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Benefits
The term benefits can be understood to mean many different things for employees depending on the organization and the country. For purposes of this course, we will focus on two benefit categories 1) "required" or statutory and 2) "discretionary" or non-statutory. The uniqueness of benefits programs at the local level is such that research needs to be done on a case-by-case basis; each benefit can be quite different and benefits in some countries simply don't exist anywhere else.
Making the decision to set up operations in a country on the basis of base salary differentials can lead to major and unexpected additional costs. As a business practitioner, it is important to understand the benefit structure of each country in which your organization operates. In many countries, the cost of benefits can be 50% or more of the base salary. Many benefits are required and failure to implement them properly can lead to legal, financial, and public relations problems. This is when hiring and sourcing locally becomes essential. For example, if you hire an experienced local Human Resources Manager, they would be required to be knowledgeable about local practices and requirements. The same would apply to hiring a local payroll provider.
Required Statutory Benefits
The required statutory benefits can be broken into the following categories:
- Retirement, Disability (including Maternity), Death
- Medical & Dental
- Work injury
- Unemployment
- Social Welfare
Understanding required statutory benefits is important to minimize legal issues and ensure appropriate costs for an international location.
Retirement, Disability, Death. This includes pensions that in many countries are funded by steep employer taxes and is a major portion of the retirement plan of most workers. In the United States, this is represented by the Old Age, Survivors and Disability Insurance (OASDI) more commonly known as Social Security.
Many organizations throughout the world supplement government-provided social security benefits with their own defined benefit or defined contribution retirement plan. The Mercer CFA Global Pension Index is published annually and assesses the strengths and weaknesses of almost 50 pension plans around the world.
Medical & Dental. Many countries have social health systems that the local residents contribute to. Most companies provide supplemental benefits in this category as a voluntary, co-sharing cost strategy, or employer sponsored program depending on competitive practices and business objectives.
Work Injury and Unemployment. Both work injury and unemployment tend to be funded (to varying degrees) by employer taxes. In the United States, work injury is covered by Workers Compensation and unemployment is covered by a special tax. These are separate programs, funded independently under different sets of laws. In other countries, work injury and unemployment can be combined or funded separately as in the U.S. In some regions statutory benefits vary significantly.
| For example: | Sven, originally from Denmark, was living and working in Cyprus as a local national when he lost his job and applied for the unemployment benefit there. He was disappointed when he found out he was only entitled to benefits for approximately 5 months. In Denmark, the benefits would have run up to 2 years. He never suspected the difference would be so great. |
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Social Welfare. An individual eligible for state provided social welfare will generally be given an allowance based on family size if they meet an underprivileged or disadvantaged definition of the specific country.
How an organization views these differences in the context of their total rewards, organization culture, and employee brand will determine the degree of enhanced alignment on a local and global basis.
Who Pays?
Each country varies in how statutory benefits are financed. In some cases, the government pays the whole cost out of taxes to which employers and/or employees contribute all or a portion of the costs. Some countries have laws that create a supplementary program in a particular category, usually a retirement plan requirement. Australia has such a requirement, as all companies must offer a superannuation (retirement) plan to their employees. India also has a statutory retirement plan, which requires both employee and company contributions. A resource for programs in different regions is available at the Social Security Research, Statistics and Policy Analysis website.
Memory Jogger
Failure to learn about required statutory benefits in a host country can lead to: