As companies expand their global footprint and explore new markets, they discover the value of a mobile global workforce. When it comes to transferring employees from one international location to another, however, companies often run into roadblocks in meeting each country’s unique requirements. If an organization is handling an international employee transfer as part of its global growth, it needs to be aware of legal implications, how to handle benefits, and ways to manage the complexities of entering new markets to ensure a smooth transition for both the international team members and the company.
Best Practices for Managing an International Employee Transfer
1. Learn the Employment Law Basics
When an organization enters a new market, it faces new requirements surrounding the country‘s employment laws. Specifically, companies want to ensure they have a thorough understanding of employment contract requirements, employment classifications, and entitlements in the country or countries they plan to transfer employees to.
One of the more difficult aspects of transferring employees to new countries is navigating termination requirements for employment contracts in new countries. In Austria, for example, termination requirements for employees vary depending on if they are classified as a salaried employee or blue-collar worker. Without an agreement stating otherwise, all white-collar employees, or those that perform commercial business work or office work, must receive at least one month’s notice before termination. Termination requirements vary in each country and are of the utmost importance for companies that want to ensure compliance with international employee transfers.
2. Supplement Below Average Medical Benefits
Each country also has its own requirements for healthcare. In most countries, medical benefits are typically an entitlement that is granted to every full-time employee on the employer’s books. During an international employee transfer — for example from the U.S. to Germany — the team member will likely lose any benefits they have in the U.S. as soon as they begin their employment in a new country. Once the employee starts working in Germany, that employee is required to contribute to the country’s national healthcare system, which allows them to utilize the public medical benefits in the country.
Many companies choose to offer supplemental health insurance to improve upon the coverage in their new country. Supplemental benefits are a smart strategy that can give companies a competitive advantage when trying to attract high-quality candidates.
3. Offer Retirement Contributions
In addition to supplemental health care benefits, employers can offer retirement contributions in their international locations to help offset any 401k contributions they may miss during their international assignment. With 401k fees on the rise, these kinds of benefits can prove even more valuable as companies handle international employee transfer.
4. Understand U.S. Tax Requirements for an International Employee Transfer
If a U.S.-based company has a U.S. employee transferring to an international location, the employee will still need to file their tax return with the IRS. Despite the requirement, expatriate tax rules typically lead to no actual tax payment obligation for employees originating in the U.S.
For example, a U.S. company’s expats can benefit from the Foreign Earned Income Exclusion to exclude a portion of the income they have earned in foreign markets. In 2016 for example, qualified single expats could exclude up to $101,300 of their foreign earnings, and married expats could exclude up to $202,600 from their tax requirements to the U.S. Additional foreign tax credits can also be utilized to reduce or eliminate an employee’s U.S. tax obligations.
5. Work with an International Partner
Given the complexities of an international employee transfer, many companies find relief when they choose to partner with a global expansion expert. An employment solution such as a global Employer of Record gives a company a flexible option to expand and helps manage international team members. This Employer of Record service enables a company to enter new target markets quickly, without the need to set up an entity right away. This solution also maintains compliance by utilizing in-country expertise to help companies navigate the changing labor laws in each country they plan to operate in.
Discover a compliant way to handle an international employee transfer with an Employer of Record solution. Reach out to the experts at Velocity Global to learn more about the employment solution and see how it can benefit your company as you go global.