Statistics from the U.S. State Department indicate that more than nine million U.S. citizens live outside the country, a large percentage of whom expatriated for work reasons. Whether for career advancement, corporate transfer, or the opportunity to live and travel in a foreign country, international employment is common in our global economy. If you’re thinking about an overseas posting, you should address some critical issues with your employer before you take the job.
Employment Contracts
First and foremost, your rights, protections, and obligations should be set forth in an employment agreement before you accept a position overseas. You may have previously entered into an employment contract for a U.S. job subject to the laws and regulations of the U.S. and the state in which you work; but expat contracts also must address the local rules and customs of your new workplace. Make sure the agreement is in writing and clarifies essential elements, such as the job description, work hours, place of work, compensation, termination rights, and other issues addressed here.
Duration of Employment
Defining how long you will spend in an international posting allows you (and your family) to plan ahead and establishes a mutual expectation with your employer. This is especially important for employees who expect to return to jobs in the U.S. when their assignments end.
Both you and your employer no doubt anticipate a successful relationship, but situations can arise that may result in your assignment ending prematurely. A written contract that addresses what happens in that situation can be very important with respect to such issues as relocation, severance, and other rights.
Compensation
No one would accept a job (let alone a job in a foreign country) without understanding the compensation for the job. Expats’ employment contracts should address not only base salary but also such compensation-related issues as overtime pay, bonuses and incentives, corporate and government withholdings and deductions, and the currency in which the employee will be paid.
Vacations/Holidays
Vacations and holiday travel can be important for an expat, particularly if you wish to return to the U.S. to spend that time with family. Your employment contract should identify the local public holidays, how many additional days of vacation or holiday leave you are allowed each year, and any allowances for the cost of travel (for yourself and family members) that your employer will provide.
Localization
Employers increasingly seek to “localize” expat employees, that is, convert them to the status and conditions of employees in the locality in which they are posted, rather than pay them as expats. Localization (also called “host-based pay”) offers employers significant cost savings over “home-based pay” because the expense of an expat package can be far greater than the compensation and benefits paid to local workers. Your employment contract should address localization – now and in the future – to help you avoid any avoidable surprises.
Healthcare and Benefits Coverage
In many countries, you cannot expect the same level of healthcare coverage as you have in the U.S. In fact, some employers may rely on local regulations to reduce your coverage and cut costs.
When considering expat work opportunities, you should determine whether medical insurance coverage is part of your compensation, including coverage for family members at home or living abroad with you. You also should determine whether your healthcare coverage protects you during leaves of absence, what types of leaves qualify, and whether you will be compensated if you are injured or sick and unable to work. If your employer doesn’t provide appropriate healthcare coverage in the host country, you may want to negotiate for reimbursement for the cost of coverage that you purchase yourself.
Relocation, Immigration, and Visa Issues
Your employer should reimburse you for the costs of moving you and your family to your new host country. This includes airfare, hotel charges, temporary housing, customs and freight fees for any household and personal goods, and, importantly, the cost of obtaining proper visas and work permits. These relocation costs should be assured in your employment contract or an enforceable company policy, including when and how those costs will be paid or reimbursed.
A local agent can help you secure long-term housing, locate schools for your children, open bank accounts, and identify physicians and other healthcare providers. Your employment contract should provide that your employer will cover local agent expenses.
Immigration laws vary dramatically from country to country, with different fees, waiting periods, and visa requirements for workers and students. If your family is relocating with you, and they intend to work or study in the host country, it’s essential to arrange those permits before you arrive.
Immigration problems can pose a distraction and reduce your productivity, so it’s in your employer’s best interest to offer assistance and to cover the cost. But don’t assume that your employer will do so – get it in writing in your employment contract.
And don’t forget that you probably will move back to the U.S. at some point. If you want to assure that your employer will pay the costs of repatriating, the subject should be addressed in your contract or in an enforceable company policy
Personal and Family Issues
Relocating to your new host country is one thing, but the day-to-day expenses of living there is another. Food, clothing, and discretionary items will no doubt be your responsibility, but your employer may shoulder the costs of your housing, security, children’s education, etc.
