Commuter assignments involve careful planning when it comes to issues such as work permits, tax and social security. Simon Richardson explains.

Work permits: commuter assignments are just business trips, right? Not always. A senior executive works on a proposal in Switzerland for a week that evolves into regular work, but forgets to mention this development to his HR contact. He spends two days a week there on an ongoing basis for the next year or so, charging his time to the Swiss office. But surely this is still part of an extended business trip? It’s an easy trap to fall into, but of course the senior executive is no longer talking about doing the business – he’s actually doing the job in Switzerland and, in fact, should have had a work permit after his first week.

Tax: it’s bad enough having to do one tax return each year, but an international commuter has to do two to ensure tax is paid in the right country. Long-term assignees tend to become non-resident for tax in the home country and only pay tax in the host. Short-term assignees tend not to spend long enough in the host country to become taxable there anyway. Commuter assignees tend to become taxable in both home and host country because they are living in the home country but working in the host country. So make sure your commuter assignee is prepared and willing to invest the extra time to double his tax homework and keep ongoing data necessary for the end of year returns. You may even want to give him a day off so he has no excuse not to do the paper work!

Many managers like to take the view that commuter assignees never spend long enough in the host country to be taxable there. But those who spend more than four nights of the week in the host country will find they are taxable there within a year – as well as remaining tax-resident in their home country. A commuter assignee can be taxable from day one if his costs are charged to a host country. Increasingly, European countries are adopting the ‘economic employer’ rule where the host country can claim taxing rights from Day One of an assignment if the employee is seen to be a ‘de facto’ employee of the host country. The application of this rule varies in each country, and local tax advice should be obtained at an early stage.

Commuter assignees will almost always be ‘tax equalized’, which means the employee continues to pay the same amount of tax as in the home country, and the employer pays host-country tax. The main challenge is to design a tax equalization system that recoups the cost of host country tax through the home country tax return under Double Tax Treaties. This will inevitably involve use of tax advisors on an ongoing basis throughout the assignment, and their costs need to be factored into the budget.

It is easier to pay the tax in some countries than others – for example Germany and the UK require income tax to be paid up front whereas other countries such as Belgium and France allow tax residents to pay in the year following the year liability, giving the business more time to obtain a tax credit in the home-country tax return. Sending a commuter assignee between UK and Germany where income tax is required in both countries is probably the most demanding European country combination of all and may require a split payroll.

Social Security: most HR departments are familiar with applying for an exemption certificate (E101) to the host country’s social security through Article 14, which provides an exemption due to the short-term nature of an assignment and Article 17, which allows home-country social security continuation for longer assignments because of an assignee’s key skills. However, commuters are more likely to be eligible for more complex E101s.

Subsistence Allowances: providing the same subsistence allowance for all commuter assignees may not be appropriate if there are a number of commuters with different base countries working in the same host country. Paying a locally-agreed, fixed daily allowance may be sufficient for an assignee from a country with high salaries such as the US or the UK, but may not be sufficient for an assignee from a country with low salaries, such as Poland or Slovakia. In this case, it may be necessary to pay an additional allowance, based on the cost-of-living differential between the home and host country, as a taxable salary supplement.

Benefits: finally, the effect of commuter assignments on benefits should not be overlooked. Commuter assignees may fall ill in the host location, in which case having international medical insurance should ensure that they can receive any treatment there. Company travel insurance will only cover emergency treatment and repatriation to the home country. In addition, always see if the social security exemption form provides an enhanced local medical cover (usually only possible if Article 17 is applicable). In all cases, make sure your commuters have the new European Health Insurance card, which came into effect in January of this year and provides emergency state health care around the EC.

In conclusion, you should consider writing a commuter assignment policy so that you are prepared for the particular challenges presented by this ever-increasing trend in global mobility. You may also want to consider separate policies for short- and long-term commuter assignments, and even a third policy for permanent commuters. All you then have to do is to identify your commuters – there may be more of them than you thought…