Expatriation is the best way to reduce the gap between headquarters and subsidiaries. The expatriate therefore plays an essential intermediary role in standardizing the company’s culture, values and objectives.
Nevertheless, expatriation contracts are expensive for companies… Determining the cost helps to validate the budget with all parties concerned. The company’s choice will be based on the most effective solution in terms of social and tax issues, to ensure the success of the expatriation, while preserving the company’s economic health. Knowing that a seconded or expatriated employee can cost 2 to 3 times the price of a “normal” employee, you need to determine the cost of expatriating your employee.
Is it expensive to expatriate an employee?
Expatriation is an expensive process for parent companies. In addition to the salary differential, it has to take into account transport, moving and accommodation costs, medical cover abroad, technical and language training… However, multinational companies have various ways of significantly reducing this high cost. ICT (Information and Communication Technology) is an effective way of reducing the cost of an expatriate for a parent company. Several solutions are used, including :
- Formal mechanisms such as reporting and virtual meetings.
- Informal mechanisms, which include meetings at business events and exchanges between employees.
What do I need to know about the cost of expatriation?
These factors help determine the cost to a company of an employee’s expatriation. They include :
- Gross compensation,
- Theoretical payroll taxes,
- Theoretical income tax,
- Cost-of-living adjustment,
- Expatriation bonus,
- Equalized net salary,
- Cost of accommodation abroad,
- The school,
- The car.
Employees and their families may be required to take out international health insurance. Healthcare systems vary widely from country to country. International health insurance guarantees that the employee will have access to quality medical care, even in countries where the local health system is inadequate or expensive. What’s more, some countries require expatriates to be covered by expatriate health insurance. Failure to comply with these regulations may result in fines or expulsion.
To find out more about our medical cover for expatriates, please contact us by e-mail or telephone. You can also get an instant online quote for your international health insurance!
The employee’s choice of package
Once the decision to expatriate has been taken, the company will have to offer a package to its employee. There are 3 types of packages:
The “Home Based” package
Expatriates retain a contractual link with their company. This type of package enables employees to maintain their purchasing power and savings capacity. This is the package most used by companies. The employee’s remuneration will then be weighted on a set of criteria.
The “Host Based” package
Employees have the power to choose whether or not to maintain a contractual relationship with their company. However, the employee can put his or her contract on hold by simply retaining a return clause. The employee will therefore acquire the remuneration of a position of similar responsibility in the host country. His remuneration will therefore depend on his standard of living in his home country, and will be adapted to the host country.
The International Package
The employee has no ties with his or her country of origin. The employee is generally employed by companies wishing to call on the services of an employee from a third-party company specializing in expatriation. The advantage of this package is that it enables the employee to move from one country to another while maintaining a consistent reference.
How is an expatriate’s salary calculated?
You must first agree on the employee’s status: whether seconded or expatriated. Depending on the status you choose, social protection and pension rights are totally different. As far as the expatriate’s salary is concerned, the gross salary must be at the same level as in the country of origin. It must take into account the social charges applied in the country of expatriation as well as local taxation.
A tax equalization clause is often included in an expatriation contract. This clause ensures that the employee sent abroad will not pay more tax abroad than in his home country.
Expatriate salaries are generally higher to encourage employees to accept expatriation. These compensations include expatriation allowances or an expatriation bonus… However, most of the time, these benefits remain taxable.
U-curve salary calculation
The U-curve is the ideal tool to help expatriates. It is based on a methodology widely used by International Human Resources departments. Remuneration in the country of origin :
The reference gross annual salary is used as the basis for determining the equivalent remuneration in the country of expatriation. It corresponds to pre-departure remuneration for a job level equivalent to that offered in the destination country.
Net salary in pocket, after deduction of taxes and social security contributions. It is divided between the portion of the salary earmarked for consumption and housing, and the remaining savings.
What is the remuneration in the host country?
The same amount of savings is maintained during mobility.
The expenditure budget is adjusted by the cost-of-living differential between the departure and destination cities. The weighting can be positive or negative, as prices abroad can be higher or lower than in the place of departure.
The sum of these elements, plus a housing allowance, will constitute the net “guaranteed” salary during mobility.
Finally, a gross local salary is estimated by calculating the taxes and compulsory social contributions in the destination country.
For the company, the aim is to avoid excessive costs associated with the foreign assignment. When an employee is expatriated, social security cover must be provided in the host country. Find the complete guide to having an employee work abroad.
Mondassur, an insurance broker for 20 years, offers you its GoldExpat international expatriate health insurance. Expatriate insurance suitable for anyone living outside their country of nationality and moving abroad. What’s more, GoldExpat expatriate insurance offers a range of packages to suit all budgets.
