Employment Structures for International Transfers

There are generally four structural ways of effectuating an international employee “transfer.” Either:

a) Assignment/Secondment - the employee is loaned or seconded, the difference often just being duration and semantics, from one entity to another for a period of time;

Documenting an assignment relationship usually involves a detailed agreement between the Home Company and Host Company to address treatment of payroll, tax and benefit obligations and reimbursement structure, as well as any potential mark ups. The details of this agreement will depend in large part on whether the

arrangement is between related companies (intra-company assignment) or not (inter-company assignment). In addition, the Home Company entity should provide a letter to the employee explaining the terms of the assignment. A “one off” of this arrangement may also be possible where the assignment is for a short period of time, such as a few months, and in which case there may not be a formal assignment agreement between the companies, but rather just an assignment letter to the employee.

Finally, if the employee was not originally hired by an international holding company, assignments are sometimes structured such that employment is first transferred to an international holding company

through termination and rehire, and then assigned to the Host Company. Among others, this is to shield the Home Company, particularly if it is the ultimate parent company, from tax and employment liability. At the same time, depending upon the location of the international holding company, the employees may still be able to enjoy the benefits they enjoyed in their original employment.

b) Transfer - the employee is terminated by the current employer and hired by the new employer in the host country;

In the transfer scenario, the employee’s employment with the Home Company is terminated and the employee is rehired by the Host Company. This is the preferred approach from a pure employment law perspective because it creates a “clean break” between employing entities, and thus clarity as to applicable laws. Since this option does involve a technical termination of employment, however, all e.g., the final paycheck and vacation payout, unless the employee agrees to transfer vacation and waive notice and severance, if any) associated termination obligations and benefits are triggered.

c) Transfer followed by assignment/secondment – the employee is terminated by the current employer and hired by the company’s global employment company and then seconded to the host company;

This alternative is something of a hybrid, combing elements from both secondment and transfer structures.

First, the employee is terminated by the Home Company.

Second, the employee is hired by the Home

Third, the employee is seconded to the Host Company.

d) Dual employment - the employee actively maintains more than one employment relationship simultaneously.

In the dual employment scenario, the employee has two active employment relationships.

Dual employment relationships often are favored by high-level executives for international tax planning reasons, although employers should be cognizant of the perceived use of such agreements to avoid local tax obligations and proceed carefully.

Documenting a dual employment relationship usually involves one employment agreement between the employee and one company within the group, and a second employment agreement between the employee and another company within the group. These agreements should be carefully drafted to appropriately dovetail and supplement each other.


(Source: Baker & McKenzie)