New law for sponsors of expatriate employees about to commence

Analysis

New law for sponsors of expatriate employees about to commence

Employers who sponsor or intend to sponsor expatriate employees at their workplaces will need to review their contracts of employment as well as the procedures that cover issues such as termination of employment and salary packaging.

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Source:Mike Toten, HR writer/consultant

 

Employers who sponsor or intend to sponsor expatriate employees at their workplaces will need to review their contracts of employment as well as the procedures that cover issues such as termination of employment and salary packaging.

The need to do so arises from the imminent commencement of the Migration Legislation Amendment (Sponsorship Measures) Act 2003.

The Act was passed by Federal Parliament on 11 September, 2003. It was originally expected to commence on 1 November 2003, but commencement is now likely to be delayed - possibly to 1 December or even until early 2004. Regulations to support the Act will be required, and the full detail of the new arrangements will not be known until the Regulations are Gazetted. The type of employee covered is one who has a 457 visa, known as the 'Business: Long Stay' visa.

The implications of the new Act were explained by Katie Malyon, Partner with Australian Business Lawyers, and Daniel Biancardi, Manager with BDO Chartered Accountants, at a seminar conducted by Australian Business Limited in Sydney last week.

The basic intent of the Act is to codify the obligations of employers who sponsor expatriate employees by incorporating them into either the Act or Regulations, and provide sanctions for non-compliance with the provisions.

Although the level of compliance with current provisions was found by monitoring to be relatively high, the Department of Immigration and Multicultural and Indigenous Affairs (DIMIA) also received legal advice that the current sanctions for breaches of employers’ obligations were unenforceable. Although some visas have been cancelled, no action to cancel a sponsorship has been successful. Nor has anyone successfully sued for recovery of any debts owing, such as unpaid medical costs.

The obligations of an employer who sponsors an employee under a 457 visa are as follows:

  • financial - covers taxation, medical/health insurance, repatriation costs (even if the employee voluntarily resigns from the job);
  • workplace - compliance with awards and legislation, holding of licences, etc where required;
  • monitoring - the employer must inform DIMIA of any changes (eg if the employee resigns, is dismissed or leaves Australia), and must comply with any DIMIA audits; and
  • training - DIMIA expects at least about 2% of payroll cost to be spent on providing training for a sponsored employee.

The visa entitles an employee to stay in Australia for up to four years. Note that there are obligations to the employee’s family members as well as the employee.

It is also possible that an employer’s obligations may continue after termination of employment, particularly if the employee has not obtained a new visa. For this reason, Malyon advises documenting the termination process very thoroughly, and requiring the employee to sign a deed of release after the parties’ obligations have been carefully clarified.

The Migration Legislation Amendment (Sponsorship Measures Act) and supporting Regulations will establish a legislative framework for sponsorship of potentially all temporary visas. Full details will be prescribed in the Regulations on a visa-by-visa basis, and sponsorship obligations where the sponsor is a partnership or unincorporated association will be clarified. The Act will also limit reviews of refused sponsorship visa applications to applicants with an approved sponsor, or a sponsor whose status is subject to a pending review by the Migration Review Tribunal.

Other issues to be clarified will be:

  • the duration of each obligation;
  • the requirement regarding payment of remuneration to at least the level specified in the original nomination;
  • liability for the costs of location, detention and removal of persons where required; and
  • liability for costs associated with applications for Protection Visas.

The Act’s proposed sanctions for breaching obligations are:

  • cancellation of sponsorship and the 457 visa;
  • barring the employer from making future sponsorship and nomination applications for up to five years; and
  • requiring the employer to pay a security bond in 'borderline' cases (for example start-up companies or employers with a previous history of breaches). The bond may be forfeited if there are subsequent breaches.

What sponsors should do

Malyon advised employers to review the contracts of employment that cover expatriate sponsored employees, firstly to ensure that they comply with all the provisions of the Act and Regulations, but also to ensure that the termination of employment procedures are clearly set out and understood by both parties.

In particular, the provisions for notice or payment in lieu of it should be more generous than the statutory minima in most cases, as a sponsored employee who is dismissed is likely to be in a more difficult situation (in terms of finding other employment, arranging another visa or meeting expenses such as relocation) than a 'local' employee, and a tribunal may take these circumstances into account, such as under the NSW and Queensland 'unfair contracts' provisions. Alternatively, the contract can provide for a period of 'gardening leave'. The notice period should also take the visa status into account.

A sponsored employee can only work for the sponsoring employer, so the contract should have a provision that clarifies this. For example, it could provide that the employee may only undertake other employment with the sponsoring employer’s permission.

If the employee resigns from the job, he/she has breached the sponsorship conditions. The employer remains responsible, however, for repatriation of the employee and his/her family if the employee has not obtained another visa. Recommended practice is for the employer to provide one way non-refundable, non-transferable air tickets and/or an ex gratia payment, combined with a deed of release. The employer should notify DIMIA as soon as the employee leaves. It should also immediately notify DIMIA of any changes to the information provided on the sponsorship application, and any changes that affect the employer’s capacity to undertake its sponsorship obligations.

The contract should refer to the employee’s health insurance obligations. It should set out all obligations to the employee’s family members, such as payment of education expenses and assistance with job seeking.

Note that separate legislation has been mooted that would make employers liable for criminal sanctions if they failed to check prospective employees’ rights to work in Australia and employed 'illegal' workers after 30 November 2000. However, no Bill to implement these provisions has yet been introduced, and a system of recorded administrative warnings continues to operate.

Expatriate taxation issues

Biancardi emphasised that the following issues need to be resolved with sponsored expatriate employees:

  • determining the employee’s country of 'tax residence' - which will take into account issues such as home ownership, intent to stay, etc;
  • foreign tax credits;
  • double-tax agreements;
  • fringe benefits tax and salary packaging issues - provision of a living-away-from-home allowance is a point requiring particular care;
  • capital gains tax;
  • superannuation contributions; and
  • Medicare charges.

As many of these issues are complex, seeking expert advice before proceeding is recommended.

Biancardi noted that the Federal Government has announced its intention to introduce legislation providing for various tax concessions for people entering Australia on temporary visas who are resident for less than four years. The aim of this measure is to facilitate the entry of people with specialised skills into Australia. So far, however, no Bill or draft Bill has appeared. 

For more information go to the AB Lawyers website.

  

 

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