Managers or program leaders who will need to engage workers specifically for, or assign current employees to, work abroad must coordinate with Human Resources to identify the appropriate engagement options, based on the specific situation. Available options vary depending on many factors such as: the length of the engagement, host country visa restrictions, current employment status (if any), local labor law, whether and to what extent Middlebury is already (or will be) doing business in the location, and overall budget considerations. This section briefly outlines possible staffing models that may be available, depending on the assignment specifics. It also provides information on U.S. as well as abroad taxation. (Please note that work visa is discussed separately and must be considered before deciding on an option.)
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Employees Working Abroad, but Paid in the U.S.
There are situations in which it may be necessary or desirable to pay (or continue to pay) employees engaged to work abroad on the U.S. payroll. Generally such arrangements are only appropriate when the individual already has U.S. tax status (U.S. citizens, legal permanent residents, etc.), and when the assignment is of limited duration. The effort and expense involved in paying workers in the U.S. to work abroad will vary greatly depending on the specific circumstances:
- There is relatively little additional expense or work involved in sending a current employee abroad for a short-term assignment. In most (but not all) countries employees trigger host country tax liability only after a certain length of stay. Often that threshold is at least 90 days, and in countries that have tax treaties with the U.S. the threshold is usually 180 days or more in a year. Employees on such assignments generally remain in the regular U.S. benefit program and typically no formal contract or assignment letter is required unless one is required for a visa application for that country.
- Current employees given long-term assignments abroad, as well as employees hired specifically for such assignments, generally will require special employment arrangements. The extent of the work varies greatly depending on the specifics:
- Employees sent abroad on, for example, a one-year assignment generally will require a specific U.S.-compliant assignment letter and will often require a locally compliant employment contract. Consideration may be given to providing an “Abroad Stipend” to help defray housing and other assignment-related costs. Depending on whether or not there are tax treaties with the host country a Totalization Agreement might need to be filed with the Social Security Administration. Generally such employees will be enrolled in the College’s Global Health and Welfare Benefits program, rather than the standard U.S. benefit program (the global benefits are designed specifically to provide seamless international coverage.) Consideration should be given to providing reimbursement for tax preparation services in the host and home countries as well as a pre-departure tax briefing with a qualified third-party.
- U.S. employees sent abroad on long-term or indefinite duration assignments generally will be localized (see “localized expatriate” in the section above). In very limited cases (generally only for executive level staff) consideration may be given to a full expatriate arrangement which involves continuing to pay the employee in the U.S. even though the tax liability is in the host country. This approach requires sophisticated payroll functions in both the host and home countries. Such arrangements may include COLA, tax equalization, relocation reimbursement, etc. These arrangements are extremely expensive and resource-intensive and, as such, are generally to be avoided unless there is a very compelling business reason.
Other countries have widely varying regulations relative to what are referred to in the U.S. as “Independent Contractors”. A few countries have relatively relaxed regulations regarding the hiring of workers as Independent Contractors. In such countries it may be possible to engage a local worker, who by contract, will perform work for us but who will be paid by Accounts Payable in the U.S. (or even by the local entity, if there is one), rather than through a payroll. In such cases the worker is responsible for his/her own taxes, benefits, etc.
It should be noted, however, that most countries have substantial restrictions on the use of Independent Contractors. Engaging workers in this manner is rarely a viable option for longer-term, repeat, or on-going assignments, and in some countries may not be an option at all, even for shorter-term engagements.
Managers and Project Leaders should be aware of several important points when considering engaging an Independent Contractor outside of the U.S.:
- Even in countries in which Independent Contractor arrangements are allowed, our standard U.S. contract template may not be legally compliant. For example, many countries require specific language about computer privacy, proprietary information, tax reporting, etc.
- Paying an individual as an Independent Contractor does not negate work permit requirements; we must not engage a worker who is not legally eligible to work in the country in which the work will be performed, and specifically the worker must be eligible to work for us. This is generally not a problem when engaging a worker in his/her home country, however there are many scenarios in which an individual could physically be in a country, but not have work authorization there (i.e. individuals on student or visitor visas, accompanying a spouse (who holds a work permit), with a work permit sponsored by another employer, etc.). Managers and Project Leaders must confirm right-to-work before committing to engaging a contractor in another country.
