Many Factors Affect Plans to Expand Overseas

The top priority for payroll and human resources professionals when considering a move overseas is determining different employment frameworks and costs, an expert in international expansion said Sept 21.

“Through hidden costs that you don’t expect and penalties for doing things wrong, the process is always more cumbersome than expected,” said Michael Butler, a Radius Worldwide sales representative who provides support to clients with overseas operations.

In the 1976 film “All the President’s Men,” about the 1970s Watergate scandal during the Nixon administration, Butler said the character Deep Throat gave this advice to a Washington Post reporter: Follow the money.  

“What does this have to do with payroll? Well, follow the tax money,” Butler said Sept. 21 at the American Payroll Association’s fall forum in Las Vegas.

Governments are starting to follow the money directly to U.S. parent companies, Butler said. Employers should remain compliant and stay on top of regulatory and legal changes, he said.

Expanding operations overseas presents employers with a number of choices, Butler said. Establishing a representative office is one of the easiest ways to set up an outpost because it allows the company to have a minimal presence. In this type of model, however, employees may not engage in sales or contractual matters, he said.

Employers also may choose to set up a branch office, or an extension of a parent company, that would serve a certain area, Butler said. Under this arrangement, employees may engage in core activities and sales operations, but the branch office would not be a separate legal entity and the foreign parent company would be subject to liability, he said. 

Another option is to establish a separate legal entity for engaging in business overseas. This arrangement, known as a subsidiary, provides a layer of protection between the interests of the parent company and the on-the-ground entity, Butler said.

The company structure would help determine the employment brand, speed of hire, employee benefits and whether a permanent establishment was created, Butler said. This type of structure also would help determine the costs associated with opening an overseas operation, he said.

There are many costs associated with international expatriate assignments, including social taxes and administrative expenses, Butler said. In France, for example, employer contributions for social security are 44 percent, compared with a typical employer contribution of 10 percent in many other countries, he said.

Additionally, some countries cost more for companies to enter. In Mexico, employees are entitled to 10 percent of a company’s gross profit. Workers’ compensation is mandatory in Australia, the U.K. and Germany, and Argentina requires employers to contribute toward a national life insurance plan, Butler said.

Employers need to budget for customary benefits, such as supplemental health insurance, commuting allowances, lunch vouchers and bonus months, Butler said. Other overseas costs include termination payments and employee absences, he said.

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