Author:
George Bashaw – Atlas Global Benefits
In early May, I wrote a blog on the Dubai Health Authority’s (DHA) efforts to implement employer mandatory health insurance. Since my blog, the Director-General of the DHA has put the funding scheme on hold until 2010.
Instead of paraphrasing a nice article in the Khaleej Times, you may find it here if you would like more information on the topic.
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Posted in Benefits, Expatriates, Insurance, International Benefits
Tagged Benefits, Dubai, dubai medical insurance, expatriate, health, international hr, UAE
Author:
George Bashaw – Atlas Global Benefits
With pressure from the C-Suite, HR is walking a tightrope to reduce cost and provide equal or better benefits. Multinational pooling is one option to consider for a company that has multiple international locations. This blog is Part 1 in a series of suggestions to reduce cost without sacrificing the quality of benefits.
Multinational Pooling
Multinational pooling is a contract in which a corporation with two or more locations can spread insurance risk by joining a larger pool of insureds. This contract is facilitated by a pooling network which has a network of providers in various countries. Pooling can be used to spread risk for a number of employee benefits including medical, life, and disability insurance.
Many pooling networks require a minimum of ten employees per country. Therefore, pooling can be a great way for smaller companies to provide consistent benefits, reduce administration, and save money.
How Can Multinational Pooling Reduce Cost?
Since the pool consists of a large group, the risk is experience-rated instead of fully insured. The nature of an experience-rated contract eliminates some of the administrative costs and margins of a fully insured plan.
Providing the experience is good (determined during due diligence), the premium may be less. If the corporation decides to participate in a pool and the experience is favorable, a dividend payment is received at the end of the year. If the experience is poor, it may be mitigated by stop loss insurance, or the balance will be carried forward and can be recovered by future dividends.
Additional Benefits of Multinational Pooling
Underwriting small groups is always challenging. By pooling with a larger group, there are better guarantees, limits, and benefit offerings. This allows smaller groups to meet a common objective: consistency in benefits. Additionally, the pooling arraignment will likely provide enhanced financial reporting, consistency in communications, lower acquisition costs, and reduce the burden on HR.
What Else?
Multinational pooling is not for everyone. Due diligence with a few pooling networks can determine the pros and cons. As this is a complex, technical area, it’s always best to work with a benefits professional with experience in this area.
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Author:
Chuck Csizmar – CMC Compensation Group
Once your company decides to send an employee overseas on expatriate assignment the danger of imminent waste looms large. The problem usually begins with management not understanding or even choosing to ignore the real costs of the international assignment. The money pit is then worsened by having only a weak business reason to support the assignment. If you lack a compelling business justification for why an employee is needed overseas, it is likely that you won’t be able to measure whether their assignment will be a success or not.
Below are some of the major reasons for the cost spiral of money slipping out of your hands; however, this is by no mean an all-inclusive list. I have no doubt that you can provide your own reasons as well.
For some companies it is easier for a manager to have an international assignment given a green light than it is to have a piece of hardware or software approved for purchase. Where is the business case? Where is the justification via projected financial return that management should be held accountable for? Is anyone being held accountable that an ROI is achieved?
You should think twice before agreeing to pay out 2-3 times annual salary to provide for an expatriate assignment. “It’s in the budget” is never a good business reason.
Once an employee realizes that they are the only, or preferred choice for the assignment, you lose all negotiating leverage. I recall one fellow who insisted that he and his family live in Inner London (meaning: uber expensive) – though the office was 35 mi. north – or else he wouldn’t take the assignment. Do not expect someone holding leverage to be reasonable and accommodating when discussing terms & conditions of what you will pay for.
Strive to develop a stable of qualified candidates. It would also help if you remember that the ability to perform the job should not be the only criteria for selection. A bad cultural “fit” would be a painful and expensive experience for everyone.
Note: an employee with an attitude of doing you a favor, versus appreciating the career opportunity being offered, is a bad bet.
Unless you enjoy living in a “let’s make a deal” world, you would be advised to lay down an international assignment policy, and then adhere to it. You will still be challenged by the employee / spouse to make improvements in their conditions, but without the support of a policy you will be hard pressed to stand your ground.