- Potential complications and business risk tend to be greater in countries in which we already have established operations (Argentina, Austria, Brazil, Cameroon, Chile, China, Egypt, France, Germany, India, Israel, Italy, Japan, Jordan, Russia, Spain, Uruguay). Often engaging Contractors in these locations will require a country-specific contract.
Navigate to the Independent Contractor site for specific instructions regarding engaging Independent Contractors outside of the U.S. Please note that customized contract development (if necessary) may take several weeks due to the necessity of researching local legal requirements and possibly of developing a local-language or bi-lingual agreement, so please plan accordingly. Contact email@example.com with questions or for assistance with developing a locally compliant contract.
Engaging Personnel Locally
Engaging workers locally is generally more cost effective than sending U.S. personnel abroad. The effort and expense involved in engaging workers locally will vary greatly depending on the specific circumstances:
- In countries in which Middlebury has established operations it may be possible to hire local workers utilizing the existing payroll, with relatively little additional expense (beyond the normal local employment taxes) and a nominal amount of administrative effort. Most countries will require a locally-compliant employment contract and participation in statutory benefit programs, even for short-term assignments.
- In certain countries it is permissible to use a Professional Employment Organization (PEO) to facilitate local hires. When available this can be a cost effective and relatively easy approach. However, in such an arrangement the workers are legally employees of the PEO, not Middlebury, and so this may not always be an acceptable option. There also can be limits as to how long an individual can be employed through a PEO. Also, PEOs are not allowed in all countries.
- In situations in which Middlebury will be working with a local partner institution it may be possible to arrange a worker secondment. In such an arrangement the Memorandum of Understanding between Middlebury and the partner institution would contain provisions under which the partner would engage workers, who would then be assigned or “lent” to work on Middlebury’s behalf. The worker(s) would be legally employed by the partner, and the partner would: pay the employee(s), provide benefits (per local law and its own internal polices), withhold and remit employment taxes, etc. Generally Middlebury would agree to pay the partner an amount equivalent to the employee’s gross pay PLUS employer-paid taxes and benefit costs PLUS some amount for administrative overhead. It is important to note that in these arrangements the partner is the legal employer and wields the ultimate authority to make employment-related decisions.
- In countries in which there is no established payroll, and where PEOs and Independent Contractors are not options, the only alternative may be to establish a local payroll. This generally involves registering Middlebury as an entity in-country, opening bank accounts, and engaging a qualified accounting firm to calculate pay, withhold and remit taxes, and deal with all required reporting and compliance. Such an approach will generally be costly and take a significant amount of time to set up and to maintain.
The examples above assume that the worker(s) would be local (host country) hires. There are also situations in which a U.S. citizen or third-country national is hired to work abroad for an indefinite or long-term assignment and will be paid locally.
- Where there is an existing local payroll, or where it is feasible to establish one, the best option in these circumstances is frequently a localized expatriate arrangement. Under this arrangement the worker would have a locally (host-country) compliant employment contract, be paid completely through the local payroll, would pay taxes locally, and would participate in the local social benefit programs. Depending on the comprehensiveness of the local statutory benefit programs consideration may need to be given to providing supplemental medical insurance and/or retirement contributions. Consideration should also be given to providing reimbursement for tax preparation support for the transition year (in both the host and home countries) as well as a pre-departure tax briefing with a qualified third-party.
Regardless of the option chosen, Managers and Project Leaders should consult with HR about compensation and benefits in order to ensure a competitive and compliant package. In most cases local employees will not receive Middlebury benefits so local packages may need to be developed. The cost of such benefits will need to be considered when planning projects. Managers and Project Leaders should also be aware that most arrangements will require the creation of a locally compliant written employment contract and that foreign employment laws often make it difficult to terminate employees and frequently require severance payments. In addition, many countries have extensive statutory benefits and leave laws as well as generally expected “perks” such as lunch or commuting vouchers or “13th month” pay.