – Indian Labour and Employment Law is among one of the most complex in the world, so while I know the outline that follows is a good start, it is always a great idea to consult a lawyer.

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Independent Contractor or Employee?

Mariana Villa da Costa – Littler Mendelson

There are many situations when companies consider hiring “independent contractors” rather than direct employees.  When considering such a step in an overseas market, each country’s labor law should be consulted to determine the specific requirements of independent contractors in that country.  Here are some issues to consider that are commonly addressed by most country labor laws.

Independent Contractor or Employee?
The difference between an employee and an independent contractor is determined based on the requirements that one must have to be an employee.  While each country is different, generally, an individual will be considered an independent contractor and, therefore, will not be covered by the labor legislation, if he or she has independence to perform the work and it is not subordinate to a company’s directives and regulations, and when there is no exclusivity in the relationship between the parties.

5 Questions to Assess Independent Contractor Status

Here are 5 questions to help you determine if a relationship is a true independent contractor:

  1. A worker is an employee if the company has the right to control the manner and means of accomplishing the result desired.
  2. An employee is paid for his/her time and bears no risk of wage loss if the employer’s product is unprofitable.  An independent contractor has the opportunity to profit from the project and the risk of loss, depending on the worker’s managerial skill.
  3. An employee is not required to invest in the employer’s business.  An independent contractor makes some investment in tools, equipment, supplies, and facilities appropriate for his/her business.
  4. An employee may receive training.  An independent contractor has the skills necessary to perform the task without additional training.
  5. An employee enjoys a continuing relationship with the employer.  An independent contractor generally works on one project and moves on, accepting additional projects when and if available.

Key Considerations for Independent Contractors

Before engaging an independent contractor, be sure to consider the following:

  1. Determine the real need to have an independent contractor.  Could this work be done by an employee instead?
  2. Draft an independent contractor agreement that makes the case for real independence. Prepare a very clear and specific agreement.  Address all possible issues and avoid having the contractor sign non-compete restrictions.  Avoid mention of bonuses or other provisions, such as  vacation, work hours and other stipulations that look like employment terms, in the independent contractor agreement.
  3. Structure the day-to-day working relationship to support the contractor’s independence. For example:
    1. Do not put the contractor in the employment list or in the payroll and keep the contractor off organization charts.
    2. Do not provide an office or company business cards and do not schedule hours.
    3. Avoid constant email with requests that are more closely to control than simply guidelines on how the company wants a final product to be delivered.
    4. Do not pay the same amount every month.
    5. Ask the contractor to invoice the company with detailed information on hours worked and project deliverables to justify payment.

Additional Tests to Assess Independent Contractor Status

This checklist is based on the one developed by the US Internal Revenue Service (IRS).  It gives valuable information that characterizes most independent contractor relationships across the globe:

  • No instructions
  • No training
  • Services do not have to be rendered personally
  • Set own work hours
  • Not a continuing relationship
  • Control their assistants
  • No interim reports
  • Paid by job
  • Time to pursue other work
  • Decide on job location
  • Order of work set
  • Work for multiple companies
  • Pay business expenses
  • Have own tools or equipment
  • Significant investment in their business
  • Offer services to general public
  • Can make entrepreneurial profit or loss
  • Cannot be fired at will
  • No compensation for non-completion

Maintaining the proper classification of employees versus contractors is very important to ensure compliance with labor law regulations.  The rules are unique to each country, and HR professionals are urged to review the specific requirements for each country as needed.

Important Note: These guidelines are intended to provide a brief overview of the independent contractor issues in foreign countries.  It is not intended as a substitute for professional legal advice and counsel.

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Avoiding Tax Traps with Short-Term Assignments

Claudia HoweAuthor:
Claudia Howe – Global Mobility Tax, LLP

Has anybody heard about the magic 183 days?  So, if you stay in the host country for less than 183 days, you don’t have to pay tax in that country, right?  … right?  Well, actually the answer is:  sometimes.