Note: make sure all terms & conditions have been confirmed *before* the plane departs. Once you have an expat on the ground in the host country you have lost whatever leverage you might have had. From there you *will* agree to term revisions, because senior management will conclude that having already made the investment you have to keep the expat happy or risk the assignment.
Even an otherwise contented expatriate will be rattled if every night they come home to complaints about life in the host country. Such a situation will distract the employee from concentrating on their assignment, and eventually you will face the need to further revise terms (increase costs) and / or the employee will throw in the towel and the assignment will be deemed a failure.
Be sensitive to potential family issues and include everyone in cultural orientations. The family is the expat’s support group, and if they are unhappy . . . well, you know the rest.
This way no one would understand the full extent of the costs involved. During five years spent overseas on assignment, neither Corporate nor local Finance was able to explain the full cost of my assignment. They had assigned expenses into so many diverse costs centers and budget line items that the confusion never cleared. Imagine the drip – drip – drip of your money if no one is even asking!
If no one is watching the costs of the assignment, those costs cannot be controlled. It would be like handing over a blank check – with no guarantees of gaining anything in return.
Finally, watch out for the manager who tries to “save money” by circumventing HR assignment policies. These creative thinkers consider that short cuts save money, but typically those “cuts” do little more than alienate the expatriate (and / or family) by treating them as second class citizens. Bad idea.
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Posted in Expatriates, International Benefits
Tagged expatriate, expats, flexible assignments, International Assignments
Author:
Liz Perelstein – School Choice International
Educational concerns and the details surrounding them are sometimes overlooked when structuring an expatriate package, but to families moving with children there is no greater obstacle to taking on an assignment or to the potential success of a move. Here are some examples of information that may make a big difference, either to the employee or employer.
Did you know that private school fees in the UK have risen by 43% since 2003? (Source found here.)
The best place for raising expat children is:
Viva España! In a recent survey conducted by HSBC based on five categories, including the cost of raising children and how much time they spend outdoors, Spain comes first.
Did you know that Canada ranks among the world’s leaders in per capita spending on public education?
Did you know that Cuba spends 9.8% of its GDP on education and the US 5.8%? (Source found here.)
Did you know that 27% of children in India are privately educated?
Please sign up here to receive the Fact of the Week from School Choice International.
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Posted in Cross Cultural Insights, Expatriates
Tagged Expat Schooling, expatriate, expats, International Assignments
Author:
Claudia Howe – Global Mobility Tax, LLP
You are an HR professional (or a VP of Tax or a CFO) and you have just been told that your company wants to send an expat (oh horror!) to the UK. “Expat,” you think to yourself – “what now? How can we understand the costs, and what about taxes – isn’t that a really expensive and complicated area?”
Understanding the Basics
Understanding the basics of an expat assignment is critical, especially the tax costs. As many already know, the tax costs can be the most significant line item on the cost projection worksheet. But don’t worry; there are ways to manage it!
If your company does not have an international assignment policy in place, you will have to determine the whole package including housing, COLA, education cost for the kids, and what tax reimbursement philosophy is to be employed. Without a policy, many of these items will be subject to individual negotiations. This can work for a few assignees, but once you expand your program beyond one or two, it’s a good idea to establish a formal policy to help manage costs and reign in the negotiations. While all of the aspects of an expat policy are interesting, my expertise is in the global tax arena, so this posting will concentrate on how to decide the best approach to managing taxes for your expats.
Tax Reimbursement Methods
When an employee goes overseas, there is always an impact on the employee’s taxes – income taxes and social taxes. If left unmanaged, there could be unforeseen consequences, either positive or negative, from the employee’s perspective as well as from the employer’s viewpoint. Expat tax policies address these issues with tax reimbursement methods including tax protection, tax equalization, or the “simplest” of all: laissez-faire (aka “do nothing”).
While laissez-faire keeps the company’s costs down, it usually gets the expat worried about the tax implications of the assignment as any incremental costs will directly hit the assignee’s bottom line.
