Engaging Employees Overseas: Avoiding the Pitfalls

Here's a 10-point guide from a cross-border employment law specialist.

By Johanna Johnson, Taylor Vinters


A multinational software company is looking to set-up a customer service centre in the Philippines. It has identified a trusted employee from its US operations to lead the new service centre, but it will also need to make a number of local hires and have employees from the regional headquarters in Singapore support the new service centre.


Of all the decisions a developing business takes, expanding overseas can be one of the most important. Get it right and the rewards can be great. Get it wrong and it can prove to be a costly lesson in what to do differently next time. Employment issues often carry the highest risk both in terms of potential compensation costs and operational problems caused by the loss of a key individual.


Fortunately, through good planning and seeking early guidance from advisers with experience in this area, most of the problems can be avoided. Below are 10 practical tips a business should consider when employing someone in the Asia Pacific region.


1. Start at the end


Ironically, to get things right at the start of an international working relationship, you should wind forward to picture the end. Think about the issues and problems that might arise on a termination when appointing someone, especially when that person is to head up your business in the country in question. For example, know what is involved in removing any directorships, bank mandates and powers of attorney you might want to grant your new country manager before you bestow them on the individual. Work out your action plan in the event of an acrimonious parting of ways later. Avoid having single directors if possible, and consider using your head office-based executives as directors of the overseas subsidiary as an alternative to an untested new recruit, at least initially.


2. Retain key documents


Keep copies of all important documents in your head office including employment contracts, payroll records, job specifications, stock schemes and leases. Asking the local director you are proposing to fire for a copy of his employment contract is not considered good form!


3. Plan ahead


Record important dates such as lease renewals, equity vest dates and immigration deadlines. These may be useful for later.


4. Beware local laws


It is vital to obtain an overview of employment law in the country in question. We provide our clients with a country guide, setting out key points of local law that they should know, and work with them to ensure there is an employment contract compliant with local laws. Do not simply use an existing employment contract from one jurisdiction for a new hire in a different country. Doing so can have seriously adverse consequences. For example, it may seem straightforward to adapt an existing fixed-term contract for a new hire in Indonesia, but unless that contract is in Bahasa, it will be deemed to be a permanent contract (and the process of terminating permanent employees in Indonesia can be protracted and painful).


5. Confirm immigration rules


The immigration situation will need to be considered if you are seconding someone from an office in a different jurisdiction or hiring someone who requires permission to work in the new country. For example, in Singapore, employers hiring foreign employees on an Employment Pass need to comply with the Fair Consideration Framework, which promotes hiring local talent and requires jobs to be advertised on a government website for at least 14 days.


6. Identify the employing entity


Get the identity of the employer right in the employment contract. Whether the home or local company is the employer will usually be dictated by tax implications, advice on which will be money well spent.


7. Employee support


Consideration will also need to be given to the amount and type the support you will provide a secondee or expat in terms of living accommodation, shipping of possessions, and any additional pay or benefits. Many employers offer some form of tax equalisation arrangement when sending someone on secondment compensating the employee for any higher income tax rates he will encounter in the new country. Speak to your accountants about income tax, social security, and any double taxation issues.


8. Understand payroll obligations


While it may be tempting to pay secondees or new hires from the head office payroll, especially when initially setting up business in a new country, the payroll laws of many jurisdictions ban offshore wage payments. There are ways around this, such as implementing a ‘shadow’ payroll, but care needs to be taken as violating payroll laws will often be a crime.


9. Document the agreement


Not all countries require a written employment agreement, though we would always recommend one as a matter of best practice. However, some countries, such as China, require that parties enter into a written employment agreement within a certain timeframe. Overlook technicalities such as this at your peril. In China, if a written employment agreement is not entered into within one month of the employment commencing, the employer is required to pay double wages for up to one year, and the employment may be deemed to be permanent.


10. Protect the business


As a business expands, it will be prudent for it to consider how best to protect its developing confidential information, intellectual property rights, workforce and customer base. Employment contracts are an important tool in restraining employees. What is enforceable in one jurisdiction, however, will not necessarily fly in another. Take non-compete clauses: these, in any form, are unenforceable in India and Malaysia. A good adviser will help put your business in the best possible position to protect its interests.


With the right advice, dealing with overseas appointments should not consume too much of your time or resources. Starting the relationship on a sound footing and planning for future eventualities will help you avoid the mishaps and complications that can cause so much damage to an expanding business.