Compensation week 12: International Pay Systems: International Assignment Remuneration

How we compensate for employees being assigned to work across international borders.

Questions answered:

1.     What type of international move is this?

2.     How should we pay the employees fairly during that move?

Why does many international assignments fail?

·       International assignments are a high-cost investment that is usually rushed as they are last-minute decisions to meet business needs and often have high failure rates due to underperformance, turnovers and high costs. Therefore, a well-designed strategy is needed to prevent and to increase its utility.

There are 5 types of international assignments:

5 types of international assignments

1. Business trips (1-30 days): Short visit e.g. fly for meetings.

2. Short-term assignment (1-12 months): temporary project work.

3. Rotational assignment (fly in fly out): E.g. spend 30 days in Qatar and 30 days at home.

4. Long-term international assignment (1 to 3 years, extendable to 5 years): Manager moves with family to Singapore to lead a new office. Full expat package.

5. Permanent transfer (indefinite): Permanently relocates from Sweden to Singapore and becomes a local employee.

Business trips (1-30 days):

Short visit e.g. fly for meetings.

·       Purpose: Meet face to face with others, attend an event, make a presentation, solve a problem.

·       Duration: Range from 1 to 30 days in one location

·       Unaccompanied by family

·       No change in tax or remuneration position

·       Hotel and meals are paid

Short-term assignment (1-12 months):

Temporary project work.

·       Purpose: Complete a specific project or solve a problem, requiring a specific expertise or ability

·       Duration: From 1 to 12 months in the host location

·       Unaccompanied by family; home leave may be granted

·       Housing and living expenses covered e.g. laundry, personal care and transportation

·       Accommodation is provided by the employer, usually serviced apartment

·       No change in tax or remuneration position, company pays excess tax

1.     Rotational assignment (fly in fly out):

E.g. spend 30 days in Qatar and 30 days at home.

·       Fly-in, fly-out assignment: ongoing employment in a host location with limited accommodation. Assignee returns home each evening/weekend or alternates between home and host locations.

·       Duration: Could be 14/30 days on/off, depending on travel distance to home country

·       Company provides: Housing, meals, inconvenience allowance.

·       Unaccompanied by family

·       Change in tax position

1.     Long-term international assignment (1 to 3 years, extendable to 5 years):

Manager moves with family to Singapore to lead a new office. Full expat package.

·       Purpose: Establish/manage a function/business unit, etc. which requires extended full time presence 

·       If assignees do not wish to localize, they would be repatriated or reassigned

·       Company provides housing support, international school fees, COLA, tax support, annual flights home.

·       Normally accompanied by family members, except for adult children

·       Substantial change in reward package which would include dependent education at a suitable international school, tax equalization, company-subsidized housing and, cost of living allowance

·       Annual home leave provided for the assignee/family

·       Change in tax position

Permanent transfer (indefinite):

1.     Permanently relocates from Sweden to Singapore and becomes a local employee.

·       No expatriate benefits: no cola, housing allowance, tax equalization and hardship allowance.

·       No intention of repatriation at the time of the move – home country role is backfilled

·       Accompanied by family

·       Change in tax position

·       Employed on terms and conditions of the host country employing company

·       Essential to identify a permanent transfer as such from the start, to avoid the cost and complexity of an international assignment.

3 ways companies pay expatriates:

1.     Build up (balance sheet) model:

2.     Local market approach:

3.     Internationally-Mobile Expatriate (IME) Model:

Build up (balance sheet) model:

HOME: Keep the employee financially the same and tied to their home-country package as before (no win/loss). Same purchasing power, lifestyle and standard of living. Used for long-term expatriates.

Takes contractual home base salary, subtracts hypothetical tax, and adds adjustments for host taxes, Cost of Living Allowances (COLA), housing subsidies, and mobility premiums.

Local market approach

Pay them like a local employee even if they earn more in home country. Prioritizes internal equity where people with similar jobs in same location should earn the same. Used for permanent transfers or localized expatriates.

Internationally-Mobile Expatriate (IME) Model

1.     Create one global pay system for international employees. Companies do not consider the home or host country salary at all and creates a separate structure. Joining a global employment company instead that is tax free.