Many folks will remember the 183-day rule, but often they do not quite know why or how.  But it sure lulls many international short-term business assignees (and their managers) into a false sense of security that as long as they are in the other country for less than that magic number of days, thinking they will be exempt from that country’s tax.  Let’s step back.

Tax Treaties Help Prevent Double Taxation

Tax treaties come into play when two countries want to tax the same income leading to the dreaded “double taxation.”  As the world has become smaller and more and more people are conducting business in countries other than their home, these folks find themselves in a position where they may be required to pay tax in both countries under the domestic law of each country.  For example, a UK employee goes to the US for a four-month project.  The UK will tax her on her world-wide income by virtue of being a tax resident in the UK.  The US federal government will want to tax her US source income because she has “effectively connected income.”

How Tax Treaties Work

Tax treaties provide that if certain conditions exist, the person is not taxable in the foreign jurisdiction, in this case the US.  Beware, each treaty is worded differently, but in general, the three main treaty conditions for an individual employed in the home country, and claiming exemption from tax in the host country under Article 15, the Dependent Services article, are:

  1. The employee does not exceed 183 days in the host country.
  2. The remuneration is paid by the home country entity (home payroll).
  3. The remuneration is not charged back to an entity in the host country.

As mentioned above, be careful to read the exact wording in each treaty to evaluate exactly what it says – there are variations on the theme.  For example, the 183 days could be in a calendar year, fiscal year, or in a rolling 12 months. The US has concluded numerous treaties and neatly lists them on the IRS website.   The UK also has a list.

The Fourth Requirement (in some countries)

Over the past few years, another hurdle to using the treaty has crystalized itself, also know as the “economic employer” approach.   The term “employed” or “employment” as stated in Article 15 had not previously been defined, until the OECD (Organisation for Economic Co-operation and Development) stated that substance trumped form.  This means that even if the person is legally employed by the home country, the entity that is receiving the benefit of the services, namely the host country entity, could be construed to be the real employer and therefore the Article would not be useable to exempt the income from tax in the host country.  The US has not adopted this approach as of yet, but many of the European countries that follow the OECD model treaty have.

Our friend from the UK on the 4 month assignment remains on UK payroll, spends less than 183 days in the US during any 12 month period (even vacation days not related to the assignment count), and her company does not cross-charge her compensation cost to any US entity.  So, is she off the hook?

State Tax Implications

Not completely.  The treaty in this case will enable our UK friend to be exempt from US federal taxes, but since she is working in the beautiful (and broke) state of California, which does not accept any treaties concluded by the US federal government, she will still be subject to California tax, regardless.

Social Tax Implications

Our friend also has to make sure that her employer has applied for a certificate of coverage under the US/UK totalization agreement to exempt her from US social taxes (more on that another time).

Foreign Tax Credits

Even if the conditions for an exemption from the host country tax are not met, the treaty can still be helpful in avoiding double taxation:  the income may now be taxable in the host country, but under the Relief of Double Taxation article (contained in most treaties), the home country must grant a credit for taxes paid in the host country, up to the amount of tax that would have been paid in the home country on that same income.   This might also apply in cases where no treaties exist.  Keep in mind, though, that in some countries, the practical requirements for claim a foreign tax credit are so complex that for small amounts, it may not even be worth the bother.


So, what should you, an HR professional, faced with the news of a short-term assignment and, the manager’s famous last words are: “we will make sure it’s less than 183 days,” do?

  1. Check the host country’s domestic law for when a person will become taxable.
  2. If taxable, check if the home and host country have a treaty and then find the latest version of the treaty (not the one you printed 5 years ago and … “it’s gotta be somewhere in this drawer”).
  3. Request a detailed travel schedule for 12 months prior to the assignment from the employee to understand how much time he or she has already spend in the host country for any reason (vacation, holiday, trade shows, business trips, etc.).
  4. Read all the provisions of the treaty carefully.
  5. Find out from the manager and your finance team if the compensation will indeed remain in the home country and will not be charged to the host entity or a client in the host country.
  6. Find out if the host country has adopted the “economic employer” approach.
  7. Are there any other taxing jurisdictions that you need to consider (state/province/social tax, etc.)?
  8. Whew – I am getting tired just writing all these things. . . . .

