Global Mobility: The Interaction of assignment guideline and assignment contract
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The assignment contract serves as the legal foundation for international employee assignments and is essential to clearly define both the company's conditions and the expectations of the assigned employee. In chapters 1 and 2, we addressed the necessity and key aspects of assignment guidelines. This chapter of our series focuses on the core elements of an assignment contract and explores the various options companies have in its formulation.
1. Structure of an Assignment Contract
In practice, two main approaches to designing assignment contracts have emerged over the years. Some companies prefer to suspend the employment contract and regulate all essential aspects of the assignment solely within the assignment contract. Others maintain the employment contract unchanged and use the assignment contract as a supplement to it.
Both approaches generally achieve the goal of ensuring legal certainty for the assignment. However, it is crucial that the contract clearly indicates whether the employment contract is suspended during the assignment or remains fully effective, with the assignment contract serving merely as an addendum.
The pros and cons of these two approaches lie in the details, which cannot be fully explored here.
2. Components of an Assignment Contract
Assignment contracts can vary significantly in length and level of detail, depending on the company's regulatory needs and philosophy. However, the following elements should be included in every assignment contract:
- Assignment Location and Duration: Precisely specifying the location and expected duration of the assignment provides clarity. Including a clause for extensions or early termination allows flexibility to adapt to unforeseen developments.
- Compensation: Beyond defining base salary and bonuses, the contract should specify whether it is a net or gross salary agreement, the tax equalization framework (e.g., Tax Protection vs. Tax Equalization), and the applicable exchange rate.
- Additional Benefits: In addition to base salary, the contract should detail assignment allowances (e.g., for housing, relocation, or children's school fees) and payments in case of a regular or early return. A detailed breakdown minimizes future misunderstandings.
- Social Security Obligations: The contract should clarify how the employee's social security coverage will be handled. In most cases, continued coverage in the home country is preferred to avoid switching social security systems.
- Income Taxes: Every assignment contract should include specific provisions on how income taxes will be managed during the assignment. Key terms include balance sheet calculations, net compensation, tax equalization, tax protection, or hypothetical tax deductions.
- Employment Law: The contract should specify the choice of law and address termination modalities during the assignment, holiday and leave entitlements as well as standard working hours.
Conclusion
SERIES: The Interaction of assignment guideline and assignment contract
Chapter 2: Assignment guidelines: Key aspects and challenges for companies
Chapter 3: Options for structuring the assignment agreement
Chapter 4: Differentiation between assignment guideline and assignment agreement
Chapter 5: Development of a new assignment guidelines in the company
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.
