With the evolution of global commercial mobility, it has become a common practice amongst the multinationals to depute their employees within their group companies or affiliates for rendering certain services for a specific period of time. It is of utmost importance that the companies opt for a suitable structure while deputing their employees as the Indian labour laws are silent on aspects such as secondment and the relationship is primarily regulated through contractual arrangements.
The structuring arrangements that may be adopted by a company for deputing an employee to another company are:
Secondment Arrangement
Under an international secondment arrangement, an employee of the home country employer ("Secondee") is transferred to the host country employer, for a specific assignment and agreed duration. The underlying premise is that the Secondee will continue to remain employed with the original employer during the secondment and after completion of the secondment term, return to the original employer. Typically, a secondment agreement is executed between the home country employer and the host country employer recording the terms of secondment and an assignment agreement is signed between the Secondee and the home country employer, or alternatively, a letter may be issued to the Secondee informing him/her about the terms of secondment. An agreement may also be signed between the host country employer and employee to facilitate procurement of employment visa.
The Secondee may be paid by either of the employers, or both. Normally, the home country employer continues to pay the employee and the cost is reimbursed by the host country employer in terms of the contractual arrangement. Additionally, the host country employer may pay a 'per diem'/daily allowance for expenses in the foreign country.
Dual Employment
The concept of dual employment signifies simultaneous employment by two employers, whereby the employee may split his/her time and continue to work for both the home and host country employers. It could also be the case that the employee works actively on site for the host country employer, while the employment agreement with the home country employer becomes dormant or suspended. In this case, even though the employee is not working for the home country employer, the employer continues to pay the employee (perhaps a nominal amount or basic pay) in order to continue social security benefits and recognise continuity of employment. Further, the host country employer also pays remuneration to the employee in terms of the new employment agreement.
Since both secondment and dual employment ordinarily involve temporary transfer of the employee overseas, the two options are similar to some extent. The key difference between secondment and dual employment is that secondment is essentially a temporary loan of the employee to another entity and dual employment involves having a shared employee resource.
Termination of employment in the home country and commencing fresh employment in the host country
This option could be explored if the employers and employee desire a clean break in service. This option is generally chosen for longer duration assignments and to comply with requirements under immigration laws. Under this option, the employee could voluntarily resign and the employment with the home country employer ends in the ordinary course. The employee accepts the overseas assignment with the host country employer and signs a fresh employment agreement (with or without recognition of past period of service). The employee may still want to return to the home country post completion of overseas assignment and therefore the employee may expect some assurance from the home country employer vis. a vis. job security upon his/her return.
Key Considerations
While structuring a deputation arrangement, some of the key aspects that need to be considered are as follows:
a. Employee Payroll: It is important to consider the employer payment obligations with respect to payment of salary and additional payments such as overtime, bonuses, expenses, etc. to the employee during the overseas assignment period. A split payroll between the two employers may be required to satisfy the legal requirements in respective jurisdictions.
b. Impact on Social Security Obligations: The social security obligations need to be assessed both in home country and the host country depending on factors such as the existence of bilateral social security agreements between the respective countries and applicable laws.
c. Tax Implications- The tax implications need to assessed vis. a vis. the employers and employee in terms of the tax laws of the home country and the host country. Aspects such as the tax residency of the employee, payroll structure and bilateral tax treaty between the countries are of utmost relevance in determining the exposure under applicable tax laws. It should also be assessed that the secondment structure adopted does not trigger the establishment of a permanent establishment with respect to the home country employer entity.
d. Immigration: Immigration law is to be kept in mind while determining the deputation structure. For instance, as per the Indian immigration laws, a foreigner is required to draw a minimum salary of US$25,000 per year in order to be eligible for Indian employment (work) visa.
The salary split arrangement, documentation and social security obligations need to be structured keeping in mind the applicable legal requirements of the home country and the host country. Further, the terms and conditions of the secondment and other agreements have to be carefully drafted so as to have a clear understanding on matters relating to the payment of salary, withholding of tax, performance appraisals, disciplinary action and grievances, compliance with instructions and policies of the host employer, social security benefits, termination rights, etc.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