Unless you have checked all this out, you cannot rely on the famous 183 days.  And don’t forget the reporting and filing requirements for each jurisdiction!  You may want to call your favorite global mobility tax professional to assist with all of the above and to co-develop the options for the assignment step by step so you can articulate the risks and options to that manager and to your management.

More information on Claudia:

Can We Employ Them HERE When They’ll be Working THERE?

Alan Freeman – LOF International HR Solutions

We recently addressed a colleague’s question that echoed one we hear fairly often.  “We have an operation in Country A and want to hire our first employee in Country B.  He is a national of Country  B, will  continue to live there while working for our company, essentially all his work activities will be conducted in Country B and he will not be an expat.  Can’t we simply put him on a Country A  contract, enroll  him in Country A social insurance and our company benefits schemes, pay him through the Country A payroll and all will be well?”

Indeed, it is a true story (I am NOT making this  up!) that a senior executive once told me that he intended to hire seven employees in France under UK contracts and payroll from the UK.  His rationale?,  “We don’t want to have the extra burden of  setting up new administrative capacity in France and, besides, I don’t want to get tangled up in those restrictive French employment laws.”

While the desire to avoid the costs and efforts of establishing operations and additional administrative burden in “new” countries is understandable, it is not wise.  Here’s why.

What are the key issues?

In most countries, a person resident in the country and performing services in the country is considered an employee in that country.  It doesn’t matter where the payroll is paid, where the contract is issued, or what country the employing entity is located in.

In our example above, the likely circumstances would be:

  • The government of Country B would assert that the employment relationship must be governed by Country B’s employment laws.  This means that a local contract, and any additional “work rules” and requirements, must be executed in accordance with Country B’s rules.  This also means that, on an ongoing basis, the employer is required to manage the employment relationship under the terms of Country B regulations.
  • The employer and employee would be subject to Country B social insurance and, potentially, other mandatory program requirements, such as funded termination plans, 13th and 14th month payments and mandatory benefits.  Social insurance and other contributions usually must be withheld from payroll and remitted in accordance with Country B regulations.
  • The employee will be subject to income tax in Country B, not only on income generated related to his work in Country B but, potentially, on his worldwide income.  Many countries require regular ongoing income tax remittances as income is being earned (so-called Pay-As-You-Earn or PAYE arrangements).  In such cases, payroll once again is required to properly withhold, remit and report on income taxes in a manner akin to what must be done for social insurance.
  • If based upon Country A parameters, the employee’s compensation and benefits package probably will not conform to Country B legal requirements and market practices.  The employer could easily be paying too much or too little and if currencies are different, and there are exchange risks to consider.  Each country has unique practices for mandatory and supplemental benefits, and the latter are usually integrated with local social plans in some manner.  In the end, the inappropriately designed plans could be quite problematic and the employee would have the burden of dealing with them.
  • Finally, although it is not a purely an “HR” issue, there is a significant corporate risk that HR professionals must be aware of when setting up employment in additional countries.  Simply put, if an employee engages in business activities in a given country, especially if these activities produce revenue, the local authorities could rule that those activities create a “Permanent Establishment”, or PE.  A PE is an ongoing business that is subject to local country corporate income taxes.  If the company has not carefully established a local business entity that serves both as the employee’s “employer of record” and as a means for putting limitations around in-country business activities, then the authorities may assess corporate income taxes against the employer’s revenues both in-country and elsewhere.  To illustrate a worst case scenario, if our example employee is on contract with the Country A entity and triggers a Permanent Establishment ruling in Country B, not only could the company’s Country B revenue be subject to Country B corporate income taxes, but Country B might also demand taxes on all of Country A’s company global revenues.