Tax equalization and tax protection are alternatives which help both employees and employers manage the costs of assignments. If you are not familiar with tax equalization or tax protection, it is easy to get them confused. Here are the basic definitions:
Both methods are designed to help the employee, and if the host country tax rates are higher than the home country tax rates, then they technically will result in the same bottom line to the employee and the same cost to the company in the long run. The fine distinction between the two is that with tax protection the company promises the expat that he will be reimbursed for any excess tax costs over his “stay-at-home tax,” i.e. he will pay no more than had he stayed home. Tax equalization says that the employee will pay “neither more nor less” than had he remained in the home location. And, unless they are going to Dubai, the host country will have the right of taxation and will tax the income (yes, even if paid from the home country and even if the work performed is for the benefit of some other location). Because the host country tax system is unfamiliar, it is not always easy to know how much tax will be due in that country.
Tax Equalization vs. Tax Protection
Here you are, with your first expat, and you now wonder: “hmm – tax protect or tax equalize” – how should we decide this?
The answer is usually more complex than meets the eye. When you are in the infancy stage of your expatriate program you usually can afford customization to each expat’s situation. We often see in practice that the first few assignments in an organization are custom built. Tax reimbursement policies are often written once the first few assignments are already underway.
Here are some examples to help illustrate the two approaches.
Tax Protection Example
Let me give you an example where I would clearly recommend tax protection: you are moving a young single line manager from the UK to Spain for 2 years; she will not receive any allowances, only relocation benefits. The tax protection gives her the additional assurance that she is not going to pay more tax than had she remained home, but if she pays less in Spain than what she would have paid in the UK on the same income, then she gets to enjoy the windfall (and spend the extra money on something nice).
Tax Equalization Example
However, on the other end of the extremes, for example, when you are moving a US executive with wife and school age children from the US to Singapore, I would highly recommend tax equalization. You ask: why? Well, it usually will take a bit more financial incentive to get the executive to accept the “risk” (financial and otherwise) of taking such an assignment (so he is doing the company a favor). The assignment costs will increase due to the family’s need for financial assurance, there is a cost of living differential, and housing is a lot more expensive. So, the cost projection worksheet is filling up quickly and the total compensation reportable in both countries becomes staggering. All the numbers will make everyone’s heads spin, but the company really needs this executive to focus on the task at hand. The easiest way calm this person’s financial anxiety is to tax equalize; promise him that he will pay the same amount of tax as if he had stayed home. This will tie his personal bottom line to a tax system he is familiar with and leaves the tax planning and tax risks in the hands of the company (and their trusty tax advisors). This approach also allows the company to pursue expatriate tax planning strategies to help manage the tax costs, therefore reducing the overall cost of the assignment. Such strategies are available in many countries but require expert assistance and a full examination of income, social and corporate tax impacts.
How To Get Started
So, what about this first expat you are told is going to the UK next week (or wait, did they say he had moved already? Or was that just a business trip?)? It is best to break it down into the big components first: immigration, payroll, taxation, relocation etc.
Then consider the needs of the company and the needs of the employee and find out the costs to each party under a couple of scenarios. Once the costs have been established (and you may need assistance with some of the items) then it is time to go back to management to get the costs approved. And don’t forget the tax costs!
Yes, managing expats is a complex and daunting task at first. But if you prepare yourself with good information, helpful advisors, and most importantly gain strong support from your line managers, your company can reap the benefits of international assignees and, at the same time, manage the costs effectively.
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Comments Off on Expats…What tax?
Posted in Expatriate Payroll, Expatriate Taxation, Expatriates
Tagged expatriate, Expatriate Payroll, Expatriate Tax, expats, International Assignments, reducing costs
Author:
Liz Perelstein – School Choice International
When companies are faced with the need to cut costs, education allowances are always an area of sensitivity. Historically it was not uncommon for families to forgo an assignment unless their children got into the “right” schools, and the assumption was that companies would foot the bill for the entire education. Often allowances included everything from school tuition and fees to transportation, meals and uniforms. Assignees had no hesitation asking for exceptions for music lessons, exotic field trips to other countries, and it was not uncommon, certainly not unheard of, for a company to acquiesce.In today’s economic climate, when expatriate packages have diminished and localization is an increasingly popular approach when sending families overseas, there is a great deal of confusion about whether education allowances can be subject to the same type of austerity. Localization plus packages usually continue to support schooling on assignment; for families otherwise being localized, support for schooling may be withdrawn more gradually or in stages.