How benefits and allowances are managed under all the three models:

• Tax

• Cola

• Salary payment

• Mobility and Hazard premium

• Housing

• Bonus

• Retirement

• Medical Cover

• 13th Cheque

• Disturbance allowance

• Education support

• Partner support

• Home leave flight

Tax

·       Build-Up: tax equalization, hypothetical tax

·       Local Market: host-country tax rules, no hypothetical tax

·       IME: host-country tax, generic hypothetical tax

COLA

·       Build-Up: COLA paid

·       Local Market: no COLA

·       IME: location allowance

Salary Payment

·       Build-Up: split payroll (home + host currency)

·       Local Market: host-country currency

·       IME: flexible (local, home, USD, split payroll)

Mobility & Hazard Premium

·       Build-Up: mobility premium + hazard pay

·       Local Market: none

·       IME: usually included in location allowance

Housing

·       Build-Up: company-provided/subsidized housing

·       Local Market: employee normally pays own housing

·       IME: company-provided/subsidized housing

Bonus

·       Build-Up: home-country bonus scheme

·       Local Market: host-country bonus scheme

·       IME: home/global bonus scheme

Retirement

·       Build-Up: home retirement scheme

·       Local Market: host retirement scheme

·       IME: home/global retirement scheme

Medical Cover

·       Build-Up: offshore/home medical + evacuation

·       Local Market: local medical + evacuation

·       IME: offshore medical + evacuation

13th Cheque

·       Build-Up: home-country policy

·       Local Market: host-country policy

·       IME: home-country policy

Disturbance Allowance

·       Build-Up: 1 month net home salary

·       Local Market: 1 month net home salary

·       IME: 1 month net home salary

Education Support

·       Build-Up: international school fees covered

·       Local Market: local education policy

·       IME: international school fees covered

Partner Support

·       Build-Up: study/job search/hobby support

·       Local Market: none

·       IME: study/job search/hobby support

Home Leave Flights

·       Build-Up: home leave flights

·       Local Market: none

·       IME: home leave flights

Build-Up

Home package + lots of allowances

·       COLA

·       Housing

·       Education

·       Partner support

·       Home leave flights

·       Mobility premium

Local Market = Local employee

·       Local pay

·       Local tax

·       Local benefits

·       Few/no expat benefits

IME = Global expat package

·       Similar benefits to Build-Up

·       Global pay structure

·       Equal treatment for career expatriates

The Cost of Living Index (COLI)

Is a relative price index measuring the cost difference of a standardized consumer basket between home and host locations (with a Base Index of 100).

Pre-Assignment Assessments

Before sending employees abroad check if they can adapt successfully, assess their emotional intelligence (EQ), cultural adaptability, and spouse/family readiness to reduce assignment failure. Also check the spouse’s adaptability.

Structured Repatriation Programs:

When employees return home, place them in roles of equal or higher status and provide re-induction training on company updates and strategy.

Tax & Vendor Support

Use tax specialists to manage international tax obligations, tax treaties, and dual-tax compliance.

Extra definitions

Home-Based Salary: Contractual base salary based on home-country pay rates.

Home Net Salary: Home-based salary − hypothetical tax (the tax the employee would have paid if they stayed at home).

Cost of Living Index (COLI): Measures how much more or less expensive the host location is compared to the home location (excluding housing).

Cost of Living Allowance (COLA): Extra pay to compensate for higher living costs abroad, usually calculated using the COLI and the employee's spendable income.

Hardship / Location Allowance: Extra allowance (often 10-15%) for difficult living conditions such as safety concerns, poor healthcare, pollution, or political instability.

Split Payroll: Salary is paid partly in home currency and partly in host-country currency.

Exchange Rate: The conversion rate between home and host currencies that affects how much the employee receives in each country.

Hypothetical Tax: Tax payable on home base salary using home tax tables.

To prevent turnover when expatriates return home, organizations must do these practices:

·       Before deploying: Evaluate their emotional intelligence (EQ) and their spouse’s cultural adaptability.

·       Structured Repatriation Programs: Reintegrate returning assignees into positions of equal or higher complexity and status, conducting formal re-induction covering strategic updates.

·       Tax & Vendor Support: Engage specialized tax experts to leverage reciprocal tax treaties and manage dual tax compliance.