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What Is an Expatriate Employee?

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Key Takeaways

1. Expatriate employees (‘expat employees’ ) are sent to work in foreign markets as part of their employer’s international expansion strategy.

2. Successful expat employees possess specialist skill sets that combine management and leadership expertise with cross-cultural skills.

3. Deploying expat employees has its challenges, including; creating expat employee compensation packages; complying with the host country’s immigration procedures and employment legislation; and, managing expat employee welfare.

4. Expat employees take on challenging roles that involve a considerable emotional commitment. As such, managing expat employees is a challenging task that requires a sophisticated HR infrastructure that coordinates between professionals in the home and host countries. Horizons can advise on how best to deal with these types of challenges, amongst others, such as whether or not a tripartite agreement is required.

When expanding internationally, it makes sense to have trustworthy talent on foreign ground. An employee who has a certain level of company-specific knowledge, expertise and ‘skin in the game’, serves as a reliable bridge between the foreign entity and executive team. Expatriate employees (‘expat employees’ are those who are sent abroad to advance their employer’s efforts in expanding into new markets. At the turn of the millennium, using expat employees as part of an international expansion strategy was mainly done by large companies. However, over the past decade or so, we’ve entered a new era of global mobility where small and medium-sized companies are now utilizing expat employees to expand internationally. The savvy companies that intend to utilize globally mobile employees must understand the implications; namely, additional costs and the need for compliance with the host country’s immigration and employment legislation. This article builds on our guide to global mobility, by looking specifically at some of the benefits and challenges of using expat employees.

What are Expatriate Employees?

An expatriate is an individual living or working in a foreign country where they do not hold citizenship. From a business and international expansion standpoint, expat employees are those who are sent abroad to work in a host country where their employer has established operations.

In defining expat employees, it helps to understand the circumstances where an individual is not considered an expat employee:

Business Travelers

Where the expat employee settles down to work in a foreign country (usually for a period lasting longer than 12 months), business travelers are engaged in temporary, short-term assignments (usually for a period lasting less than 6 months). One difference, therefore, relates to the time horizon: business travelers know they will be returning to their place of work in their home country; expat employees understand their place of work is in the host country.

Foreign Hires

An international recruitment process that involves hiring foreign workers is not engaging expat employees. In such cases, the hiring company is not sending employees abroad, but instead attracting foreign hires. Expat employees already have an association with their employer before being sent abroad to work.

Expat vs. Immigrant: The Key Difference

The words expatriate and immigrant are often used interchangeably. There are a number of similarities between the two: both terms describe individuals who have left their native country to live and/or to work in a foreign country. Indeed, expatriates are a form of immigrant however the key difference between an expat and an immigrant revolves around permanence.

Expats move to foreign countries to work, sometimes settling over the medium to long term with their families in tow, whereas immigrants are those seeking to relocate to another country on a permanent basis. Where expats go through the immigration process as it relates to obtaining the relevant visas and permits, immigrants are likely to be those applying for citizenship.

What are the Benefits of Using Expat Employees?

Businesses that utilize expat employees as part of their global mobility strategy choose to do so for a variety of reasons. As you’ll see, speed (time to market), competence and reliability are key factors.

Company-specific Knowledge and Expertise

Expat employees tend to hold senior managerial roles. The expat employee might have a rare skill set or company-specific knowledge that would require extensive training. Using an expat employee, that’s hired internally, negates the need to engage in a complex executive search, interview process and training program which can reduce the time to market.

Reliability

As well as suitability, such as knowledge of the host country’s work culture, reliability is an important characteristic to look for when identifying suitable expat employees. Keep in mind that expat employees will often serve as the bridge between the executive team and the foreign operation.

Most businesses have secrets or some intellectual property they’d like to protect. It could be a process, a license agreement or anything that contributes towards making the company unique. Protecting this uniqueness becomes especially important when entering new markets and attempting to build a competitive advantage.

The Challenges of Using Expat Employees

Using expat employees has its challenges, particularly in terms of employee management and compliance.

Compensation

The first point to note is that, due to being employed in business critical roles, expat employees usually command high salaries. Other factors to consider when determining compensation include;
  • The cost-of-living (housing, schooling costs) in the host country (keeping in mind that many employees seek to benefit from global labor arbitrage);
  • Relocation packages (travel compensation, house sale and moving assistance, costs of immigration/visas etc);
  • Potential promotions and pay raises associated with new foreign roles.
It’s likely that the cost of sending expat employees abroad can be reduced by engaging an experienced global mobility partner, such as Horizons.

Navigating Shadow Payroll

Shadow payroll is a critical component of global payroll implementation. Unfortunately, the process is inherently complex. Also known as expat payroll, shadow payroll is a mechanism that ensures compliance with the employment taxes (including payroll tax) of the host country, whilst keeping the expat employee on their home country’s payroll system.

Whilst compensation is processed via the home country’s payroll system, the payroll system in the host country “shadows” what is being reported in the home country. This allows companies to manage their liability for payroll contributions, like income tax and healthcare contributions, in both legal jurisdictions. For an in-depth explanation, see our guide to managing shadow payroll. Additional reading of interest to execs and global mobility teams is our explainer article on Tripartite Agreements.

Administrative Work: Visas/Permits

Visa, work and residence permit requirements differ significantly between countries. The administrative work involved in preparing expat employees for their move requires input from HR and legal professionals.

Many companies choose to work with a global mobility partner that can assist with securing all necessary visas and permits, ensuring a smooth transfer of expat employees to their new location.

Managing Employee Welfare

When sending expat employees overseas, where many companies struggle, is in establishing the necessary HR structures to manage remote employees. Although suitability for overseas work should be part of the selection process, many expat employees are making a big financial and emotional commitment. This is the case for expat employees who move abroad by themselves or with their families. Even with preparation, expat employees can find it difficult to adjust to the cultural differences, not just in business practices but in daily life too. As such, the rates of burnout and job dissatisfaction tend to be high among expat employees. The question is, how can companies manage expat employees more effectively?
  • Identify candidates whose technical and leadership abilities are matched by their suitability for foreign assignments. For example, employees who have previous cross-cultural experience or have demonstrated an interest in a particular foreign culture.
  • Create a plan for repatriation and ensure expat employees have access to career guidance whilst abroad. HR and managers must ensure expat employees maintain a sense of connection and that their international experience can be utilized when they are repatriated.
Selecting expat employees requires careful consideration and, once transitioned into the host country, expat employees require ongoing support from HR.

Successfully deploy expat employees – with Horizons

Expat employees are increasingly used by businesses of all sizes as part of global mobility strategies. Care must be taken when selecting potential expat employees as they perform a challenging role. Successful expat employees possess a specialized skill set that combines company-specific expertise and leadership skills with cross-cultural knowledge. The challenges of utilizing expat employees are many, from additional costs and employment compliance to complex management requirements around employee welfare. As an experienced global mobility partner, Horizons’ global mobility solutions help guide your international expansion and overcome the challenges inherent with transitioning expat employees into new markets. Our in-country expertise allows us to manage immigration, visa, and work permits whilst also offering improved budgetary control.

Frequently asked questions

Expatriate employees, or ‘expat employees’, are those employees who are sent by their employer to work in a foreign country, usually as part of an international expansion strategy.

The most successful expat employees tend to be recruited internally. The reasons being that expat employees usually perform senior management roles that require a certain level of company knowledge, expertise or leadership experience. When selecting expat employees, there’s also a need to identify candidates that possess cross-cultural skills and an understanding or interest in the host country. As part of our Employer of Record services, Horizons offer global mobility and immigration solutions that help companies deploy expat employees and fast-track their global operations.

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