The importance of an international assignment letter
Employee relocations are complicated. While most international relocations are concluded without incident and to the complete satisfaction of both the employee and the employer, employers should take steps to protect their investment.
After all, a relocation can cost upwards of $1 million and can leave a company in an extremely vulnerable position if things go wrong. When international relocations start to unravel, the impact can be devastating for everyone involved. A well-framed international assignment letter can provide an inexpensive solution that protects both the company and the employee and his family.
The letter does not replace a company’s relocation policy. If an organization doesn’t have an international relocation procedure, then an assignment letter is probably the least of its worries. What the letter should provide is a relatively simple, easy-to-understand summary of the rights and responsibilities of both the employer and the employee for a specific relocation.
What should be in the letter
For the most part the physical aspects of the relocation, such as its duration and what the program will cover, can be noted and referenced to the company’s relocation policy. However, the assignment letter should make special mention of items that have particular importance for international relocations.
The letter should clearly delineate how the company will help the employee and his family adjust to their new home, including language and cultural acclimatization, and how often and under what circumstances the company will compensate them for vacation and home leave. This is a particularly thorny issue when the family is relocating outside of North America.
It should also address what happens when the assignment comes to a conclusion.
But perhaps the most difficult issue to address is that of compensation and the ensuing tax implications both in Canada and in the country to which the employee is moving. As one sample assignment letter states: “The company intends that you neither gain nor lose significant net disposable income as a direct result of a transfer to a foreign location. Your compensation and benefits package is designed to provide you with a comparable level of income taking into consideration the cost differences that you may reasonably anticipate in your new assignment.”
The assignment letter should indicate what salary, benefits, cost differential and tax equalization support the employee will receive to ensure he is fairly compensated. It should also stress that the employee is responsible for his own taxes, if that is the company’s policy. (For more in tax considerations in relocation, see Lynne Molnar’s article on page 15.)
Letter can provide support for tax benefits
Jim Yager, a partner with KPMG’s international executive service, said an assignment letter can provide support for various tax benefits.
“Canada Revenue Agency (CRA) views assignments of less than two years as temporary and, under certain circumstances, reimbursement of living expenses for temporary assignments can be excluded from Canadian taxable compensation,” Yager wrote in a recent memo on the tax implications of international relocations. “In other jurisdictions, New York state for example, a person can be considered a non-resident if the assignment is temporary and for a specific purpose and thus this can help avoid local taxes.
“On the other hand, a person on temporary assignment may be considered by CRA to continue Canadian residence. The assignment letter can provide that the assignment will be for more than a temporary period of time. It is interesting to note that CRA makes reference to an employee signing a ‘secondment agreement’ in order to avoid Regulation 105 withholding on payments to a non-resident employer. I believe this can be facilitated in an assignment letter.”
Sample letters available
If all this sounds somewhat overwhelming and an excessive amount of work, it shouldn’t. Developing an international assignment letter is neither complicated nor expensive. Sample letters are readily available from human resource councils, outsourcers and even HR managers in other companies. Each sample letter should, of course, be adapted to address the specific circumstances of a particular international relocation based on appropriate legal and taxation advice.
What the assignment letter contains is important. How the letter is used as part of the relocation process is equally important. By discussing the letter with the employee and ensuring it is both signed and acknowledged, the letter becomes more than just a contractual document. It underpins the entire relocation process, ensuring the employee understands precisely what he is expected to do and what he can expect in return.
It’s a lot to expect from a couple of pieces of paper but, handled properly, it’s as letter perfect as it can get.
Joyce Head is national director partnership integration for Royal LePage Relocation Services Ltd. and a global mobility specialist.
International assignment letters
What to include in a letter
•Assignment: Location, duration of assignment.
•Remuneration: Base salary, incentives and benefits, pension plans and currency of payment.
•Tax issues: Tax equalization, tax reporting and tax advice.
•Host country: Housing, goods and services allowances and ¬differentials.
•Relocation program: Home and automobile sale, family allowances (if family doesn’t relocate), house hunting, moving, schooling, elder care, language training and cultural acclimatization programs as per the ¬relocation policy.
•Vacation and home leave: Number of trips, compensation, emergency and compassionate travel provisions.