While education has long been a sacred cow, it is not impossible to reduce corporate spending on education, and, in fact, local schooling may be desirable if we are to think about the real purpose of education, and the opportunity that a global assignment offers children. In some communities overseas, children attending international schools are so sheltered from their host country that they never encounter a local person except for their maid and their driver. To really learn about a country, many children may benefit tremendously from genuinely opening their minds to new cultures, languages and world views.
The key to including localization in corporate education programs is to do so thoughtfully, offering different approaches in different countries depending on whether or not local education is viable for an expatriate child, and it should depend on the country s/he comes from as well as the one s/he is going to. An analysis of the local curriculum, customs surrounding education, as well as assessments should be compared with similar information from the home country at various age levels to ensure that children are not placed in a precarious situation. Of course, exceptions for children with academic, physical or other special needs do need to be considered on an exception basis.
School Choice International has developed a web based tool called Global Education Explorer which enables companies to compare this critical educational information across countries to ensure that policy decisions are grounded in research and information and not simply made in a vacuum. If cuts in corporate education support are made thoughtfully and appropriately, our children can be our genuine future ambassadors in our quest for true globalization.
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Posted in Compensation, Expatriates
Tagged Expat Schooling, expatriate, International Assignments
Author:
Warren Heaps – Birches Group LLC
Many of you will already know that last week, the second Africa Forum conference, sponsored by the African Development Bank, Birches Group LLC and ORC Worldwide, was held at the lovely Sarova Whitesands Resort and Spa in Mombasa, Kenya. The conference was attended by representatives from leading employers in Africa, with delegates from Kenya, Tanzania, Uganda, Sudan, Democratic Republic of Congo and South Africa. I was lucky to be one of the organizers and presenters at the conference, so I thought I would share some of the proceedings with you.
Keynote Address
The conference opened with a wonderful conversation with Dr. Sipho Moyo, Residential Representative for the AfDB in Tanzania. Dr. Moyo spoke about what managers look for from HR in terms of support, ideas and insight.
Overview of African Markets
The keynote address was followed by an overview of African markets. The presentation included statistics capturing the impact of the global economic crisis on Africa, through reduced GDP growth rates across the region, higher inflation (double digit levels in over 25 countries), and reduced trade. There was also a discussion about the nature of the labour markets in Africa, and the key role leading employers across all sectors, including international public sector organizations, play in the market. Finally, some summary market data was shared for all countries in Africa, with a special look at Kenya, Mozambique, Malawi and Nigeria.
African Cafe I
The next session was a series of small group discussions. Three topics were selected by the group – Market Intelligence, Impact of the Global Economic Downturn, and Incentive Pay. Each topic was featured as a discussion group, and participants rotated through all three topics, thus having a chance to participate in all of them. These were lively, interactive discussions, where participants were able to raise issues, share their experiences and learn from the experience of others.
Focus on East Africa
Since the event was held in Kenya, we turned next to an in-depth look at the East African market, focused on Kenya, Tanzania, Uganda, Rwanda and Burundi. There was comparative data to highlight the similarities and also the unique features of each labour market in the region.
Building a Pan-African Workforce
A lively discussion followed led by Awinja Wameyo of AfDB, about the challenges the bank faces in building a workforce for their operations across 25 countries in Africa. Topics of particular interest to the group included recruitment of professionals from the African diaspora, and the desire for diversity, and how best to achieve it.
Market Intelligence
Day Two began with an in-depth look at market intelligence, and how the Birches Group surveys are tailored to address many of the challenges faced in small, volatile markets, with such a wide range of practices. Birches Group staff demonstrated the Indigo survey portal for the group as well.
We also spoke about the comparative framework — how to best determine the right approach to matching positions in the African market to survey benchmarks consistently.
African Cafe II
Next we had another series of discussions on topics chosen by those in attendance at the Forum: Intra-Regional Assignments, Performance Management and Talent Sourcing. It was a wonderful chance to share insights and learn from each other.
Untying Knots
Following lunch, we kicked off the final afternoon of the Forum with a stimulating presentation about Performance Management and Pay Design. Gary McGillicuddy spoke about the Birches Group Community approach to performance management, which uses multi-rater feedback and the answers to three simple questions to manage evaluations effectively and efficiently. Gary also spoke about the “Wedding Cake” of pay design, demonstrating that in an organization, time-based, competency-based and performance-based compensation systems can coexist to drive overall organizational effectiveness.
