CIPD - Managing international assignments

International HR

Originally issued in December 1999; latest revision May 2007

This factsheet gives introductory guidance. It:

covers the main elements of international assignments including: resourcing, preparation, terms and conditions, remuneration, dual career problems and repatriation.

The management of international assignments is a vast and complex subject, covering many different topics. It is therefore impossible within the scope of this factsheet to do more than provide a checklist of important points to be considered.

International assignments incur substantial direct costs for the employer related to the relocation of the employee (and family), the provision of remuneration packages while abroad, repatriation costs and the recruitment and relocation of a replacement if required. The direct costs of failure are therefore also high. Indirect costs of failure can be huge, and include damage done to relations with customers, suppliers, and the local community.

The term 'international assignment'

The term 'international assignment' is used very broadly. It can be used to describe any of the following situations.

Frequent business trips, of less than 31 days duration per single trip, usually covered by the organisation's business travel and 'per diem' expenses policy.
Short term assignments, over 31 days but less than 12 months. The employee may become technically employed by the host country subsidiary, with certain additional benefits according to the circumstances of the individual. Career management remains the province of the home country, while performance management may be shared.
Long term assignments, usually two years or more. In this situation, it is more likely that assignees will be put onto local terms and conditions.

Why use expatriate employees?

The requirement for an expatriate as opposed to employing a national to fill a post or handle a project needs to be clearly identified right from the beginning, not least for the purposes of obtaining work permits. Acceptable reasons for using an expatriate will vary from country to country but may include:

to fill a post where no local staff are qualified
to train local nationals to take over roles previously occupied by expatriates
to transfer technical expertise
to give employees international experience in preparation for more senior roles
to provide development opportunities for employees as part of talent management and succession planning initiatives
to facilitate knowledge sharing between employees in different parts of the organisation
to create an international corporate culture and encourage employees to develop an international mindset.

Resourcing

To enable the organisation to identify suitable internal candidates, HR departments need to build global databases that include data on potential candidates, their skills, qualifications, experience, performance and mobility status. It is very helpful if succession planning and management development information is also linked to this resource database. This will, of course, mean that the organisation has to comply with the data protection legislation and in particular with the first and eight principles (that is, the organisation informs the data subjects of the purpose for which the data is held, and that data is not transferred outside the European Economic Area unless the recipient country has data protection equivalent to the Data Protection Act.)

Companies frequently use executive search copanies to find the right employee for international assignments. Consultancies in the UK often work in pertnership with recruitment agencies abroad as a means of sourcing overseas candidates. This does not necessarily mean that the overseas agency will be competent or reputable. It is critical that clients assure themselves of the credentials and capabilities of any 'associate consultancy' that may be used abroad.

Selection criteria must be developed around the key competencies, experience and skills required for the job in an international context. There is still a tendency to rely on the fact that an employee has performed well in the home country as an indicator that they will perform equally well overseas, whcih is not always the case due to cultural differences. It is vital that selection does not rest purely on an employee's technical expertise and proficiency. Equal emphasis must be given to negotiating skills, social and relational skills eg tolerance of ambiguity, respect for other cultures. Research suggests that the selection of employees with a high learning orientation will lead to greater success¹. Individuals who enjoy a challenge, new experiences, learning new skills and so on are more likely to approach the demands and challenges of an international position positively, creatively, and enthusiastically.

Preparatory steps

Prior to initiating discussions with an employee regarding an overseas assignment, the following will need to be checked.

Is the organisation entitled to send the employee abroad? Is this entitlement written into the contract of employment, and if not will the employee agree to the proposal?
Is the organisation giving adequate notice of the new assignment given the personal arrangements that the employee will need to make? This is especially important in the case of a long-term posting.
Will the employee retain the right to return to their 'old' job on repatriation? (Fewer employers are now giving a guarantee on this.)
What will happen to any replacement upon the employee's return?
What will happen in the event of a redundancy situation arising in relation to the employee's 'old' job during their absence?
What provision is there for termination of employment whilst overseas and what repatriation arrangements would apply in the case of such an event?
Is it necessary to review the disciplinary/misconduct policy in line with particular requirements at the new location?
Has the organisation examined the legal implications for the employee's employment rights, and the organisation's rights and obligations, both in the home and host country where the new assignment will take place?
How will local legislation affect the contract? In Saudi Arabia, for example, seconded employees are subject in some instances to statutory disciplinary or grievance procedures and must also abide by local laws.
Have the taxation and National Insurance issues been carefully considered? Depending on the host country, organistions can find themselves carrying heavy tax burdens where employees are to be employed by the UK (headquarter) organisation and seconded, as opposed to being employed by the local subsidiary. In the latter case, employees can be employees of the national or local subsidiary but be provided with a side letter confirming that their continuity of employment will remain unaffected with the UK employer, both during and after the secondment.

