As companies continue to expand and grow globally, so do the needs of their international assignments. The traditional “one size fits all” home country balance sheet based policy has been the backbone of long-term assignments for many years. However this policy may no longer suit the variety of new assignments types emerging. If you have determined that you have assignment opportunities that require alternative policy solutions, might a local compensation-based approach, ‘local plus’, or similar alternatives, be an option for you?
The most notable difference between a Local package or Local Plus and a traditional approach, is that the foundation of Local and Local Plus is host location based compensation. Rather than the assignee’s salary and other compensation elements remaining in line with home country salary levels and being paid in home country currency on home country payroll, the assignee transitions to the compensation approach of the host site.
One advantage of this transition is that the assignee’s compensation is in line with both host location peers and assignees from other countries, eliminating the perception that assignees are paid better than local employees. From a cost standpoint, there may be a gain or a loss – or salary change may be neutral – depending on the home and host locations.
Payment of salary, benefits and other compensation elements in line with host location practices is referred to as a Local Package. Employees do not receive any ongoing benefits during the assignment based on their status as temporary and/or foreign workers. This is why it is most commonly used for international transfers, where the relocation is considered permanent.
There are two scenarios where full transition to local status may be workable for a temporary assignment:
- Compensation and living conditions in the home and host locations are very similar and the assignee does not have any continuing obligations at home
- Employees are from very low wage countries on assignment in very high wage countries
Otherwise, a full transition to local status is rarely practical for temporary assignees and companies address this through the use of the Local Plus approach, where the employee transitions to host compensation but also receives additional benefits traditionally associated with the home country balance sheet approach.
The most common “Plus” element is host location housing assistance . Many temporary assignees retain home country housing responsibilities since it may not make financial sense to sell a home if the employee will be returning within one-to-three years. A range of policy elements that provide additional assistance to assignees on an ongoing basis can be offered. These additional elements include: Settling in assistance, local transportation, dependent education, home leave, emergency leave.
Local-based assignment compensation works best when assignments are between locations with similar pay levels and cost of living or where the assignment location pay levels are significantly higher than in the home location. This is why Local Plus is popular in the Asia Pacific region, where Local Plus assignments between locations such as Singapore and Hong Kong – both high wage and with similar living costs – are the norm.
Expat Lite is an approach that starts with the same premise as the traditional home country balance sheet approach on issues of compensation and tax. Typically, assignees receive home country based compensation and tax equalization assistance, while the other elements typically provided to maintain home country equivalence may be reduced or eliminated. These may include: housing assistance, cost of living allowance, dependent education, quality of life allowances, transportation.
Typically these lower cost approaches work best for assignments where there is a clear benefit for the employee to take the assignment.
Five tips when considering a Local, Local Plus or Expat Lite policy approach:
- Location, location, location: Plan to use pure local packages for temporary assignments in locations where the home and host compensation, and living conditions, are similar and the employee does not have many continuing home country obligations, or the employee is moving from a low-to-high wage location
- Determine what should be Plus: For Local Plus packages decide which “Plus” elements will be on-going throughout the assignment and which elements will be one-time relocation support at the start or end of the assignment
- Eligibility matters: Clarify eligibility for the different assignment types you offer and provide high eligibility walls to eliminate misuse. If you have some assignees on the traditional balance sheet approach and others on an Expat Lite or Local Plus approach in the same locations, the justification needs to be clear. Avoid making “country of origin” the determining factor in eligibility for a low cost approach.
- Make compliance core: Immigration, tax benefits and security briefings should always be core policy elements for companies that want to avoid risk and ensure compliance
- Prepare for the roll out: When a company begins to use a Local, Local Plus or Expat Lite policy it is critical to get senior level buy-in first, develop a strong communication plan, provide guidelines and training to those administering the new policy and to have a clear justification for the new approach.