Will you receive a housing allowance (including cleaning and domestic help) and, if so, how and when will your employer pay it? If you need an automobile in your assignment, will your employer cover a purchase or lease as well as fuel, maintenance, and insurance costs? If security is a consideration in your host country and you require an alarm system or even guards to protect your home and family, is that your responsibility or your employer’s? Your employment contract should address who bears those expenses.
If you intend to have your kids attend private school, many employers cover the costs of tuition – in whole or in part – up to the age of 18. But again, you need to get that obligation in writing.
Other issues to consider include language and cultural training for you and your family, job opportunities for your spouse, and dues for social and professional organizations in the host country.
Tax Equalization
As an American citizen working abroad, you will be subject to both U.S. tax laws and the tax laws of your host country. While your employer shouldn’t place you in a worse financial position by having you double-pay your taxes, you can’t expect to be in a better tax situation than you would be working in the U.S. Ultimately, you want to assure that the value of your paycheck abroad is no worse abroad than at home.
“Tax equalization” is the process by which your employer seeks to ensure that your net pay as an expat is the same as what you would receive in the U.S. If you work in a country with taxes lower than the U.S., your employer enjoys the savings; and if the host country’s taxes are higher, your employer pays the excess. You, however, earn about the same.
Under tax equalization treaties between the U.S. and numerous other countries, an American working abroad for a limited time (three to five years, depending on the particular treaty) will continue to pay social security taxes into the U.S. tax system instead of the host country’s social security system.
Usually, employers engage tax specialists to advise employees on such matters, but you should assure that your employment contract provides for tax equalization and for the employer to pay the fees of any tax consultants and tax preparers.
Governing Law, Choice-of-Law, and Choice-of-Forum
As an expat working outside the U.S., what law applies should your employer terminate you, treat you unfairly, or violate the terms of your employment contract?
The doctrine of at-will employment, familiar to most U.S. workers, is uncommon in most industrialized countries. To the relief of U.S. expatriates working in other countries, however, its reach doesn’t necessarily cross borders.
According to the “territoriality rule,” the employment laws of the host country – not the U.S. – protect the expat, even if the expat is a U.S. citizen and the employer is an American entity. Thus, a worker who may have been employed at-will in the U.S. may avail himself or herself of the protections afforded by the host country’s employment laws during the overseas assignment. Note that the territoriality rule is not universal; in a few countries (such as China, Cuba, Indonesia, and Vietnam), foreign workers may opt-out of local employment protections.
The situation takes a strange twist when the expat employee and the employer contractually agree that the employment regulations of U.S. federal and state laws will apply. Despite a “choice-of-law” provision in favor of, say, New York law, the employee may be able to choose New York law or the host country’s laws to enforce his or her rights. The same is largely true with “choice-of-forum” provisions in which the parties agree to arbitrate or litigate their disputes somewhere other than the host country. Labor tribunals in many foreign countries often have mandatory jurisdiction over employment claims, making choice-of-forum provisions unenforceable. As you might expect, there are exceptions, particularly in instances involving discrimination and whistleblower retaliation.
Notably, a U.S. citizen working abroad for a U.S. employer (or a company controlled by a U.S. employer) retains his or her rights under U.S. anti-discrimination laws and a few other federal statutes. Such statutes are the exception to the standard rule that U.S. laws do not have extra-territorial reach.
Talk to an Attorney Experienced in Expatriate Employment Matters
The opportunity to work in another country can be exciting, and both the employee and employer often want to make the process move quickly. But don’t move too quickly.
To paraphrase Shakespeare, discretion is the better part of valor. So, look before you leap into an overseas job and make sure that you understand your employment-related rights and responsibilities and have them documented if possible. It’s in your best interest to consult a lawyer who not only understands the nuances and complexities of expatriate employment relationships, but who also has a worldwide network of similarly experienced colleagues in other countries.
Wayne N. Outten
Chair and Founding Partner
Outten & Golden LLP