Terms and conditions

Managers must have a clear and thorough understanding of what is to be offered to the employee, in line with organisation's policy and procedure. Comprehensive details of the terms and conditions must be communicated in writing after discussions and negotiations have taken place, and be clearly understood and agreed by all parties.

Employees may by advised to seek independent legal advice and will often benefit from available information on living and working abroad.

Where there are frequent movements of employees, all parties may benefit from an employee handbook covering the main terms and conditions, complemented by an individual letter or contract outlining 'individual specific' terms and conditions. Under the Employment Rights Act 1996, all employees being required to work outside the UK for more than one month must, before leaving the UK, be given a written statement which contains the following information, as appropriate:

the period for which the work is outside the UK
the currency in which remuneration is to be paid whilst working outside the UK
any additional remuneration payable, and any benefits to be provided because the employee is overseas
any terms and conditions relating to the return to the UK.

In addition, the following information is usually included:

base salary
details of how the salary and allowances will be paid
responsibility for payment of tax and social security contributions
provisions for children's education
benefits such as pension, life insurance, medical and dental cover
leave entitlement and arrangements
sale of personal effects eg cars in home country
shipping of goods
definition of dependants eg parents-in-law, step-children
pets and quarantine arrangements
terms and conditions at termination of the assignment, either at full term or at an interim stage.

Under s.196 of the Employment Rights Act 1996, employees whose employment was ordinarily outside the UK were not entitled to certain rights, including those relating to unfair dismissal. In October 1999, these rules were repealed, thus allowing overseas workers similar rights to those of UK-based workers when performing their duties in the UK.

The Posting of Workers Directive (Directive 96/71/EC) was adopted by the European Parliament in 1996 and implemented in 1999. This Directive requires that where a member state of the European Union imposes particular core terms and conditions of employment, these must also apply to anyone posted temporarily to work in that state. It does not prevent anyone from benefiting from more favourable terms and conditions than the legal minimum in respect of those core terms and conditions. Terms and conditions included in the Directive are:

maximum work periods and minimum rest periods
minimum rates of pay
minimum paid annual holidays
health and safety at work
equality of treatment and non-discrimination provisions
protective measures for pregnant women, new mothers, children and young workers
conditions for hiring out workers, especially those from temporary agencies.

Reward

This is an extremely complex aspect of managing international assignments, and is subject to constant change. Organisations often outsource this area of work to a consultant with specialist knowledge. It is essential that any remuneration package is logical, fair, and clearly communicated. It should enhance the attraction, retention and motivation of employees. It must facilitate the movement of employees in the most cost-effective way and it must fit in with the overall strategy and policy and values, without employees suffering any financial loss. There are many different approaches to establishing a remuneration package for international assignments. Each situation needs to be reviewed against the individual circumstances surrounding that assignment including the size of the organisation, personal taxation levels and social security provisions, the host country, and the relative cost of living. These all influence the way in which the package is structured. There are, however, two principal systems which have been used over many years:

The balance sheet or build up method which means that employees will maintain their home living standards abroad on a day to day expenditure basis, taking into account differences in taxation and cost of living. Incentives are added to make the package more attractive. The disposable income element is critical since this is the part of the salary which reflects the cost of living differences and assumes that the employee will maintain their home level of consumption in the host country.
The host country approach where the employee is treated as if he or she were a national in terms of salary and may contribute to the local social security system, pension plan and pay local taxes. Overall benefits may be increased to reflect the key position of the employee eg free housing, school fees paid, a 'settling in' allowance and a foreign service premium paid.

Thought will also have to be given to how salary increases, promotions and other status-related changes will be managed during the assignment. Local conditions in the home and host countries are likely to differ which could cause difficulties when the employee is repatriated at the end of the assignment.

Advice should be sought on pensions, social security arrangements and ways in which to legitimately reduce the amount of tax paid through 'tax equalisation'. With tax equalisation a hypothetical home country tax is deducted from the employee's base salary and the organisatin pays all home and host country tax obligations, either directly or by reimbursing them.

Pensions

There are also requirements to be met under the Pension Schemes Act 1993 and the Pensions Act 1995 if employees are to continue to receive the benefit of employer contributions during their assignment or secondment abroad. Further pension issues (including those relating to stakeholder pensions) are dealt with in the Welfare Reform and Pensions Act 1999.

