Defining an expatriation package for an employee who is offered an assignment abroad for several years requires a clever balancing act for HR.
The company should offer material conditions including cash remuneration (fixed salary and bonuses) as well as benefits in kind and motivating services to meet the employee’s needs while keeping the cost to the employer under control.
It is not uncommon for the candidate for international mobility to present its list to Santa Clause after having made a small survey of its network (family, friends, etc.) who have had expatriation experience.
Therefore, human resources will have to follow a structured approach to limit endless negotiations, Diva’s demands and ensure fairness among employees.
1/ First, the company will detail the settlement package it wishes to offer the future expatriate. It may include :
- A “look & see trip“: the employee and his/her spouse, if there is one, may spend 3 to 5 days in the host country in order to meet the future manager and the new team to validate the content of the assignment and to get to know the new living environment before confirming acceptance of the assignment. During this trip, taken during working hours, the employer will finance the flight, hotel, catering and taxi costs.
- Immigration formalities: fees for the immigration consultant and sworn translator if necessary
- Medical check-up for the whole family in a specialised center
- Temporary accommodation in the country of departure (for a maximum of one week) and/or in the host country for up to one month until the move arrives
- Language and/or intercultural trainings as required
- The fees of the relocation agency that will accompany the employee in his or her search for accommodation, the analysis of the lease, the opening of the bank account, the possible enrolment of the children in school
- Real estate agency fees or even the advance on the deposit
- The move
- The tax lawyer’s fees for the tax interviews on departure from the country of origin and on arrival in the host country
- An installation premium
2/ In a second step, the company will define the type of anchor allowing the calculation of the international remuneration. There are, in fact, 4 methods of calculating cash compensation:
- Home country anchoring or balance sheet (U method): the principle is to compensate for what needs to be compensated in order to maintain the purchasing power of the employee regardless of the country of assignment.
| The employer starts from the gross salary that the employee would have received in the country of departure for the same level of job as that held in the host country. |
| – From this salary are deducted the social security contributions that the employee would have paid if he or she had worked in the country of departure as well as the tax that would have been paid in that country. |
| + Some companies add the amount of family allowances if the employee no longer receives them on expatriation. |
| = This provides a net salary to be guaranteed in the host country. |
| + Then the employer will add a cost-of-living allowance when life is more expensive in the host city than in the home city.
* In order to be fully objective, companies purchase cost of living indices from companies specialized in studying living standards around the world. |
| + Sometimes the living conditions in the country of assignment are harsher (climate, political and economic stability, difficulty of the local language, lack of hospital / school / leisure / public service facilities, …) then the employee may benefit from a hardship allowance. |
| ð To the net social and fiscal salary to be guaranteed in the host country plus the cost-of-living allowance and/or hardship allowance, if applicable, will be added the employee’s social security charges and the host country tax to determine the gross expatriation salary. |
- Host country anchoring: the employee will receive the remuneration (fixed and bonus) that would be paid to a local employee for the same position, whatever the salary level in the country of departure.
This method of remuneration is simple to administer. It does not require the purchase of cost-of-living indices but is only applicable in so-called “compatible” countries, i.e. with high and equivalent purchasing power (i.e. mainly Western Europe, USA, Canada, Japan and Australia).
- Hybrid anchoring “the best of solution“: the employer calculates the 2 previous remuneration methods and then awards the highest net solution between the home and host country anchors.
- The international grid: the employer lists all the positions in the company and determines a net salary for each of them, regardless of the country of employment, then corrects this net salary for any difference in the cost of living and adds the taxes of the host country to determine the gross amount to be paid. Aligned with high wage countries, this method is not widely used as it is quite costly.
Concerning cash remuneration, the employer will have to define how to manage the variable part, whether it is individual (bonus) or collective (profit-sharing).
It will develop the salary increase process for both the salary actually received by the employee and the reference salary allowing the return to the salary grid of the country of departure.
Finally, it will detail how exchange rate fluctuations will be managed.
3/ Third step, the employer will define the accompanying measures:
- Housing: 100% paid by the employer or with employee participation
- Schooling: what about the costs of schooling (school fees, uniforms, canteen, school books, school buses, etc.)? costs for children who remain in their country of origin in sport studies, for example.
- Home leaves (= annual holiday trips): number of trips allowed per year or travel budget, economy or business class, …
- Tax assistance for the tax return in the host country or even in the country of departure
- Support for the spouse: help in finding a job abroad, training, pension contributions, etc.
- Furniture storage
- Health and safety repatriation insurance + personal liability
Return package
- Resettlement allowance
- Return journey
- Moving
- Temporary accommodation
- …
For some years now, we have seen the emergence of the “core flex benefits package” following the example of the Nordic countries, in the USA, Canada and Northern Europe.
The employee on a mission abroad benefits from a common base and a controlled flexibility, which is very popular with the younger generation.
All expatriates receive a complete installation package in order to start working quickly in the host country. He/she receives a host country salary in compatible countries or a mixed salary in other countries. In addition, there is a good pension via an international pension fund and private health cover, as well as tax assistance for tax declarations in the country where the activity takes place.
For all other support measures, the employee benefits from a system called “cafeteria plan“. They have an annual budget to use from a list of benefits in kind according to their needs and personal situation: company car or second car for the spouse, regular returns to the country of origin, membership of a local golf club, more pension contributions, etc.
Unspent amounts cannot be paid in cash to the employee.
Given the complexity of the subject, it is in the company’s interest to build a structured International Mobility policy as soon as it has a significant number of expatriate employees, to avoid time-consuming case-by-case management and the creation of precedents.
Above a certain volume, it is possible to implement a segmented policy, in other words a “drawer” policy with specific packages that are more or less generous depending on the profile of the employees (e.g. emerging talents or more comfortable packages for inter-continental mobility vs. mobility within the continental world). However, it is important not to use discriminatory criteria (age, nationality, etc.) and not to multiply the policies at the risk of deviating from their objective.
When the company reviews the terms of the packages, it needs to think about how to manage the transition for in-service situations.
Finally, everything should be clearly defined in the International Mobility Charter and in the expatriation contracts. Isn’t contracting the right thing to do?
