Negotiating your expat contract

Accepting an assignment abroad is a big step, and it is not just because of the moving costs and hassle involved. Your lifestyle is going to change drastically. You may not enjoy the company of your loved ones and some of the material comforts in your home country anymore. Depending on the country you are heading to, settling in may even be a challenge. An expat package provides fair remuneration and compensation for what you have to go through, and to aid you in the transition. There are three components that you should look at when evaluating the offer given to you.

Salary

Different companies have a different way of putting together the expat package but the fundamental approaches are home-based and host-based.

Commonly named as a balance sheet approach, the home-based method looks at the standard of living in your home country and ensures you are compensated duly to enjoy the same in the host country. There will be no net gain or loss.

On the contrary, the host country method pays the expat according to the local market rate. This approach will only be more advantageous for the expat if the host country is more economically developed.

Meanwhile, some Human Resource (HR) teams implement an international compensation structure where all assignees receive the same expat package regardless of where they are from or going to. There are also those that uses a hybrid approach, where they incorporate international benchmarks compensate certain aspects based on home and host countries respectively.

Nevertheless, you should never look at the face value even with that out of the way. Here are some of the nitty-gritty, which can have an exponential effect, that you should take note.

Tax equalisation

Tax liability varies with different countries and the tax equalisation measure ensures that you will not have to pay any less or more than in your home country. To put it in context, if you are subjected to higher taxes and you are receiving the same salary, you will end up earning less. Usually in a company where tax equalisation is done, a part of the expat’s salary will be withheld by the HR as “tax”. It will be the same amount as what is usually deductible at the expat’s home country. In turn, the HR will pay the actual tax at the host country for the expat. This will also take the expat off the paperwork.

Cost of living allowance (COLA)

A cash allowance is sometimes issued to the assignee if the cost of living is higher in the host country. The measure ensures the relevance of the offer by maintaining assignees’ purchasing power in the event of inflation. The COLA is usually a percentage, determined by the cost-of-living index in the host country, of the assignee’s spendable income in the home country.

Currency exposure

It is important to know what currency you will be paid in, and whether it is at the risk of exchange rate fluctuations. It is inconsequential if your entire salary is kept for use only in the host country. This means that you will not need to change your money to your home currency for remittance or ongoing expenses there. However, most expats on temporary assignments will need to. In this case, you may either fix the salary on a currency like that of U.S or opt for a split payroll. The company will pay ongoing home country expenses such as mortgage, pension and insurance in the home country currency. The rest of the compensation and remuneration will then be paid in host country currency.

Relocation compensation

An expat package will typically cover all costs incurred for the move-out and move-in. This includes the cost of hiring a mover, flights, and accommodation there. It will also make arrangement to rent, sell or maintain your existing house, if it is necessary. Beyond the basics, here is a list of other compensation that you pay want to negotiate for if it is not included.

For permanent assignments, the package may pay and make arrangement to move your immediate family such as parents and/or spouse and children. This sometimes include work search for spouse, and education cost difference for the children.

For temporary assignments, the package may include return flights to the home country for visiting up to few times per year.

If it is a long-term assignment, repatriation and re-installation can amount to a lot. Therefore, a settling-back allowance is sometimes issued. This will cover the same costs involved in moving there, as explained above.

If it is a third world or at-risk country, a hardship or danger allowance may be given. This will compensate you for the safety risk you are undertaking and deprivation of comfort due to factors such as unrest and backward infrastructure. Provision of car or cab allowance may also be given if the location is remote and public transport is not easily accessible.

Check if a pre-arrival visit is included, as it will help you get prepared and settled in smoothly. Companies will usually sponsor you and sometimes, your family a flight to the host country a few months before the actual move. Rather than a vacation, it is more like an orientation. The trip allows you to meet with the team abroad beforehand, have apartment viewings and get a gauge of how the environment will be like.

For the higher management, they may even offer premium, value-added destination services such as the ones listed here.

Benefits

To make the package more attractive, some employers will add in benefits such as insurance and retirement plan. Read the fine lines when it comes to the insurance they will provide. One key component is the geographical coverage: will your health insurance allow you to seek medical care back home while you are posted overseas? Also, It is important for you to check the portability of those benefits. What if you are moving again after this assignment? How will these benefits be recognised once you are back to work in your home country?

A competitive expat package puts your finances on the right track and that is always a good head start to your life overseas. Priorities differ from expat to expat – communicate with your employer, so they understand your wants and needs. There is a lot of flexibility to an expat package and the HR may be able to work out a mix that fits both parties. In the negotiation, choose your battles. Fighting for what will impact you in the long run may be a smarter move than immediate comforts.