MOVING EMPLOYEES GLOBALLY
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1 MOVING EMPLOYEES GLOBALLY September 27, Morgan, Lewis & Bockius LLP
2 Presenters Bart Bassett Silicon Valley Tracy Evlogidis London Matthew Howse London Humberto Padilla Gonzalez Houston Eleanor Pelta Washington, DC Zaitun Poonja Silicon Valley 2
3 Moving Employees Globally Why employees are moved abroad: To address an immediate business need To provide employees to complete short-term projects To develop future leaders To support organizational transformation or restructure To provide country and business unit leaders To facilitate employee requests Moving employees abroad creates a myriad of issues regarding: Immigration Employment law Tax and social security Employee benefits 3
4 The Key Issues When does an employee working overseas benefit from local employment laws and protections? What documents should an employer prepare when it transfers employees overseas? Do the employees need local contracts? When does an employee working overseas become subject to local income taxes or social security contributions? Can an employee working overseas create a permanent establishment for tax purposes? 4
5 The Key Issues What compensation and benefits will apply while an employee is working on foreign assignment? Can an employee continue to participate in home country plans? What local law considerations need to be addressed in connection with compensatory plans? Does the length of time an employee will be overseas determine what type of visa they need? Can t we just use send our employees in as business visitors to get them transferred quickly, and worry about the work permits later? Can we still send people to the UK from the EU following the Brexit referendum? What happens if our employees get caught traveling without proper visas? 5
6 When does an employee working overseas benefit from local employment laws and protections? 2016 Morgan, Lewis & Bockius LLP 6
7 Employment and Immigration Laws Public Policy Territoriality: generally, the labor law of a country may be invoked by an employee if: the employment agreement was executed in said country; or the work is habitually performed in said country Most Favorable Law Principle: in a contract of employment, a choice-oflaw clause does not have the effect of depriving the employee of the protection afforded to him/her by minimum or mandatory rules of law Protection of local employment laws is generally granted regardless of immigration status or citizenship 7
8 Fundamental Differences Between US Employment Law and Most Other Countries Many legal systems and foreign Labor Codes are highly protective of employment relationships Labor rights are in many countries protected by national constitutions, are considered social rights, and thus are not subject to waivers Social rights can be the subject of significant regulation by the state or by trade unions or works councils Noncompetes may need continuing compensation to be enforceable Changes in the legal or corporate structure of the employer typically do not affect the vested rights of employees 8
9 What documents should an employer prepare when it transfers employees overseas? Do the employees need local contracts? 2016 Morgan, Lewis & Bockius LLP 9
10 Form of Assignment The analysis is driven by the company s needs How long will the employee be employed abroad? Short, medium, or long term? Indefinite duration? Intention to return? To original role To similar role No clear intention Reporting lines: home or host? For which entity s benefit is the work to be carried out? 10
11 What type of documentation? Letter of assignment Short-term arrangements Home company remains employer Generally suitable when still reporting to/working for the benefit of home company Return to original/similar job at the end of assignment period Secondment Short- and medium-term arrangements Home company remains employer Reporting to/working for the benefit of host company Two agreements home/employee and home/host or tri-partite? Ensure termination provisions tie in with root employment contract Repatriation at end of secondment? Consider restrictive covenants, IP, and confidentiality obligations are these wide enough to protect host? 11
12 What type of documentation? New employment contract with host company May be suitable for long-term/indefinite-term assignments Effectively severing ties with home company No obligation to repatriate at end of assignment Dismissal subject to local laws Local benefits 12
13 When does an employee working overseas become subject to local income taxes or social security contributions? When does an employee working overseas create a taxable presence for the US employer? 2016 Morgan, Lewis & Bockius LLP 13
14 Tax Considerations When does an employee working overseas become subject to local income taxes or social security contributions? What are the local thresholds for triggering a taxable presence? Does a treaty provide standards/relief and is that treaty applicable? Local tax filing obligations? What about ongoing tax obligations for the employee in the United States for US taxpayers? State tax implications for the employee? Application of totalization agreement? Employer withholding obligations? Is US withholding applicable? Is withholding applicable in the local jurisdiction? 14
15 Tax Considerations When does an employee working overseas create a taxable presence for the US employer? Top risk in cross-border context with mobile employees Focus of foreign tax authorities OECD developments Hyper-aggressive jurisdictions Local law consideration Application of income tax treaty Permanent Establishment (PE) concept Are there steps a company can take to minimize risks? Employee transfer? Secondment agreement? Terms of agreement and substance count! Intercompany agreements first line of defense Protective return what is it and when should a company consider? 15
16 What compensation and benefits will apply while an employee is working on foreign assignment? Can an employee continue to participate in home country plans? What about a 401(k) plan? What local law implications need to be addressed? Are there US tax implications of participating in foreign plans? What should be considered for equity plans? 2016 Morgan, Lewis & Bockius LLP 16
17 Compensation and Benefits What compensation and benefits will apply while an employee is working on foreign assignment? Dedicated employee benefit plans for expatriate employees? Consider jurisdictions, length of assignment, employment structure, return on completion of assignment Can an employee continue to participate in home country plans? Eligibility Benefits Can an employee continue to participate in a 401(k) plan? Review plan Does employee remain a covered employee or not? Exclusion if covered under foreign retirement plan? 17