Employer Branding
The closing presentation was an overview of employer branding. Curtis Grund of ORC Worldwide shared his personal experiences as well as a summary of the leading practices in employer branding. Curtis also looked at some employer website to highlight best practices.
In Summary
The Africa Forum 2009 was a great opportunity for human resources professionals in Africa to discuss critical issues, learn about trends, and most importantly, share information with each other and form what we hope will be an ongoing network for sharing and collaboration.
We expect that Africa Forum will be repeated, next time in Southern Africa. Stay tuned for more information about next year’s Forum. We are grateful, also, to the African Development Bank, for lending it’s name and providing resources to make the Forum a reality.
Conference Presentations
If you were unable to attend the Africa Forum, but would like to receive copies of the presentation materials, please let me know by using the Contact Us link. Just indicate your interest in receiving the Africa Forum materials.
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Author:
George Bashaw – Atlas Global Benefits
On January 1st, the Dubai Health Authority (DHA) initiated the first phase of employer mandatory health insurance for expatriates and UAE nationals working in Dubai. All expats new to Dubai must obtain a Health Benefit Contribution (HBC) compliant insurance policy.
Background
The population of Dubai has exploded from 300,000 to 1.5 million since the Department of Health and Medical Services (DoHMS) was created over thirty years ago. Considering the growth and significant demographic changes in Dubai, the DoHMS has done an adequate job (World Health Organization ranks the UAE 44th). Did I say something in “Dubai” is “adequate”? The two words are mutually exclusive. In Dubai, they simply strive for the best. Therefore, the DHA was established to accomplish this goal by 2015. What does this mean for you?
Existing Plans
If you manage an existing health plan in Dubai, it is valid until it expires. Upon renewal during 2009, the new plan must be HBC compliant. By January 1st 2010, all corporate health plans must be HBC complaint.
Payment and Administration
Who pays the HBC? The employer pays the tab. The HBC is a flat-rate for all employees, including UAE nationals and expatriates. There is another hitch. All HBC policies must be sold by authorized insurance companies. Since most employers will provide benefits above the notional standard, there is a group of authorized insurance companies waiting to sell you a top-up plan.
Choosing a Clinic
Not so fast. All employees must choose a primary clinic to complete enrollment. They can do so by visiting an OCP (Outpatient Care Practice)clinic in person, on the web www.dha.gov.ae, or through their employer. Want the good news? The employer may choose a default OCP clinic.
Employer Responsibilities
Just so there is no confusion on the rules, I copied this from the DHA website:
Still have questions?
You are welcome to visit the DHA but I would rather you just ask me.
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Posted in Benefits, Expatriates, International Benefits
Tagged Developing Markets, DHA, dubai employee benefits, dubai expatriates, dubai expats, Dubai Health Authority, Dubai Health Benefit Contribution, dubai health care, dubai health insurance, dubai mandatory health coverage, dubai medical insurance, emerging markets, expatriate, expats, HBC, Insurance, International Benefits, UAE expatriates, UAE expats
Author:
Dave Leboff – Expaticore Services LLC
Why does it seem that expat payroll administration is so hard to get right? Why is it so hard to deliver pay correctly and timely to this class of 50 or 150 important employees when it seems so smooth for the other 10,000 or 100,000? The answer lies in the reality that payroll for expatriates often seems to be the second job of those involved.
Expat policies are developed with care and designed to compensate the employee fairly, facilitate mobility, be competitive with peer companies and are sensible economically. Policy development usually sits within the HR function. Executing that policy always requires the involvement of your payroll function which has to deliver and record expat compensation and benefits correctly and compliantly, in one or two countries concurrently – and often multiple two-country permutations.
Payroll professionals are talented, hardworking experts who handle thousands upon thousands of domestic pay transactions with 99+% accuracy. But their success is dependent upon the efficient application of rules to situations – many of them coded in the software they use. For example, limits for FICA or 401(k) contributions in the US require no effort by the payroll professional. They correct limits and computations are part of the tools they rely on.
