Expatriation is the best way to reduce the gaps between headquarters and subsidiaries. The expatriate therefore plays an essential intermediary role in standardizing the culture, values and objectives of the company.
However, expatriation contracts are expensive for companies … Determining the cost allows you to validate the budget with all the parties concerned. The choice of the company will be on the most effective solution in social and fiscal matters in order to ensure the success of the expatriation, while preserving the economic health of the company. Knowing that a seconded or expatriate employee can cost 2 to 3 times the price of a “normal” employee, you must then determine the cost of the expatriation of his employee.
Expatriation entails a high cost
Expatriation is a very expensive process for parent companies. In addition to the salary differential, it must take into account the costs of transport, moving, accommodation, personal coaching, technical and language training, etc. However, multinational companies have various means at their disposal to significantly reduce this high cost. ICT (Information and Communication Technologies) is an effective way to reduce the cost of an expatriate for a parent company. Several solutions are used, we find there:
- Formal mechanisms such as reporting and virtual meetings
- Informal mechanisms that include meetings during business events and exchanges between employees.
What are the necessary elements in the cost of an expatriation?
These elements help determine the cost of expatriation for a business. We find there:
- Gross remuneration
- Theoretical social charges
- Theoretical income tax
- Cost of living adjustment
- Expatriation grant
- Equalized net salary
- Cost of accommodation abroad
- The car
The choice of the package by the employee
Once the decision to expatriate is made, the company will have to offer a “package” to its employee. There are 3 types of packages:
The “Home Based” package
The expatriate maintains a contractual link with his company. This type of package allows the employee to retain the same purchasing power as well as their savings capacities. This is the most widely used package by businesses. The employee’s compensation will then be weighted on a set of criteria.
The “Host Based” package
The employee has the power to maintain or not to maintain a contractual relationship with his company. However, the employee can put his contract on hold by simply keeping a return clause. The employee will therefore acquire the remuneration of a position of similar responsibility in his host country. His remuneration will therefore depend on his standard of living in his country of origin and adapted to the host country.
The International Package
The employee does not have an anchor with his country of origin. The employee is generally employed by companies that wish to use an employee of a third party company specializing in expatriation. The advantage of this package is that it offers the possibility for the employee to move from one country to another while keeping a homogeneous reference.
How is the salary of an expatriate calculated?
You must first agree on the employee’s status: whether posted or expatriate. Depending on the status chosen, social protection and pension rights are totally different. Regarding the salary of an expatriate, the gross salary should be at the same level as that in the country of origin. It must take into account the social charges applied in the country of expatriation as well as local taxes.
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 country of origin.
Expatriate salaries are generally higher to encourage employees to accept expatriation. These compensations consist of expatriation allowances or an expatriation allowance … However, most of the time, these advantages remain taxable.
The calculation of the salary in U curve
The U-curve is the ideal tool to help expats. It is based on a methodology widely practiced by International Human Resources departments. Remuneration in the country of origin:
- The gross annual reference salary is used as the basis for determining the equivalent remuneration in the country of expatriation. It corresponds to the remuneration before departure for a job level equivalent to that offered in the country of destination.
- The net salary in pocket, after deduction of taxes and social charges. It is divided between the portion of the salary dedicated to consumption and housing, and the remaining portion of savings.
What is the remuneration in the host country?
- An identical amount of savings is kept during mobility.
- The spending budget is adjusted by a cost of living differential between the city of departure and the city of destination. The weighting can be positive or negative, the prices abroad being able to be higher or lower than in the place of departure.
- The addition of these elements, to which is added a premium for housing, will constitute the net “to be guaranteed” during the mobility.
- Finally, a gross local remuneration is estimated by calculating the taxes and compulsory social contributions in the country of destination.
For the company, the goal is to avoid excessive additional costs associated with the mission abroad. As part of the expatriation of an employee, social cover must be that of the host country.
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