?When organizations send employees to work abroad, it’s important to pay close attention to local laws that might impact their work status. These laws can vary widely from country to country, but there are typically consequences of not doing due diligence.
“The first thing you’re going to have to consider is scale,” said Harry Jones, an attorney with and the chair for international labor employment at Polsinelli in Dallas. “If you’re sending more than 10 or 15 people, then you’re immediately going to have to go through a more rigorous methodology.”
Potential Scenarios
There are four common scenarios that could cause problems for companies that aren’t careful with local laws before they send employees abroad.
The first scenario involves someone getting hurt, whether the injured person is the employee or someone injured by the employee. This could trigger workers’ compensation rights in the foreign country that differ from the rules in the U.S.
The second scenario involves how the employee abroad is paid. “If I’m paying you in a country, then that’s … a taxable event [for the host country],” Jones said.
One workaround is to make sure that the employee is paid in the U.S., but that must be handled carefully. “If somebody is considering keeping someone as a local U.S. employee, but assigning them to a foreign country, that agreement might be structured in a way that the company says, ‘You’re a U.S. employee, you’re paid on U.S. payroll, you remain part of the U.S. entity,’ ” said Caitlin Lane, an attorney with Seyfarth in San Francisco. “But the practical reality is that there may be local laws in the country that the person is working in that would nonetheless apply.”
The third scenario revolves around the need to terminate a professional relationship and the complications that can arise with disparate laws between countries. The fourth scenario involves a third party alleging that the employee caused harm or didn’t follow through on a contract.
These four scenarios may never come up. “But what if they do?” Jones asked.
Local Entities: To Establish or Not to Establish
One thing companies should consider is whether they need to form an entity, or business, in the country to which they plan to send employees, or if there is an already-existing entity available.
“If there’s a chance that the person will be considered an employee, then congratulations, you will be an employer,” Jones said. “And if you don’t have a local entity, you’re going to run into a lot of tax difficulties.”
“It’s a very different inquiry to send someone to a country where there’s a local entity versus trying to send someone to a country where there’s no local entity, because that opens up a host of other potential issues and analysis considerations,” Lane said. “Some countries don’t even allow you to have a local employee there if you don’t have a [local] entity.”
Considerations around establishing an entity intersect with the scale of employees being sent abroad. If there are only a handful of workers the organization plans to send abroad, it might be less necessary to create an entity than in a situation where hundreds or thousands of workers will be working in another country.
Politics Can Change Local Laws: Make an Agreement
Not only can local laws vary widely between different countries, but they can also change quickly within countries, depending on the way the political winds are blowing. The more preparation that is done before an employee is sent abroad, the more stable the work situation will be.
“You need to first define where you want to do work, where you want to have workers [and] why you want to be there,” Jones said. “Then you can drill down with your labor and employment law experts to figure out the risk … and work with local council in concert with your U.S. counsel to make sure your agreements are really on point.”
A solid, well-drafted agreement before the worker goes abroad, created in consideration of the local laws of the country the worker will be sent to, is key to preventing problems later.
“I always encourage clients that are considering signing up employees abroad to 1) make sure that their agreements are well-drafted and take into account local nuances and considerations and 2) to really vet the situation from the outset,” Lane said. “Proper strategizing and planning from the outset goes a really long way for employers that are exploring these types of arrangements.”
Katie Nadworny is a freelance writer in Istanbul.