Is there a simple solution?

Yes. Local employees must be employed on local terms and conditions, in accordance with local market practice, by a local employer-entity, and paid via local payroll services that ensure compliance with employment, social insurance and income tax regulations.  Oh, and by the way, if per chance the target employee doesn’t already have the appropriate immigration status, Work Permit and Residency Visa requirements come into play as well.

Exactly how the above can be accomplished is dependent upon what’s possible and appropriate in each country.  It isn’t overly difficult or expensive to “do it right the first time” and it is much less expensive and disruptive to the business than not doing it correctly.

More about Alan:

LOF International Human Resources Solutions, Inc.

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Employment Laws in China

mariblack3 Author:
Mariana Villa da Costa – Littler Mendelson

The Chinese labor environment has changed considerably over the past few years, to keep up with China’s shift towards capitalism and explosive economic growth.  The world’s attention is on China now, and in particular, the abuses of employees’ rights have caught the attention of the government and the international community, triggering new sets of laws that are being strictly enforced today.

Companies doing business in China must pay attention to these new laws and, in particular, HR practitioners need to understand the PRC’s employment laws to avoid conflicts in the country.

2008 PRC Employment Contract Law – A Very Liberal Piece of Legislation for Workers

The 2008 PRC Employment Contract Law (effective January 1, 2008) is a very generous law for workers, granting employees more protection than the old legislation.  For example, employers in China used to profit from using temporary workers; however, with the new law,  if employers keep using a temporary individual for more than one short-term contract period, this person would be viewed as a permanent employee, receiving all the benefits associated with permanent status.

 Even though employers had concerns about the legislation they knew it would be important to show more clarity in the employer – employee relationship.  This would, ultimately, send a message to the world about China’s willingness to adopt more transparent principles in support of positive employer-worker relations.

 Below are more details on provisions of the new law.

 2008 PRC Employment Contract Law – Mandatory Employment Contract

 This considerably new law does not replace 1995 Labor Law of the People’s Republic of China, but substitutes some of the chapters in individual employment contracts and also, details and adds other portions of the existing labor laws.

Before 2008, it was not very common for employees to have formal contracts with the Chinese companies, a  path to violations and abuses.  With this new law, a very detailed written employment contract is mandatory.  The contract must include details such as job description, working hours, and compensation, and it must be created during the first month of employment.

If the company fails to create the contract on time, then the employer is required to pay the worker twice his or her salary for every month that there is no contract.

More Protective Provisions

The law also has other interesting rules that increase the protection of employees in the workplace.  Some of them are:

  • Limitations of reasons for dismissal to serious issues such as incompetence or  rule breaking company rules
  • Determining that in mass layoffs some categories of employees are spared, such as sole family wage earners, and those who support a minor or an elderly person
  • Specifying actions and penalties for unlawful terminations
  • Prohibition of employers retaining employee’s documents and ID’s
  • Definition of what constitutes a fixed-term, an open and a specific contract
  • Stipulating grounds for termination that requires 30 days’ written notice or the payment of one month’s salary 

 Complying With the New Provisions:  Some Advice

Companies doing business in China are expected to comply with the new rules; therefore, it is important that HR practitioners bear in mind the following:

  • Use specialized legal counsel for interpretation of the new provisions
  • Establish a good relationship with the government authorities and with the trade unions
  • Complete the contracts in a timely manner and add all the specific provisions addressing the employee-employer relationship
  • Work along with the Chinese HR practioners to ensure a better understand of the cultural aspects
  • Create HR systems to manage the work relations
  • Carefully decide on termination of employees in China

 China, with its increasing economic power, has caused employers to focus more on operations there.  HR Professionals should pay careful attention to how business is conducted in China and especially, how labor and employee relations are managed.  Full compliance with the domestic laws will ultimately ensure the success of your operations in this fascinating land.

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