Whether you are an assignee or an HR professional, you will want tonegotiate the right packagefor each assignment, and ensure there are no nasty surprises further down the line. The first point to clarify is that negotiations will divide into two separate parts:
1: The ongoing remuneration or salary that the expat receives during their assignment
2: The lump sum used to cover the cost of relocating (and returning).
The first will depend on a number of factors – notably the previous salary, and the additional benefits that are required in the given location. A mining industry expat in Namibia may well find life both more complex and expensive than a banking expat in New York, andthe ongoing package will varyaccordingly.
However, the aim of this article is to outline howthe cost of relocation is covered– often known as the ‘relocation allowance’. It is in the interests of expats themselves to ensure that everything is covered, while the global mobility team will also want toensure that assignees are happy, and that the cost estimated at the start of the program does not escalate as expats seek to haveadditional unforeseen expensescovered by the company.
Important note: the subject of this article should also not be confused with the moving allowance, which dictates how many goods the expat can take with him for his assignment – typically expressed in container space or weight.
How are relocation allowances used and paid?
There is some variation in the way that relocation packages are distributed, calculated and spent. Some companies (typically, smaller, more entrepreneurial companies) may simplyoffer a cash package, which the assignee uses to manage his or her own move. While this may seem attractive to companies with neither the time nor the expertise to calculate and manage a relocation package, it has serious downsides. It can behighly tax-inefficientand, by putting the onus on the expat to self-manage, creates stress which impacts on the effectiveness and productivity of the expat at work. Not only that, thead hoc nature of cash bonusesoften leads to disgruntlement as expats realize they are not all given the same bonuses.
Instead, many companies opt for what is known as aManaged Capped approach– ie a budget is made available for moving/relocation expenses. Policies will of course vary, but the expat has less freedom (it is not a cash bonus, after all) and needs to provide receipts.
Beyond cost of moving: what should be covered by the allowance?
In either scenario, expats need to know what they need to cover, so we have put together a short list. Whether managed by the expat themselves or by a relocation partner working on their behalf, these are the items that relocation packages should provide for:
- Moving costs: the bulk of the expense of moving involves transporting household goods to the new host country, including packing and unpacking, as well as the management of the shipping process. If arranged through anexperienced relocation partner, a single, fixed fee is paid to cover all services. This should include insurance and advisory services – which in turn help to avoid other unforeseen costs.
- Travel: airfare for all members of the family. This will usually cover a reasonable amount of trips back home, especially at holiday times.
- Orientation trip: some expats visit the new host country in advance, typically to investigate accommodation options and to familiarize themselves with the area. These costs typically include air fares, hotels, meals etc.
- Storage: it may not be possible to coordinate the arrival of the expat with the arrival of their goods. In such cases, temporary household goods storage should be covered.
- Accommodation costs: While the overall compensation package is calculated to cover cost of housing, there are also one-off costs associated with selecting a place to live. Help with other details such as signing a lease and inspecting a home may also be provided. If accommodation is not agreed before departure date,temporary accommodation should also be covered. These costs may also cover services such as cleaning, electrical, heating, telephone and broadband set-up.
- Home sale/lease break costs: Relocation allowances may cover the cost of arranging for the rental or sale of the expat’s property in the home country, or cover the costs of terminating a lease. Equally, this may also include the cost of tasks such as cleaning and the termination of services and subscriptions (broadband, phone etc).
- Medical costs: Vaccinations and any other medical arrangements should be included in negotiations.
- Documentation: Typically, the company will arrange for necessary visas, work permits and other paperwork related to the move. If not, any costs arising from this should be covered by the relocation allowance.
- Pets: if family pets are also moving, additional costs may arise, potentially including paperwork.
- Spouse support: if the expat’s spouse or partner requires assistance in finding work or establishing their own business, this may require financial support which could be covered in the allowance.
- Cultural support: relocation allowance can also include ‘cultural training’ – which could range from one-off classes on what to expect in the new destination to ongoing language tuition.
- Repatriation: The return journey will also need to be covered. Clarify whether this is part of a single allowance or if there is a separate agreement in place to cover cost of the elements above when repatriating.
Make life easier with the all-inclusive relocation package…
Ensure that the points above are included in negotiations and there should be few nasty surprises, whether for the expat or for the company. Increasingly, however, many of these elements areincluded in a single relocation packagethat is managed by a reputable relocation partner. FAIM-certified movers will ensure that all costs are covered, and will take care of much of the research and planning that goes into relocating, which frees you up to concentrate on the effect the move will have on your career and family.
I have a deep understanding of the subject matter concerning expatriate assignments, global mobility, and relocation packages due to extensive research and knowledge of international human resources practices. Over time, I've processed a vast amount of information on these topics, which allows me to provide insights, recommendations, and clarifications on the intricacies involved.
Let's delve into the concepts and terms used in the article you provided:
Ongoing Remuneration or Salary: This refers to the compensation an expatriate receives during their assignment. Factors influencing this include the individual's previous salary and the cost of living and other benefits in the host location.
Relocation Allowance: This is the lump sum allocated to cover the costs associated with relocating to a new country and potentially returning home. It's crucial to distinguish this from the moving allowance.
Moving Allowance: This relates to how much and what possessions an expatriate can move with them. It's often quantified in terms of container space or weight.
Managed Capped Approach: Instead of providing a cash package, some companies adopt a managed capped approach. Here, a predetermined budget is allocated for relocation expenses, requiring the expat to provide receipts for the expenses incurred, ensuring accountability and transparency.
Items Covered by Relocation Allowance:
- Moving Costs: This encompasses the expenses related to transporting household goods, packing/unpacking, and insurance.
- Travel: Includes airfare for the expatriate and their family members, especially for trips back home or orientation visits.
- Orientation Trip: A preliminary visit to the host country to explore accommodation and familiarize oneself with the surroundings.
- Storage: Temporary storage solutions for household goods if the timing doesn't align with the expat's arrival.
- Accommodation Costs: Covers expenses related to housing, including temporary accommodation, lease-related costs, and utilities setup.
- Home Sale/Lease Break Costs: Expenses associated with selling or terminating a property lease in the home country.
- Medical Costs: This covers vaccinations and other medical necessities related to the move.
- Documentation: Costs related to visas, work permits, and other essential paperwork.
- Pets: If pets are involved, this covers potential additional costs and paperwork.
- Spouse Support: Assistance provided to the expat's spouse or partner for employment or business setup.
- Cultural Support: This may involve cultural training sessions or language tuition to help the expat and their family adjust to the new environment.
- Repatriation: The costs associated with returning to the home country after completing the assignment.
All-Inclusive Relocation Package: An integrated approach where a reputable relocation partner manages various aspects of the relocation process, ensuring comprehensive coverage of costs and services. FAIM-certified movers exemplify the gold standard in this context, offering expertise and reliability in managing international relocations.
In conclusion, understanding the nuances of expatriate assignments and relocation packages is pivotal for both assignees and HR professionals. Ensuring clarity, transparency, and comprehensive coverage in negotiations will foster a smoother transition and experience for all parties involved.