Engaging employees overseas – avoiding the pitfalls

17 Sep, 2012

Of all the decisions a developing business takes, expanding overseas can be one of the most important. Get it right and the rewards can be great. Get it wrong and it can prove to be a costly lesson. Roger James, Head of Employment Law at leading law firm Taylor Vinters, looks at practical steps a business should consider when employing someone overseas


Employment issues often carry the highest risk in terms of both potential compensation costs and operational problems caused by the loss of a key individual in a foreign land. Fortunately, through good planning and seeking early advice from advisors with experience in this area, most of the problems can be avoided, says Roger James…


Ironically, to get things right at the start of an international working relationship one has to wind forward to picture the end. Think about the issues and problems that might arise on a termination when appointing someone – especially when that person is to head up your business in the country in question. For example, know what is involved in removing any directorships, bank mandates and powers of attorney you might want to grant your new country manager before you bestow them on the individual. Work out your action plan in the event of an acrimonious parting of the ways later. Avoid having single directors if possible and consider using your UK-based executives as directors of the overseas subsidiary as an alternative to an untested new recruit, at least initially. 


Keep copies of all important documentation in your UK head office including employment contracts, share plans, leases, access to payroll records and information that may be relevant to determine applicable collective agreements such as job specifications and nature of work. Asking the local director you are proposing to fire for a copy of his employment contract is not considered good form! 


Diarise important dates such as lease renewals, equity vest dates and immigration deadlines. These may be useful for later.


It is vital to obtain an overview of employment law in the country in question. We provide our clients with a country guide setting out key points of local law which they should know and work with our clients to ensure there is an employment contract compliant with local laws. Do not simply use your UK contract overseas. Doing so can have serious adverse consequences. For example, if you use a UK restrictive covenant in Germany you can unwittingly expose the company to a compensation payment of up to six months’ salary on termination, even if you do not want to enforce the covenant.


Get the identity of the employer right in the employment contract. Whether the home or local company is the employer will usually be dictated by tax, advice on which will be money well spent. 


The immigration situation will also need considering if you are seconding someone from the UK, as will consideration of the support you will provide in terms of living accommodation, shipping of possessions and any additional pay or benefits. Many employers offer some form of tax equalisation arrangement when sending someone on secondment – compensating the employee for any higher income tax rates he will encounter in the new country. Speak to your accountants about income tax and social security and any double taxation issues. 


Some countries including France require that the employment contract is translated into the local language to be legally valid – even if between two English-speaking parties. Overlook technicalities such as this at your peril. Employment law breaches in France can lead to criminal charges against individuals running a business.


With the right advice dealing with overseas appointments once you have found the right candidate should not consume much of your time or resources. Getting the relationship on a sound footing and planning for future eventualities should avoid the mishaps and war tales which can cause so much damage to your less well informed competitors.


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