Hiring Local Personnel in Host Country
Where the University relies on local employees who are based outside the United States to assist in research or academic programs, the University typically must comply with local human resources and payroll rules and regulations. These requirements vary from country to country and must be reviewed on a case-by-case basis.
Failure to comply with local laws and regulations can have severe consequences in the form of tax penalties, fines, reputational damage, litigation by local employees, and even ejection from the host country.
In addition, individuals based in the U.S. or other countries who travel abroad for even relatively short durations may trigger local income tax filing requirements or social tax obligations in the overseas host country. Without appropriate advance arrangements, overseas activities may even subject the University itself to taxation in the host country.
Here, you will find some key issues that must be addressed before undertaking a program that involves working overseas by either Columbia or locally-based faculty and staff.
The goal is to enable you to spot certain key issues, so that you can reach out to appropriate University resources and receive the timely assistance needed to help ensure the success of your initiative.
With guidance from central administration (in this case the Office of the General Counsel (OGC), the Office of the Controller, and Human Resources), University departments should assess employment laws of the host country and the planned tasks for staff, and anticipate how staffing needs may change during the planned operational period.
Throughout this process, it could be helpful to refer to the What to Ask a Local Expert - Human Resources and Taxes tool.
Some operations may need to use one or more options at different stages of implementation, including:
- Arranging for U.S. faculty and personnel to work abroad and determining the appropriate benefits' package;
- Hiring local personnel in the host country;
- Other alternatives.
Related Article: How a US University Can Employ Faculty, Researchers, Administrators and Foreign Locals at an Overseas Program. by Donald C. Dowling, Jr., White & Case
Columbia departments may wish to appoint and directly employ individuals based outside the U.S. (to work either in their home country or another country). This requires a careful review of the host country’s labor and tax laws and practices, and a customized plan for how employer obligations will be met. Issues to consider include:
- Does the host country require that employment arrangements be documented in formal agreements that comply with local laws? Are employees entitled to benefits not available through Columbia?
- Does the host country require that individuals be employed through a local employer registered with authorities in that country? If so, how will this requirement be met without exposing Columbia to overseas tax, regulatory, and legal regimes? Does CU already have an entity operating in that country?
- Is the University prepared to meet any local customs and regulations that protect employees? For example, are employees protected against termination without cause? How much notice and what severance payments are required? (The U.S. concept of “at will” employment generally does not apply overseas.)
- How will the University comply with local employer obligations, such as tax registrations, withholdings, retirement, social benefit, and other benefits required under applicable law?
- Does Columbia have any special exemptions or arrangements with local authorities granting tax and other exemptions? Are there tax and other treaties between the U.S. and the overseas country which may provide relief from certain employer obligations?
- Advantages: The University retains oversight of its research and academic activities, and can have reasonable confidence in the qualifications and performance of its employees.
- Disadvantages: Compliance with host-country regulatory and tax requirements can be complex and expensive to meet. Appropriate programmatic oversight of activities from a distance can be challenging.
This type of arrangement is not risk-free for Columbia because employment requirements can be defined differently by country; risks would need to be evaluated in light of the particular circumstances and local law. For this reason, these types of arrangements should be made with the assistance of central administration; in this case, units should involve the Office of the General Counsel, Human Resources, and the Office of the Controller.
When direct hires are not a feasible option for the needs of the international operation, with guidance from central administration [in this case the Office of the General Counsel (OGC), the Office of the Controller, and Human Resources], University departments should consider other alternatives.
Partnering with an Established Organization in the Host Country
Working with a local partner who in turn employs local staff, and in some cases U.S. or foreign citizens, can be much simpler than hiring staff directly. Through this arrangement, the staff become employees of the local organization and the administrative activities associated with their employment are the responsibility of that local organization. Partnering with a local entity is usually the least expensive and most efficient way to engage staff for any extended period of time.
For example, Columbia may be working in a research collaboration with another university located in a host country outside the United States, and requires surveying and technical assistance from professionals based in that country. Or Columbia may be working with another university to conduct a series of workshops for local communities, and needs to engage instructors in the region.
One approach would be for the partner university based in the host country to hire (or engage as independent contractors) the professionals and staff based in its region. That local university would be the employer and responsible for all employer obligations. Note, however, that these individuals would report and take direction from the other university, as a requirement of their employment. The details of how the institutions would work together – and the duties of the assigned staff –- would be the subject of a contract between Columbia and the host university (see Launch International Activities for additional details) .
- Advantages: Columbia is not responsible for registrations, local tax and other payroll withholdings, social security (or similar) contributions, and other employer obligations under the labor laws of the host country.
- Disadvantages: Columbia has less control and oversight over the employees. Also, it may be less appealing to prospective employees and faculty if they are hired by a collaborator instead of Columbia University.
