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2 Seconding employees to Europe The Essentials 18 October 2011 Presented By: Sophie Maes Claeys & Engels, Ius Laboris Belgium Valeria Morosini Toffoletto e Soci, Ius Laboris Italy Liz Kilcoyne Lewis Silkin LLP, Ius Laboris United Kingdom
3 Contents Secondment case study How to structure the assignment Checklist key issues Immigration Social Security Tax Prohibited lease of personnel Jurisdiction Applicable law Action points 3
4 Contents Secondment case study How to structure the assignment Checklist -key issues immigration Sophie Maes Claeys & Engels, Ius Laboris Belgium 4
5 Let s meet Tom Frey HR manager of US multinational company with several EU subsidiaries Group carrying out worldwide restructuring program US employees from US company ( Home employer ) to be sent to EU subsidiaries ( Host country ) to help implement restructuring locally Assignment periods: between 2 months and 2 years 5
6 How to structure the assignment? Secondment arrangement Expatriation / transfer to local subsidiary What is this? Employee remains in service of US company under US employment contract Employee enters into service of local subsidiary under local employment contract Advantages US Social Security if Social Security Agreement exists US employment law protection Disadvantages/ Risks No dismissal in case of repatriation Conditions of Social Security Agreement to be met More expensive local Social Security Mandatory minimum local laws More protective and less flexible local employment laws Risk of de facto employment contract with Host country Risk of dismissal compensation in case of repatriation 6
7 EU social security charges - Annual gross salary of EUR 100,000 Employer contribution Employee contribution Total Charges Belgium 35,000 13,070 48,070 Cyprus 10,800 6,800 17,600 Czech Republic 24,720 8,000 32,720 France 45,810 20,439 66,249 Germany 11,644 11,243 22,887 Ireland 10,750 3,735 14,485 Italy 33,000 9,190 42,190 Luxembourg 13,790 12,374 26,166 Poland 18,480 13,710 32,190 Portugal 23,750 11,000 34,750 Spain 12,792 2,461 15,252 The Netherlands 7,320 13,006 20,326 United Kingdom 12,670 5,930 18,600 7
8 Conclusion: Secondment arrangement is preferred option in our case study Checklist to prepare secondment to Europe Action points to reduce risks 8
9 Checklist key issues (1) Immigration US nationals need permission to work in each EU state Work permits are still a national matter so separate work permit needed for each EU state, conditions vary from country to country US nationals are allowed to enter the Schengen Area for maximum 90 days in any 6 months period with a US passport - other nationalities may need Schengen visa [Schengen Area = Austria, Belgium, Denmark, Finland, France, Germany, Iceland, Italy, Greece, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Estonia, Czech Republic, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia and Switzerland ] In some EU states, for stays of more than 3 months a residence permit is needed (in other EU countries residence permit included in the "work visa"; in other countries two separate documents are needed) 9
10 Contents Checklist key issues Social Security Tax Prohibited lease of personnel Jurisdiction Valeria Morosini Toffoletto e Soci Ius Laboris Italy Applicable law 10
11 Checklist - key issues (2) Social Security Check if Social Security Agreement with relevant country Apply for certificate of coverage (3) Taxes Employees seconded for more than 183 days, earnings likely to be taxable in the Host country In some countries special tax regimes for expatriates exist (for example Belgium, Cyprus, Denmark, Spain, the Netherlands, ) 11
12 Checklist - key issues (3) Taxes Significant differences in level of income tax on salary in different countries Example: resident with spouse and two dependent children. taxes due (EUR) on annual gross income of EUR 100,000 (2011 rates) Belgium Cyprus Denmark France Germany Ireland 20,160 Czech Republic 15,827 33,954 52,000 11,200 22,159 26,462 Italy Lux Poland Portugal Spain The Netherlands UK 36,170 16,191 16,559 36,057 32,721 35,679 24,410 12
13 Checklist - key issues (4) Beware prohibited lease of employees creating employment contract with local subsidiary In some countries the fact that employee receives instructions from the local subsidiary may trigger prohibited lease of personnel creating employment contract with local subsidiary. [ Solution to reduce risk: service level agreement or a tripartite intra-group secondment agreement (for example Belgium, France, Portugal, Italy) 13
14 Checklist - key issues (5) Jurisdiction and applicable law Jurisdiction Can employee sue Home employer before employment tribunals/courts of Host country? [ Yes, if employee is considered habitually working in Host country Applicable law Can US employee claim Host country employment protection? [ Yes, if employee is considered habitually working in Host country s/he may also claim the employment laws of the Host country 14
15 Checklist - key issues (5) Jurisdiction and applicable law When is employee considered habitually working in the Host country? Country where essential part of duties performed 3 principles Ä habitual vs temporary => (global duration of employment) To consider Ä intention of parties => repatriation clause / return guarantee when Ä more closely connected to => social security, tax organizing the equalization, place of signature, language in employment secondment contract, currency and place of salary payment, pension plan, benefit plans, etc. 15
16 Contents Checklist key issues Applicable law Action points before, during and ending secondment Liz Kilcoyne Lewis Silkin LLP Ius Laboris United Kingdom 16
17 Checklist key issues (4) Applicable law Even if the Host country has not become habitual place of work some mandatory minimum local employment laws may still apply from the first day of the secondment. Are usually part of the core rights: local minimum pay rates local maximum working hours and minimum rest periods local minimum paid annual leave local public holidays (but not in the Netherlands and UK) local discrimination laws 17
18 Checklist - key issues (5) Applicable law local health & safety rules local rules on hiring out of workers, in particular the supply of worker by temporary employment undertakings (but not in Denmark, Finland, Norway, Ireland, UK, Italy) In some countries also: local dismissal rules (for example Germany, Greece, Ireland, Norway, Poland and Portugal) local rules on employment documents (Austria, Belgium, Finland, Germany, Greece, Ireland, Luxemburg, Norway and the UK) 18
19 Action points before, during and ending secondment Before secondment: Well-drafted "assignment letter" Letterhead of Home employer Limited period "temporary" Repatriation and return guarantee Maintenance of Home employer employment contract Authority of Home employer Choice of law Home country pension plan/benefits plan/tax equalization/currency Signature of service level agreement or tripartite secondment agreement (some EU countries) Execution of assignment letter in Home country No double benefits No acquired rights (expat allowances) Right to early termination 19
20 Action points before, during and ending secondment During secondment Decisions on salary, bonuses, career developments, appraisals, disciplinary issues, dismissal etc by Home employer ONLY To be communicated on Home employer letterhead and signed by Home employer Ending secondment Repatriation by Home employer ONLY Repatriation in similar or equivalent position with same salary and responsibilities Have employee sign repatriation letter for approval 20
21 Conclusion Prepare assignment in advance Put necessary contractual documents in place to minimise the risk of the Host country employment laws applying and an employment contract existing between the employee and Host company (relevant in some EU countries only) Respect secondment arrangement during and when ending secondment 21
22 Contacts Sophie Maes Valeria Morosini Liz Kilcoyne Lawyer Partner Lawyer - Partner Valeria.morosini@toffoletto.it Lawyer - Senior Associate Claeys & Engels Toffoletto e Soci Lewis Silkin LLP Ius Laboris Belgium Lawyers Vorstlaan Brussels - Belgium Tel Fax info@claeysengels.be Ius Laboris Italy Lawyers Via Rovello, Milano - Italy Tel Fax info@toffoletto.it Ius Laboris United Kingdom Lawyers 5 Chancery Lane Clifford s Inn London EC4A 1BL United Kingdom Tel Fax info@lewissilkin.com liz.kilcoyne@lewissilkin.com 22
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