4 things every relocation package should include
Relocation packages can be very complex, and are not limited to the issue of how much an assignee gets paid. The whole relocation package needs to cover legal details, job specification and a detailed breakdown of how remuneration will work, and specifically how variations in cost of living and housing will be managed. Packages vary by host country, by assignee level, by company, and can be affected by many other reasons, but a starting point is to consider the following four elements:
1. Employment contract
At the heart of each package should be a legally-binding contract that details conditions of employment. This will be similar in structure to the employment contract offered to domestic employees, but will of course vary depending on the host country and the legal environment in which it will be applied. The contract will set out the legal relationship between the employer and the assignee, and set out details of the assignment, such as the duration and agreed location. Assignees will, for example, be keen to ensure that an assignment abroad should not constitute a break in employment with an employer, and should therefore not compromise their rights in this regard. Similarly, the contract should specify which benefits of employment will continue to be available upon the employees return.
2. Roles and responsibilities
A relocation package should specify the roles that the assignee will fulfil and any responsibilities they have during their assignment. Any expatriate contract should clearly detail the employee’s job title (always an emotive issue), reporting structure and a description of the roles and responsibilities expected of that employee. In addition, the package should include an agreement of performance expectations, including commercial targets and KPIs if required.
3. Salary and tax
International assignees can be compensated in a number of ways. Typically, they are either kept on the home payroll, or transitioned for the duration of the assignment, to the host country payroll, or in some instances, split between the two. Tax implications will of course be considered in advance, along with adjustments for cost of living in the new country, and possible currency fluctuations. In addition to the payroll issue, the package should take into account other potential forms of remuneration, including expenses.
Benefits are a key part of every relocation package, and companies strive to make the deal attractive to the assignee, whilst also maximizing efficiencies for the company. Benefits cover a number of areas:
- Accommodation: the most important benefit given to an assignee, this depends on many factors including the dramatic variation in housing costs around the world.
- Healthcare: full medical insurance is often included. This is also a benefit that is particularly important for families.
- Travel: relocation travel to and from the host country, including a pre-agreed number of ‘trips back home’ during the assignment are expected. Local travel is also a potential benefit; this can vary from covering train fares to providing cars and drivers.
- Education: schooling of an equivalent and appropriate level is sometimes included, depending on the availability and suitability of local schools.
Creating the perfect relocation package
Whereas the contractual and professional aspects of an international assignment are often reasonably straightforward, creating a combination of salary and benefits that suits both company and assignee is more problematic.
The way this problem is typically solved is referred to as the ‘balance sheet approach’, where the aim is to provide the same net package to expats as they had at home, once the many variables of housing, cost of living etc are taken into account. A variant of this is the ‘reduced balance sheet approach', which factors in both the demand for assignments and the seniority of the assignee. For example, younger employees may be much keener to take on an assignment for career development reasons that do not apply to more senior staff.
There are of course other considerations for assignments, but these four elements – broadly summarized as legal, professional, financial and personal – are the core elements of every relocation package.