Seconded employees may continue their membership of a UK pension scheme during any secondment provided that certain conditions are met. These conditions will vary depending on whether the employee's contract is with a UK resident employer or an overseas resident employer, but broadly they are:

There is a definite expectation that the employee will return to the UK, either to take up employment with an employer participating in the Scheme or to retire.
The UK employer should continue to pay to the approved scheme any employer contributions due, but must be reimbursed by the overseas employer for the costs unless the HM Revenue & Customs Savings, Pensions, Share Schemes (SPSS) Office specifically agrees otherwise.
The prospective pension in respect of the service abroad should be calculated and funded by reference to the rate of remuneration appropriate for similar employment in the United Kingdom.
The aggregate period of service abroad should not exceed 10 years.

Social security

Details of social security agreements between the UK and other countries (including, but not limited to, those of the European Economic Area), are available on the Department of Work and Pensions website (see 'Further reading' section).

The partner and family

If issues associated with the employee's dependants are not properly handled there is considerable scope for the overseas assignment turning into a very negative experience. Common sources of concern include:

worries about career disruption
being out of the loop for information and decision making
the frustration of working in an unfamiliar context
family issues eg dual careers, children's schooling, older dependants.

Of all these, the principal reason for assignment failure is the partner's inability to adjust and deal with the considerable stress involved in such a change in lifestyle. It is most likely that the partner will have to learn to operate by new and different rules of conduct in every aspect of life, and may also have to contend with a career change, or may not even be able to work. For this reason it is critical that the employee's partner and family are offered as much help, advice and support as possible, at every stage, but particularly at the beginning of the assignment. For many partners the most difficult time is when the family has just arrived in the host country. This is the time that the employee is likely to be least available to the family since he or she will be getting to grips with the new role.

Since the support of the partner is so critical to success, it is advisable to explain and discuss the issues which could arise for the family with the employee in the recruitment process. The employee should be encouraged to discuss the issues with their family in depth before making any decision about the assignment. The organisation should consider offering development and support activities to increase adaptability and a positive attitude to the whole concept of living internationally. The extra costs incurred will be more than offset by the higher success rate of employees staying on for the full term.

Briefing and pre-departure preparation

The employee and the family must be prepared as thoroughly as possible for the move, both psychologically and in terms of practical information, and must be supported throughout. This preparation can come from internal sources or an employer may choose an external organisation providing 'briefing courses'. Some, or all, of the following are used by organisations to prepare their employees and their families for assignments:

arranging pre-assignment visits to the host country
briefings by host country managers
cross-cultural training for managers
cross-cultural training for families
language training for the employee and dependents
advice on assistance with the education needs of accompanying children
introductions to other expatriates in the host country
other assistance, advice and information which help the expatriate family to settle in to the new country quickly. .

Remember - an international assignment falls into the category of a major 'life event' psychologically: it is a life change that demands a strong ability to adapt and cope. It is very stressful for the individual and the family - country, culture, home, schools, jobs, social life, etc, are all different.

Repatriation

Equally, returning home can also be an enormous culture shock, and both the employee and the HR department often underestimate the degree of adaptation. It is interesting that people with a high learning orientation have been found to be able to adjust more quickly. Organisations should have support available to help repatriated families handle the difficulties and changes. Concerns will arise from any or all of the following:

no assignment being immediately available in the home country
placement in a lower status job on return than experienced during the assignment
skills and knowledge may be out-dated
changes in the formal and informal operating practices and communication channels
feelings of alienation and having lost contact with family, friends, business colleagues, etc
lack of opportunity to use the new skills and experience learnt whilst abroad
unclear channels for knowledge sharing.

Inpatriation

When an employee from a subsidiary is transferred to the organisation’s HQ for a period of time, the process is known as inpatriation. Many organisatons use this as a cost-effective alternative to expatriation and recognise that organisations benefit from a diverse workforce in all locations. The main advantages are that:

inpatriates bring a depth of insight/knowledge of doing business in other countries
they can provide a central communication link between HQ and the subsidiary to ensure greater clarity of understanding
they can provide a new and different perspective within HQ when policies, plans and strategies are being developed in relation to other countries
there is a good business case for the use of local nationals: customers, suppliers, the local community all tend to react more favourably to an organisation seen to value and encourage people of their own nationality
having inpatriates and third country nationals (an American working in China for a British-headquartered organisation, for example) is an essential part of being a truly international enterprise, as opposed to being a national organisation with some overseas subsidiaries.

The future

Because of the very high costs incurred in transferring employees and their families around the globe, together with the high failure rate, and concerns about security globally, organisation are more freqently considering alternatives to expatriation. These include:

more frequent, short term assignments not involving relocation
more outsourcing and offshoring.

Useful contacts

European and International Federations

References

PORTER, G and TANSKY, J. (1999) Expatriate success may depend on a 'learning orientation': considerations for selection and training. Human Resource Management. Vol 38, No 1, Spring. pp47-59.

Managing international assignments