•Assignment conclusion: Items covered under repatriation, employment opportunities upon the employee’s return, dealing with dismissal or ¬resignation.
Disaster stories
Relocations gone wrong
The names of individuals and organizations in the following real-life examples have been changed to protect their privacy.
Life’s not a beach
There were, thought Betty Adams as she relaxed on the beach, worse places than Barbados to spend a couple of years. It had been six months since her husband Bruce had left to go to Barbados on a short-term assignment and she had been eagerly awaiting this moment when she could join him.
But Betty didn’t know there was trouble brewing in paradise. Costs were up, progress was slow and a new vice-president in Houston was eager to see his own people in charge of the project.
Just two weeks after she got to Barbados, and while they were still waiting for the furniture to arrive from their home in Calgary, her husband lost his job. The new HR manager in Houston was less than sympathetic. The company would pay for the cost of Bruce to return to Canada, but the cost to ship Betty and the household goods home was another matter. Bruce countered through his lawyer that even though there was no official documentation, he had been given permission to have his wife join him.
The dispute turned acrimonious and when it was finally settled, the only people left satisfied were the lawyers.
Quick departure
When Roddy McLean learned that the company’s head office was moving from Toronto to Kansas City, he made no secret of the fact he would be willing to relocate and, since he was a valuable financial manager, the company was more than willing to accommodate him.
But less than two months after he and his family relocated, McLean, with visa firmly in hand, tendered his resignation. He started work two days later with a medical company in an office complex a few blocks away. The company considered recovering the relocation costs but, with no assignment letter on record, it decided the effort was pointless.
The accidental resident
When June Wallis arrived in Brussels, she figured the job would only take a couple of days. As an information technology specialist, she should have known better. System issues never take a couple of days to resolve.
As weeks stretched into months, Wallis became what is known as a “stealth pat” — someone whose temporary work assignment has become a de facto relocation. Not that she was particularly concerned. Young and single, she found Brussels very much to her liking, at least until she went to pay her taxes.
Unfortunately, she didn’t have an assignment letter to show that this was indeed on a short-term assignment. Fortunately, she had a sympathetic employer that had every reason to keep her happy and was able to make some financial adjustments.
After all, a relocation can cost upwards of $1 million and can leave a company in an extremely vulnerable position if things go wrong. When international relocations start to unravel, the impact can be devastating for everyone involved. A well-framed international assignment letter can provide an inexpensive solution that protects both the company and the employee and his family.
The letter does not replace a company’s relocation policy. If an organization doesn’t have an international relocation procedure, then an assignment letter is probably the least of its worries. What the letter should provide is a relatively simple, easy-to-understand summary of the rights and responsibilities of both the employer and the employee for a specific relocation.
What should be in the letter
For the most part the physical aspects of the relocation, such as its duration and what the program will cover, can be noted and referenced to the company’s relocation policy. However, the assignment letter should make special mention of items that have particular importance for international relocations.
The letter should clearly delineate how the company will help the employee and his family adjust to their new home, including language and cultural acclimatization, and how often and under what circumstances the company will compensate them for vacation and home leave. This is a particularly thorny issue when the family is relocating outside of North America.
It should also address what happens when the assignment comes to a conclusion.
But perhaps the most difficult issue to address is that of compensation and the ensuing tax implications both in Canada and in the country to which the employee is moving. As one sample assignment letter states: “The company intends that you neither gain nor lose significant net disposable income as a direct result of a transfer to a foreign location. Your compensation and benefits package is designed to provide you with a comparable level of income taking into consideration the cost differences that you may reasonably anticipate in your new assignment.”
The assignment letter should indicate what salary, benefits, cost differential and tax equalization support the employee will receive to ensure he is fairly compensated. It should also stress that the employee is responsible for his own taxes, if that is the company’s policy. (For more in tax considerations in relocation, see Lynne Molnar’s article on page 15.)
Letter can provide support for tax benefits
Jim Yager, a partner with KPMG’s international executive service, said an assignment letter can provide support for various tax benefits.