This type of arrangement is not risk-free for Columbia, and depending on the particular circumstances, Columbia could find itself treated as a joint employer of the individuals, with attendant employer responsibilities (particularly if there is a dispute with the individual). For this reason, these types of arrangements should be made with the assistance of central administration; in this case, units should involve the Office of the General Counsel, Human Resources and the Office of the Controller.
Engaging Independent Contractors
It is sometimes appropriate to engage local resources in the host country as independent contractors rather than hiring them as employees. Independent contractors may include consultants, researchers, translators, drivers, and other resources.
Enlisting the services of an independent contractor often (but not always) reduces the administrative efforts associated with payroll and human resources overseas. This type of arrangement is most often appropriate when a project is limited in length and scope. Contractors can be paid a fixed rate per project, on a monthly or weekly schedule, or for reported hours worked.
In most countries, however, a worker is assumed to be an employee unless he or she qualifies as an independent contractor by meeting certain criteria. If tax authorities in the host country determine that a person identified as an independent contractor should actually be treated as an employee of the University, Columbia could be exposed retroactively to numerous employer obligations, including social security, severance and vacation pay, and other benefits – as well as penalties and interest. The financial penalties can be significant. In addition, if the relationship with the contractor sours and the contractor arrangement is terminated, the individual might bring legal action in the country, claiming that Columbia was in fact an employer and failed to meet its employer obligations.
The criteria for appropriate treatment as an independent contractor versus an employee vary from country to country, but the following factors are usually important:
- How much does the University control the day-to-day working conditions, such as how, when and where the work is done? The more control the University maintains, the more likely it will be deemed an employer.
Positive answers to the following questions normally support the status of independent contractor:
- Does the contractor routinely do similar work for other clients?
- Does the contractor use its own office and equipment and retain financial responsibility for its own routine business expenses?
- Does the contractor receive payment based solely on services rendered (e.g. no vacation pay)?
- Does the work have a definite end date or completion criteria?
Some countries require independent contractors to register as businesses with tax and other authorities, which can be a burden for an individual. The contractor is responsible for meeting all other regulatory and tax requirements as are routine for a business in the host country. Plus required levels of prof of liability insurance.
When working with an independent contractor outside the United States, it is important to plan for the impact of any taxes that the contractor might be required to collect from Columbia for its services, including value-added tax (VAT). Note that a few countries apply certain employment obligations (e.g. statutory vacation or tax withholding) and registration requirements even to those who engage independent contractors.
- Advantages: Columbia typically is not responsible for registrations, local tax and other payroll withholdings, social security (or similar) contributions, and other employer obligations under the labor laws of the host country.
- Disadvantages: Columbia has less control and oversight over the individuals, since they are not to be employees. Columbia faces potential liability if tax authorities challenge the treatment of the resources as independent contractors. Also, it may be impractical to recruit professional researchers and staff without a University appointment.
This type of arrangement is not risk-free for Columbia because "independent contractors" can be defined differently by country, so risks would need to be evaluated in light of the particular circumstances and local law. For this reason, these types of arrangements should be made with the assistance of central administration; in this case, units should involve the Office of the General Counsel, Human Resources and the Office of the Controller.
Contracting with a PEO Provider
In some countries, a Professional Employer Organization (PEO) can provide employment services, including Human Resources (HR) and payroll services, in much the same way as a temporary staffing agency. Contracting with a PEO provider can be an alternative to partnering with a local institution or establishing a foreign payroll, and in some cases, it can allow for limited employment without triggering registration requirements.
Under this approach, the individuals are employed by the PEO, which in turn has service commitments to Columbia for the project. The University typically pays the PEO an administrative fee in addition to the salary for the employee. The PEO is responsible for all employment law and tax compliance and reporting obligations. The PEO enters into an agreement with Columbia to perform project tasks, with the individuals identified as key resources that must remain assigned to the contract.
Advantages: Columbia typically is not responsible for registrations, local tax and other payroll withholdings, social security (or similar) contributions, and other employer obligations under the labor laws of the host country.
Disadvantages: Columbia has less control and oversight over the individuals. Columbia pays fees to the agency for its services. Also, it may be impractical to recruit professional researchers and staff without a University appointment.
This type of arrangement is not risk-free for Columbia, especially of the PEO provider is not well known to the unit or the University. In these cases, units would be required to thoroughly review and vet the PEO provider.
Refer to the Launch International Activities for further details.
These types of arrangements should be made with the assistance of central administration; in this case, units should involve the Office of the General Counsel, Human Resources and the Office of the Controller.
Forms and Documents
- How a US University Can Employ Faculty, Researchers, Administrators and Foreign Locals at an Overseas Program. by Donald C. Dowling, Jr., White & Case
- What to Ask a Local Expert - Human Resources and Taxes