18 Compensation and Benefits What local law implications need to be addressed? Tax laws May require taxation when contribution is made or benefits vest Employment laws Mandated benefits Acquired rights Plan may not be amended or terminated unilaterally Inclusion in severance Securities laws 18
19 Compensation and Benefits Are there US tax implications of participating in foreign plans? Timing of taxation Relief under treaty Section 409A and 457A Applies to US taxpayers participating in global plans Consider if exemption is available Broad-based retirement plan Treaty exemption 19
20 Compensation and Benefits What issues should be considered for equity plans? Securities laws Taxation and withholding Exchange control Data privacy Employment laws 20
21 Does the length of time an employee will be overseas determine what type of visa they need? Can t we just use send our employees in as business visitors to get them transferred quickly, and worry about the work permits later? 2016 Morgan, Lewis & Bockius LLP 21
22 Duration of Assignment Does the length of time an employee will be overseas determine what type of visa he/she needs? Planned length of time may be a factor in assessing visa needs, but other factors have more weight, including the following: Planned activities while working abroad Whether the activities constitute productive labor that could/would otherwise be done by a local worker Source of compensation Long-term plans Duration of Visa UK Tier 2 (Intra-Company Transfer) (ICT) route is designed for assignments to the UK, and end-to-end processing times are 3-4 weeks. Tier 2 (General) process can take weeks. Careful consideration should be given at the outset to the type of visa required. The Tier 2 (ICT) route does not allow individuals to go on to apply to permanent residence. If there is a possibility that an assignment may be extended or become permanent, obtain Tier 2 (General) from the outset. 22
23 Business Visitors Shouldn t we just use the business visitor route to move our people around? Emphatically, no. A business visitor visa/entry through ESTA is not a surrogate for a proper work visa. Moreover, most jurisdictions, including the United States, do not allow entry as a business visitor as a preliminary step toward a work visa. There are penalties, including removal, for entry as a business visitor in order to perform work activities. Companies are well advised to have a written policy regarding the use and abuse of business visits internationally. 23
24 Visitors As a visitor an individual will not have the right to work in the UK An individual can only carry out permitted activities, which include (but are not limited to): attending meetings, conferences, seminars, interviews; giving a one-off or short series of talks and speeches provided these are not organized as commercial events and will not make a profit for the organizer; negotiating and signing deals and contracts; attending trade fairs for promotional work only, provided he/she is not directly selling; carrying out site visits and inspections; gathering information for his/her employment overseas; and being briefed on the requirements of a UK-based customer, provided any work for the customer is done outside of the UK. 24
25 Visitors An employee of an overseas-based company may also: advise and consult; troubleshoot; provide training; and share skills and knowledge on a specific internal project with UK employees of the same corporate group, provided no work is carried out directly with clients. If an individual intends to carry out his/her normal job and undertake productive work in the UK, an alternative immigration permission must be obtained. 25
26 Can we still send people to the UK from the EU following the Brexit referendum? 2016 Morgan, Lewis & Bockius LLP 26
27 European Economic Area (EEA) Workers The EEA Agreement allows for the free movement of trade and the free movement of workers Member states of the EU are signatories of the EEA Agreement as well as Norway, Liechtenstein, and Iceland. Switzerland entered into a bilateral agreement with the EU, and Swiss nationals have the right to live and work in the UK Nationals of the following states have the right to live in the UK: Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and Switzerland 27
28 Impact on Right to Work in the UK and EEA No impact on UK nationals right to work in the UK No impact on non-eea nationals right to work in the UK No immediate impact on EEA nationals (and their family members ) right to work in the UK Employers can continue to hire EEA nationals and Swiss nationals (and their family members) Employers should not discriminate on the basis that an applicant is an EEA or Swiss national UK nationals working in EEA member states continue to have the right to work 28
29 Next Steps for Employers Audit immigration status of workforce to help plan for change Identify EEA and Swiss nationals working for you in the UK Identify UK nationals working elsewhere in the EEA Check duration of stay in the UK or abroad Review long-term recruitment and succession planning and proposed secondments and rotations Consider application for Tier 2 sponsor license (if sponsor previously held a sponsor license, check cooling-off period) Review compliance with Tier 2 and 5 sponsor license rules 29
30 What happens if our employees get caught traveling without proper visas? 2016 Morgan, Lewis & Bockius LLP 30
31 Employee Travel Without Proper Visa Implications in the United States Withdrawal of request for admission. Can occur when CBP stops a visitor at entry and asks him/her to return home and obtain the appropriate visa Summary removal Findings of material misrepresentation Employer penalties for hiring employees without appropriate work visas Implications in the UK If individual is stopped without the required immigration permission there may be sanctions for both the individual and the employer. Individual may be detained, refused entry, and removed from the UK. This can impact future UK immigration applications and individual may be subject to a reentry ban. Where employer holds a Tier 2 sponsor license this may trigger a compliance visit from the Home Office. 31
32 Presenters Bart Bassett Silicon Valley Tracy Evlogidis London Matthew Howse London Humberto Padilla Gonzalez Houston Eleanor Pelta Washington, DC Zaitun Poonja Silicon Valley
33 Our Global Reach Our Locations Africa Asia Pacific Europe Latin America Middle East North America Almaty Astana Beijing Boston Brussels Chicago Dallas Dubai Frankfurt Hartford Houston London Los Angeles Miami Moscow New York Orange County Paris Philadelphia Pittsburgh Princeton San Francisco Santa Monica Shanghai Silicon Valley Singapore Tokyo Washington, DC Wilmington 33
34 THANK YOU This material is provided for your convenience and does not constitute legal advice or create an attorney-client relationship. Prior results do not guarantee similar outcomes. Links provided from outside sources are subject to expiration or change. Attorney Advertising Morgan, Lewis & Bockius LLP 34
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