Expatriate Compensation

Staffing

Another result of globalization is that many companies typically now have offices and/or plants throughout the world. They also want their talent to have experience in managing and working within a multi-national business.

It is always most cost effective to hire locally for an international subsidiary. Local hires typically have the knowledge, expertise, language, and cultural understanding to operate and market an organization within their own country. Occasionally though, it may be advantageous to staff a local job with an employee from headquarters or another office in another country.

Local hires usually represent the majority of the workforce in an international subsidiary. However, special staffing requirements may be filled through extended business travel assignments, short-term international assignments and even long-term "expatriate" international assignments.

Local Hires

A local hire is a regular employee of the local subsidiary and is managed on the local payroll and benefits program as well as taxes of the local country.

In most instances, local hires are local nationals.

A local package could also be provided for employee-initiated, permanent transfers to the country. Occasionally, a regional hire will be managed to a local hire compensation and benefits package. In these cases, the package would typically include immigration and relocation benefits.

Extended Business Travel Assignment

An extended business travel assignment is typically over 1 month but less than 3 months in duration.

Employees are managed to their home country compensation and benefits program. These employees will commonly receive expense reimbursement or a per diem throughout the duration of the assignment. Typically, they will not incur relocation, immigration, or foreign taxation. It is advisable, though, to check with a tax and legal expert for immigration and tax advice as needed.

Common reasons for an extended business travel assignment will be to perform a special project or to provide training to local staff.

Short-term International Assignment

A short-term international assignment is typically over 3 months but less than 12 months in duration.

Employees are managed to their home country compensation and benefits program. These employees will commonly receive short-term housing and a per diem or allowance throughout the assignment. Other costs for immigration and home and host country taxation may be incurred during a short-term assignment. Keeping these assignments to less than 6 months may be tax effective. A tax and legal expert should be retained for immigration and tax advice as required.

These types of assignments may be created due to a special project, system implementation, technology or specialized knowledge transfer, or a job vacancy.

Long-term International Assignment

A long-term international assignment is typically 2-3 years in length but can include assignments over 1 year but less than 5 years in duration.

A long-term international assignment will normally include a family relocation. Full allowances and benefits are also typically provided.

Long-term assignees are commonly known as the $1 million employee since full expatriate packages and the cost of tax equalization drive the cost up to three times the normal amount of their compensation package. Immigration and tax services should be retained for both immigration and tax advice.

A long-term assignment will commonly be staffed by an international assignee who will be filling a manager/leadership role for an international subsidiary (e.g., Vice President, European Operations).

Assignment Types

Each assignment type requires different compensation to support the nature and duration of the assignment.

Long-term international assignments are normally accompanied by an extensive relocation package, allowances, and tax support. This course will specifically look at the special compensation programs for long-term international assignments (commonly two to five years in duration).

Although the term “expatriate” can be used for any international assignee, it commonly refers to international assignees from the headquarters country assigned to a foreign location.

“Third country national” (TCN) is commonly used for an employee of one foreign country assigned temporarily to another foreign country.

“Inpatriate” is commonly used for employees of a foreign country assigned temporarily to the headquarters country.

“Local national” is commonly used for employees locally hired in their home country. They are normally residents of their home country.

“Localization” refers to the removal of an international assignee’s allowances and benefits to become a local hire in a country. It can also refer to a permanent relocation from one country to another that results in the localized employee being put on the local payroll, benefits, taxation, and government-sponsored programs of the country of relocation.

Distance Learning Center Course 91: Multiple Country Compensation Programs has a section on localized compensation programs.

For more information on the logistics of moving an employee and their family to another country, see Distance Learning Center Course 93: Global Mobility and the Relocation of an Employee to an International Assignment.