FAQ’s: Structuring of International Assignments
There are many ways of structuring an international assignment. Many companies develop a special policy in which the structures of international assignments are described, and the applicable labour conditions are defined. Although a wide variety can be recognised, there are five different ways:
1. The “home closing” setup. In this situation, the initial employment in the home country will be terminated and replaced by an employment agreement in the host country.
2. The “Secondment” setup. In this situation, the initial employment agreement in the home country remains in place. But the employee will be temporary seconded to an employer in the host country. Usually, but not necessary, this is a company that belongs to the same group of companies the home company also belongs.
3. The “suspend” setup. In this setup there are two different approaches:To the initial employment agreement in the home country, an agreement between the employee and the employer of the host country is added, by which the authority and control of the home company is temporarily transferred to the host company;
– The initial employment agreement is temporarily put aside and replaced by a local employment agreement or assignment agreement.
– The “split employer” setup. In this case, the employee will work at home as well as the home country for two different formal employers.
4. The employer-employee relationship is defined in two various employment agreements. This setup is also known as the “split salary” setup.
Which setup is chosen depends on the company policies, day to day practices of the company and possibilities the legislation in home and host countries allows.
There is no general legislation on which elements should be part of any assignment agreement. In the day to day practice, the following subjects can be distinguished. These subjects can be, but are not limited to:
– Arrangements regarding the necessary visa;
– Arrangements regarding assignment salary and allowances and benefits (company car etc.);
– Arrangements on salary raise, bonuses, stock options and other benefits;
– Arrangements regarding applicable labour legislation;
– Arrangements regarding maintaining home country social security and pension;
– Arrangements on (additional) insurances;
– Arrangement regarding taxes on income payments and tax filing obligations and support;
– Arrangements on return to home country guarantees;
– All kind of practicalities, like move costs, house and school search housing costs, schooling costs for accompanying children, home visit costs.
There are three different situations:
1. The home and host country both belong to the EU (and Switzerland, Liechtenstein and Norway). In these countries, the EU a treaty on social security is applicable. This treaty determines which system of social security in which case is appropriate and consequently where contributions will have to be paid. Normally, the home country system can be maintained in case the assignment does not last longer than 24 months (which can be extended to 60 months); the employee is not replacing a former seconded employee, and the employee was part of the system of social security in the home country for at least one month. In such cases, the employer can file an application to the social security authorities for the so-called A1 statement. Please, note that under this agreement, it is not possible to maintain the home country system of social security for accompanying family members! It neither applies to the costs for medical expenses! Contributions and premiums will have to be paid in the home country.
2. The home and host country have agreed on a bi-lateral agreement on social security. It works the same as the EU method. However, every bi-lateral treaty has its own articles on applicable legislation, accompanying family members, duration and application procedures. The approval that the home system remains applicable is laid down in a Certificate of Coverage. Contributions and premiums will have to be paid in the home country.
3. The home and host country do not belong to the EU (and Switzerland, Liechtenstein and Norway) and do not have a bi-lateral agreement. In such cases, it might be possible to enter home country voluntary social security insurances. It usually offers a comparable home country level of social security. Premiums for these insurances will have to be paid in the home country, but it does not touch the obligation also to pay contributions to social security in the home country. It leads to double premiums and higher costs.
It depends. In some countries pension is part of the system of social security. In others, like The Netherlands, it is not. Focusing on the Netherlands, the company pension is part of the labour conditions and the state pension (“AOW”) is part of the social security system. The state pension part, therefore, is arranged in the EU treaty or bi-lateral agreements. The company pension is not. It is crucial to check the existing company pension agreement of the employer with the pension company. And if it is possible to maintain the accrual of pension entitlements during an international assignment of any nature.
In most cases, the answer is “yes” because most home country insurances only reimburse these costs up to the home country level. In other countries, these costs can be much higher, and limiting conditions are applicable. Professional advice is necessary to avoid unpleasant surprises.
The experts of EMG have extensive knowledge of international social security situations and legislation and have access to a database with existing EU and bi-lateral agreements on social security. Next to that, EMG has an extensive network of specialists in all countries where professional advice can be taken on these matters, including insurances on medical expenses.
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