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Under the Radar: When Employees Work Overseas Undetected

CompassGUIDES - Jan 2006

By Diana Matwichuk, Assignment Planning Specialist

Talented and mobile, they roam between international offices without a trace. The Stealth Expatriate is at first thought an enigma in today’s controlled workforce, yet according to a 2004 survey conducted by Cedant Mobility and Worldwide ERC, 78% of executives believe that these employees exist in their organizations.

Stealth Expatriates pose significant risks to the corporation in terms of tax and visa issues, since their undocumented approach ignores assignment policy. In the wake of the tsunami, hurricane crises and ongoing worldwide terrorist threats, assignment managers are also wondering whether they would be able to account for all of their international assignees, should an emergency situation arise in a host country.

The Stealth Expatriate Profile

The typical Stealth Expatriate appears to have no real home country. They are often single or divorced, and enjoy working in obscure places. While an asset to the corporation in terms of their talent and expertise, they have a strong aversion to company protocol and prefer to do things their own way.

The common philosophy adopted by the Stealth Expatriate is that if they are performing well, why should they not be able to just “get the job done”? – even it means slipping over to Kazakhstan for a few months undetected.

Risks for the Company

The answer to that question has four letters. R-I-S-K. The Cedant Mobility survey cites tax issues as the highest risk (29%) to the corporation as a result of Stealth Expatriates, followed closely by visa/work permit issues (24%) and an inability to track the workforce (19%).

Multi-national corporations implement assignment tax programs to communicate policy which was developed to ensure optimal tax savings to both the employee and the organization, and to protect against tax penalties. Deviations from assignment tax policy carry the risk of surprise tax bills, either from the CRA or the host country.

Visa irregularities at a host country border can draw attention of the authorities, causing the employee to be blacklisted on future crossings. Litigation can follow, and the company’s business reputation becomes at risk. Multi-national corporations need to guardedly preserve the ability to easily move assignees in and out of the host country, in order to ensure continued operation of the international business.

Undocumented employees cause project delays and complications when virtually no-one knows how or where to locate them. Should an emergency situation arise, it would be impossible to determine whether a forced repatriation were necessary, let alone whether such measures for the Stealth Expatriate would be covered by insurance!

Since by definition Stealth Expatriates do not conform to assignment policy, equitability issues eventually arise, and this can adversely affect future recruitment efforts.

Risks for the Employee

If the Stealth Expatriate were to contemplate the situation, they would realize that they are missing out on all of the personal advantages and protection that the assignment policy was developed to provide. Often, when they arrive in the host country and talk with colleagues, they realize that, had they gone through the formal assignment planning process, they would have received more favorable benefits.

Stealth Expatriates don’t receive the valuable pre-departure assistance which sets them off in a positive direction on their assignment. Pre-departure tax counseling, language preparation and family support, which are often included in formal assignment programs contribute, to assignees’ adjustment and are missed by the Stealth Expatriate.

International assignments are generally considered to be valuable career enhancements, but if HR cannot track Stealth Expatriates’ international experience, they will not receive credit for it.

Reasons for the Existence of Stealth Expatriates

The Cedant Mobility and Worldwide ERC survey found that 25% of executives attributed Stealth Expatriate situations to a lack of understanding of global assignment programs. This could be an indication that the corporation is too decentralized, to the point that no-one is aware of assignment policy that is in place. At CompassTAX, we have observed this same trend and offer Online Assignment Guides to corporations to allow for widespread communication of international assignment policy, accessible via the internet.

Misconceptions of international assignment programs are common, and 19% of the executives surveyed felt that Stealth Expatriates were considered by others in the company to be less costly than established assignment policy.

Compounding the situation is a belief held by 17% of the executives, that their assignment policy is so inefficient that it is preferable to bypass it altogether. When multi-national corporations are too centralized in their delivery of assignment policy, it can be overly rigid and not adaptable to the host location or the nature of the assignment. Our CompassGUIDES Online Assignment Guides allow for access to multiple types of assignment policy, by anyone in the company, to ensure widespread communication of the policy and indication of its flexibility.

How Stealth Expatriates are Discovered

The Cedant Mobility and Worldwide ERC survey revealed that 45% of executives attribute the discovery of Stealth Expatriates to chance, 17% to tax and immigration service providers, 15% to specific initiatives aimed at identifying this type of employee, and 15% to travel booking departments. However, 83% of these executives also admitted that they did not have processes in place in their organization to track or uncover Stealth Expatriates.

What Can be Done?

HR professionals commonly feel that the tracking of assignments to avoid tax issues is the most challenging area of assignment planning, and H. Chris Collie, executive vice president of Worldwide ERC, says that this responsibility is in their court 90% of the time.

Our CompassGUIDES International Assignment Planning Help Desk fields questions from HR assignment managers whose objective it is to avoid assignment tax issues. There is much that can be done pro-actively in the planning stages to ensure that assignment tax is handled in a compliant and cost-effective manner.

Other strategies adopted by assignment managers to tackle the Stealth Expatriate issue, from both a communication and flexibility perspective, include the implementation of sophisticated online tracking, targeted policy support, and online assignment documentation .

Employees should be empowered to contact their HR department when being sent overseas or cross-border. Assignment policy should be developed to be flexible and aligned with business units’ needs, and authorization processes which support compliance should be implemented. HR should also collaborate with other departments in the organization, such as Travel and Accounts Payable, which have contact with mobile employees, to track and identify those who are a potential problem.

Summary

The risks to both the Employee and the Company, as introduced by the existence of Stealth Expatriates, are significant. If the motivations of the Stealth Expatriate can be understood and the reasons for their existence addressed, it is possible to avoid the situation. Development of flexible and appropriate assignment policy, and widespread communication of that policy are key to the success of this approach.

At CompassGUIDES ™ , we develop cost-effective assignment tax programs for Canadian companies sending employees around the world and bringing international consultant expertise to their Canadian projects. These Assignment Tax Programs provide detailed advanced tax planning, including policies, procedures and employment contracts, which serve to minimize costs and mitigate any risk of litigation.

In concert with this strategic assignment tax planning, we assist multi-national employers with their preparation and provision of assignment documentation, including the possibility of offering these guides online to employees anywhere in the world with internet access. Visit our International Assignment Planning Help Desk for more information about international assignment planning.

The author wishes to thank Peter Simpson, CA for his contribution to this article.

 


Tel: (403) 531-2200 
Fax: (403) 263-1826


Web: www.compasstax.ca
Suite 600, 1333 8th Street SW
Calgary, Alberta Canada  T2R 1M6


Tel: (403) 531-2200 
Fax: (403) 263-1826


Web: www.compassguides.ca
Suite 600, 1333 8th Street SW
Calgary, Alberta Canada  T2R 1M6