“Canada Revenue Agency (CRA) views assignments of less than two years as temporary and, under certain circumstances, reimbursement of living expenses for temporary assignments can be excluded from Canadian taxable compensation,” Yager wrote in a recent memo on the tax implications of international relocations. “In other jurisdictions, New York state for example, a person can be considered a non-resident if the assignment is temporary and for a specific purpose and thus this can help avoid local taxes.
“On the other hand, a person on temporary assignment may be considered by CRA to continue Canadian residence. The assignment letter can provide that the assignment will be for more than a temporary period of time. It is interesting to note that CRA makes reference to an employee signing a ‘secondment agreement’ in order to avoid Regulation 105 withholding on payments to a non-resident employer. I believe this can be facilitated in an assignment letter.”
Sample letters available
If all this sounds somewhat overwhelming and an excessive amount of work, it shouldn’t. Developing an international assignment letter is neither complicated nor expensive. Sample letters are readily available from human resource councils, outsourcers and even HR managers in other companies. Each sample letter should, of course, be adapted to address the specific circumstances of a particular international relocation based on appropriate legal and taxation advice.
What the assignment letter contains is important. How the letter is used as part of the relocation process is equally important. By discussing the letter with the employee and ensuring it is both signed and acknowledged, the letter becomes more than just a contractual document. It underpins the entire relocation process, ensuring the employee understands precisely what he is expected to do and what he can expect in return.
It’s a lot to expect from a couple of pieces of paper but, handled properly, it’s as letter perfect as it can get.
Joyce Head is national director partnership integration for Royal LePage Relocation Services Ltd. and a global mobility specialist.
International assignment letters
What to include in a letter
•Assignment: Location, duration of assignment.
•Remuneration: Base salary, incentives and benefits, pension plans and currency of payment.
•Tax issues: Tax equalization, tax reporting and tax advice.
•Host country: Housing, goods and services allowances and ¬differentials.
•Relocation program: Home and automobile sale, family allowances (if family doesn’t relocate), house hunting, moving, schooling, elder care, language training and cultural acclimatization programs as per the ¬relocation policy.
•Vacation and home leave: Number of trips, compensation, emergency and compassionate travel provisions.
•Assignment conclusion: Items covered under repatriation, employment opportunities upon the employee’s return, dealing with dismissal or ¬resignation.
Disaster stories
Relocations gone wrong
The names of individuals and organizations in the following real-life examples have been changed to protect their privacy.
Life’s not a beach
There were, thought Betty Adams as she relaxed on the beach, worse places than Barbados to spend a couple of years. It had been six months since her husband Bruce had left to go to Barbados on a short-term assignment and she had been eagerly awaiting this moment when she could join him.
But Betty didn’t know there was trouble brewing in paradise. Costs were up, progress was slow and a new vice-president in Houston was eager to see his own people in charge of the project.
Just two weeks after she got to Barbados, and while they were still waiting for the furniture to arrive from their home in Calgary, her husband lost his job. The new HR manager in Houston was less than sympathetic. The company would pay for the cost of Bruce to return to Canada, but the cost to ship Betty and the household goods home was another matter. Bruce countered through his lawyer that even though there was no official documentation, he had been given permission to have his wife join him.
The dispute turned acrimonious and when it was finally settled, the only people left satisfied were the lawyers.
Quick departure
When Roddy McLean learned that the company’s head office was moving from Toronto to Kansas City, he made no secret of the fact he would be willing to relocate and, since he was a valuable financial manager, the company was more than willing to accommodate him.
But less than two months after he and his family relocated, McLean, with visa firmly in hand, tendered his resignation. He started work two days later with a medical company in an office complex a few blocks away. The company considered recovering the relocation costs but, with no assignment letter on record, it decided the effort was pointless.
The accidental resident
When June Wallis arrived in Brussels, she figured the job would only take a couple of days. As an information technology specialist, she should have known better. System issues never take a couple of days to resolve.
As weeks stretched into months, Wallis became what is known as a “stealth pat” — someone whose temporary work assignment has become a de facto relocation. Not that she was particularly concerned. Young and single, she found Brussels very much to her liking, at least until she went to pay her taxes.
Unfortunately, she didn’t have an assignment letter to show that this was indeed on a short-term assignment. Fortunately, she had a sympathetic employer that had every reason to keep her happy and was able to make some financial adjustments.
