3 ways to cut down on international assignment costs

3 May 2016

Companies spend hundreds of millions every year moving employees around the world, ensuring that the right talent is in the right place at the right time. This means that one subject is always on the agenda: cost containment. Are there other ways of doing it? Are there more cost-effective options?

There is no right answer. But the three following points keep coming up whenever there is a conversation about cost. And if you are serious about keeping costs down, they will no doubt be heard in a boardroom near you very soon…

1. Look for alternatives to the traditional expatriate policy

There is a tried and trusted way of funding assignments. But it is not the only way – and it is almost certainly not the most cost-effective way.

Increasingly, global organizations are looking to find alternatives to the standard 1‐5 years assignment with ongoing assignment allowances and repatriation – and the main driver is the opportunity to reduce the overall cost. Over the last ten years, alternatives have appeared and, in the right circumstances, these are helping companies to save a lot of money.

  • Local Hires – policies by which employees are transferred to the new country’s payroll, with no ongoing benefits, and no repatriation guarantee.
  • Expat Lite – policies by which employees may or may not be transferred to the new country’s payroll, with modified or reduced ongoing benefit, and possibility of repatriation.
  • Core/Flex – policies by which employees may or may not be transferred to the new country’s payroll, with options to choose available benefits from a pre‐determined list, based on individual need, authorized spend, and length of assignment.
  • Tiered Policies – a practice by which employees take the standard long‐term assignment policies offered and tier it based on level, job grade, salary, or other factors, rather than a one‐size fits all approach to policy options.

2. Beware the red flags of over-spending

We don’t get everything right. And over time, as the cost of living changes unevenly, some expat assignments may become overly generous, and therefore more expensive than they need to be.

But before you rush to ‘plug’ these gaps, do bear in mind that cost reduction must correlate to value. Who is receiving the main value? It could be the employee, the company overall, or the local division of that company.

Example A: an employee is moving to a different country in order to learn and develop new skills, which means he or she is going to be more employable/promotable in the future. That’s a huge value to the individual. But, while the company gains overall, you could argue that the local host company gains little value, since they have the short-term job of ‘training them up’, but without the long-term benefit of their presence once they have acquired those new skills.

Example B: an employee fills a technical skills gap for a period of time. This brings immediate benefits to the host company, but without significantly improving the individual’s own future prospects since they have learned no new professional skills.

When assessing the financial packages and incentives given to employees, you should consider the above. Example A should cost the company less than Example B because the company is delivering value to the individual in non-financial ways.

If you need proof of whether this is happening already, there are two ‘red flags’ to look out for:

  • Do you see high numbers of employees applying for certain roles, especially when these offer limited career progression or learning?
  • Do you have problems persuading employees to repatriate, with frequent requests to extend their stay?

Either of these is almost a guarantee that you’re over-delivering and have an opportunity to simply cut back.

3. Consider the DIY approach

The practice of ‘lump sum’ relocation has always been a popular option for domestic relocation. But many companies are now experiencing cost-savings by implementing this, where appropriate, for international assignments.

This approach takes into account the fact that transferred employees are becoming more global in their outlook, and better equipped to manage more of their own affairs. This is especially true of employees after their first year in a foreign country; the difficult first period is over, they understand the local culture and systems, and are better placed to make their own decisions.

The concept involves a calculated allowance, which is paid to the employee to cover costs associated with travel and housing. Mobility consultants will work closely with companies and individuals and apply their knowledge of the host country to calculate housing allowances, as well as supporting any employee contribution requirement.

This is important because housing is often a major cost – and it is one that is easily miscalculated. Property markets are volatile and infrequently audited – in contrast to salary and tax planning, which are carefully controlled and monitored. Leveraging local knowledge will help you to set an accurate allowance.

The ‘DIY’ concept has been very successful as it gives employees the flexibility to spend monies to best suit their needs and reducing administrative time for reimbursements and reporting.

Manage your relocation costs your way

These are not the only answers, and you may have specific requirements that keep your costs high. But we hope these are three ideas that are worth thinking about, and may lead you to your own ideas that will keep the value up, but the cost down.

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