With expatriates, the rules are not built in. For example, a US employee working on assignment in Mexico may have US payroll running every two weeks. In Mexico it may run every month. In Mexico there may be requirements to deliver 13th month and vacation pay as well as other legislated perquisites. How should this be reflected on the US payroll? Should the expat receive the extra Mexican benefits or should the payroll delivery be manipulated to eliminate them from the gross deliverable? There are foreign exchange interplays. Splitting pay is often involved. Paycodes and general ledger coding relevant to expat benefits need to be organized so that the underlying accounting gets done correctly.
As you can see from this simple example, payroll professionals must not only clearly understand how the company wants to address compensation and benefits for expats, they need to drive many decisions relating to how the compensation and benefits are delivered, how they are accounted for, how changes will be authorized and instructions presented to them. They need to ensure that there are proper codes set up so that items that may be exempt from tax in another jurisdiction show up as taxable in theirs if appropriate. They must understand when and how to “gross up” for taxes, which is not a simple process in many cases and software managing payroll around the world does not often have grossup capability built in.
So the next time you ask “why can’t the payroll department get the expats right?” understand that they are handling expat concepts that are unusual and complex. There are ways to reduce the burden on payroll professionals who deal with expatriates. We will continue to address these issues over time within this International HR blog.
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Posted in Compensation, Expatriate Taxation, Expatriates
Tagged expatriate, Expatriate Payroll, expats, international payroll
Author:
Mariana Villa da Costa – Littler Mendelson
The current worldwide economic crisis is putting businesses under increasing pressure to control costs. In spite of the challenging economic environment, however, companies are continuing to do business globally and even more small and medium enterprises are starting up international operations. Along with this growth of international business operations comes the globalization of employment. In addition to traditional “expatriate” assignments, more and more organizations are looking for alternative types of assignments which better address their needs, and have the potential to reduce costs as well.
Below are some ideas on how to tailor your approach to international assignments in today’s environment.
Examine Your Population
For companies going global, look for early-in-career professionals who are seeking international assignments for their own professional development. This group is typically younger, and often anxious for the opportunity. A lot of expenses associated with expatriate assignments are related to family members. Since these assignees are often single, or married but have not yet started a family, many of these costs can be avoided. Companies can create a developmental policy specifically for this situation, with allowances that are scaled back.
“Volunteers” are a similar group – those employees that raise their hand to go overseas for personal reasons, or those with a lot of geographic flexibility. Older employees, without the burdens of young children, are often in this category. An added bonus – these are often the most experienced technical talent in an organization, and can be deployed effectively for technology transfer and other training missions.
Introduce Flexibility
Expats are always keen to get cash and manage their own expenses. Many companies have introduced lump-sum options in lieu of traditional expatriate allowances. This allows costs to be capped, and also offers flexibility to the employees. It is widely known that if the company gives the employee US$ 5,000 for housing, it is likely that the entire amount will be used for monthly rent. On the other hand, if the cap for total housing expenses is US$ 20,000, the employee will allocate his expenses more wisely.
Keep in mind, however, that in some locations, lump sums will not be very tax-effective, and could actually result in higher costs.
Proactively Manage Your Assignments
Another issue facing companies is so-called “permanent expatriates.” These are employees occupying important positions in highly desirable locations of the foreign operation for many years, who for a variety of reasons have not been reclassified as locals. The company needs to establish, in their internal policy and in the international assignment agreement, clear guidelines that outline when such a localization would take place, and then follow the guidelines. Our experience shows that many organizations have policies for localization, but few companies actually use them!
Use Tiered Policies
Many companies use a tiered approach to international assignments. Depending on the type and reason for the assignment, the terms and conditions for the expat package vary. For example, local or “local plus” packages are used for development or volunteer assignments; expat “lite” might be used for moves in markets where talent is widely available or early localization is desirable; and full expatriate packages would be used for senior level executives and leadership positions. Regardless of the pay approach, though, companies must always be mindful of the career planning issues of managing expatriates.
Consider International Pay Scales
For employees in managerial positions, and executives that are going to a foreign location to develop and assess business, and that likely will undertake future assignments, the use of a single global pay scale is another idea. The design of such a scale needs to account for the rates in which the company competes for this key talent. In addition to pay, benefits and some allowances might be included as well.
Summary
Managing a global workforce prudently can be an important factor in the success or failure of a company doing business internationally. Therefore, it is wise for companies to cultivate and develop new strategies to ensure their international compensation program is strategically aligned to their business, and also designed with costs in mind.
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