Other roadblocks to pay for performance include financial not enough funding of the pool , target setting defining performance parameters and pay equity. Yet when it is done right, pay for performance effectively allocates limited rewards and retains top performers. As such, variable pay has become an increasingly important compensation element in many countries. Participation and eligibility for each type of plan, as well as the level of incentives and average payouts, vary greatly among different companies, industries and countries around the world.
Premiums and allowances are added to the base salary so expatriate employees can maintain their standard of living. Those add-ons are removed when the employee repatriates. Some types of premiums and allowances are as follows:. Global benefits for expatriates can be complicated for HR professionals to navigate, given the myriad national health care and pension systems and the laws governing foreign residents.
See Do we have to offer the same benefits to our employees who work in other countries as to the employees working in the United States? Health care coverage can pose significant challenges for expatriate employees because not all U. For this reason, the practice of providing health care benefits varies greatly among multinational companies. Multinational companies can provide coverage to employees in one of the following ways:.
Regardless of the compensation approach a multinational company chooses to adopt, most companies commonly provide assignees with the same level of Social Security and pension plan benefit coverage, without any interruption in service, as enjoyed by other employees in the home country location.
Some countries require expatriate employees to participate in their social security or other government welfare benefit schemes. In this case, many companies provide for reimbursement of any payments made to the host country's government scheme. Since approximately half of all U. Trailing spouses face many challenges to finding suitable employment in the host country, including language and legal barriers as well as differences in educational, professional or licensing requirements.
Assistance with job searches, visas or work permits, career and educational counseling, and resume writing are just a few examples of the types of assistance a multinational employer can provide spouses or partners of transferring employees. A less common approach is to offer a financial sum to spouses of expatriate employees for any loss of income resulting from the relocation. Other add-ons that are less commonly offered but can significantly ease expatriate package negotiations include cultural competence training, language training and repatriation assistance.
The purpose of these programs is to enhance the knowledge and awareness about the employee's new location and the cultural differences affecting communication, behaviors and viewpoints. Training programs typically last a few days; however, for assignments to more remote or difficult locations, programs may also include security training that lasts for a longer period of time. The length and type of training should be directly related to the perceived level of assignment difficulty or differences in the assignment country.
Employers may conduct training either as an individual program for a single transferring employee and his or her family or as a group program when a number of employees are transferring to the same location within the same general time frame. However, it is advisable when conducting group training to also provide individuals with one-on-one time with the trainer to discuss any specific issues related to the employee's job responsibilities or to address any other more personal concerns or issues.
The inability to communicate can create a sense of vulnerability and loss of control. A basic knowledge of the language empowers expatriate employees to build critical relationships with host country nationals. Some jurisdictions require that employee communications be in the local language. Most companies provide some form of language training for expatriate employees assigned to countries where they are nonnative speakers.
Training program options include the following:. Expatriate pay considerations do not end when the assignment ends. Pay can be a significant factor in making it difficult for a person to repatriate. Often employees returning home realize they made considerably more money with a lower cost of living in the host country; returning to the home country means a cut in pay and standard of living.
If the foreign compensation package is disproportionate, an expatriate can suffer financial issues upon repatriation or reassignment to the home or other foreign country. Expatriate families and employees benefit from repatriation training to help readjust to living in the home country and returning to the original work environment.
The length of the training often depends on the length of the assignment and the ages of the employees' children. See Managing International Assignments. Similarly, if the leading motivator of the expatriate employee is the long-term career aspect, the company needs to provide a challenging assignment upon return to the home office or shortly thereafter. If this is not feasible, communication about future plans for such an assignment and the timing should come from a mentor or a member of the senior management team.
Otherwise, the company may risk losing its entire investment to turnover of returning expatriate employees. Third-country nationals TCNs are employees who are not from the home country or the host country. TCNs have traditionally been technical or professional employees hired for short-term employment and are often considered international freelance employees.
See International assignment management: What are the differences among a local national, an expatriate, a third-country national, and an inpatriate? In the case of TCNs, multinational companies have one of three options regarding compensation:. The option a company chooses depends primarily on how these employees were hired into the organization or how they obtained the international assignment.
The most common practices include the following:. United States citizens and resident aliens are taxed on their worldwide income, whether the person lives inside or outside the United States. Multinational companies take one of four approaches to ensure tax compliance:. See How do we handle income taxes for expatriates? Qualifying U.
In addition, they may also qualify to exclude or deduct certain foreign housing costs. The foreign housing exclusion provides for the amount of housing expenses in excess of U. A foreign tax credit of the amount of foreign tax imposed on overseas earnings can be used to offset the amount of U. A common misconception that contributes to the international tax gap is that this potentially excludable foreign earned income is exempt income not reportable on a U.
In fact, only a qualifying individual with qualifying income may elect to exclude foreign-earned income, and this exclusion applies only if a tax return is filed and the income is reported. See Where do expatriates pay income tax?
Blocked currency, which is foreign income that is not readily convertible into U. Withholding of U. Social Security tax is mandatory if services are performed by a U. An entity is an affiliate if the U. However, employees performing services for an international organization are exempt from FICA, FUTA and federal income tax withholding because services rendered for international organizations do not constitute employment, and remuneration for services rendered to international organizations does not constitute taxable income.
Organizations that qualify as international organizations are those that have been designated as such by the president of the United States. The exemption applies to citizens and residents of the United States as well as to nonresident aliens. See when an employee is on an international assignment, are we required to withhold Social Security tax from his or her wages?
Although foreign tax rules vary significantly by location, local taxing authorities also reserve the right to impose taxes on any income earned by the expatriate employee in the host country. To prevent an expatriate employee from suffering excess taxation of income by both the U. A tax equalization policy is an agreement between the employer and the employee to reduce the employee's wages, for which the employer agrees to assume the obligation for the worldwide tax liabilities of the employee.
Equalization is accomplished by the use of a hypothetical tax. The hypothetical tax is calculated as if the employee had never left the United States, and it represents the employee's normal or expected tax liability for U. Tax equalization is implemented by the use of advances to the employee; proceeds of the advance go to the tax authorities on the employee's behalf.
These advances are settled at year end. The result is deferred compensation to the employee, which the host country does not tax. Under a tax reduction policy, expatriates gain from the differences in income taxes in the United States and the foreign country to which they are assigned, or the compensation of expatriates is adjusted so they experience no loss in income as a result of the net effect of income taxes, both foreign and U. Additionally, the United States government has Totalization Agreements in effect with several countries.
These agreements eliminate dual coverage of employees by both the home and host countries. Depending on where they are moving the company should also consider their duty of care. Save my name, email, and website in this browser for the next time I comment. Log in. Overseas projects often fail when employees and their families are not prepared for life abroad. Janette Hiscock looks at why cultural training and education can set staff up for success. Embarking on an overseas assignment can be hugely exciting for employees — workers and their families get the chance to live and work in a new country, experiencing career progression and a new culture at the same time.
Janette Hiscock Janette Hiscock is CEO of global solutions, Europe, at UnitedHealthcare Global, a company that offers health, wellbeing, security and assistance for employers with staff overseas. Workers afraid to discuss pay because of secrecy clauses. Stephen Cryne 15 Jan - pm Good article.
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