From: Ned Help
To: Carrie Counselor
Date: June 15, 2016
Subject: Benefit and Compensation Considerations
Thank you again for all your help over the past few weeks as we address our concerns with employees going abroad. We previously talked about offer letters and employment agreements. I know you covered some of the basic considerations regarding benefits and compensation, but I was hoping we could go into this topic in a little more depth, as we look to implement revised standards internally.
We will be sending some high level employees abroad for assignments in key geographic regions for the business and I expect to get plenty of push back on compensation packages. I was hoping you could provide a quick overview of some key compensation considerations we should be aware of before we begin negotiations with these individuals.
From: Carrie Counselor
To: Ned Help
Date: June 15, 2016
Subject: Re: Benefit and Compensation Considerations
I would be glad to help!
In previous correspondence, I provided some important considerations regarding housing, insurance, and cultural and legal issues. Below are some additional high level benefit and compensation considerations that you should be aware of when entering into a negotiation with an employee or prospective employee who will be on assignment abroad. Obviously many of the considerations in this email are going to depend on the specific host country, but I’d be glad to speak to you regarding specifics at another time.
- Cost of Living Adjustments. The employees will be relocating to entirely new countries where the costs of living may, in some cases, be substantially higher. Consider adjusting the cash component of the compensation package to account for living abroad, and any potential differences.
- Tax Gross Ups. As I mentioned in a prior email, US nationals sent to work abroad are still subject to US taxes. In addition to US taxes, the employee may be subject to taxes (both income-based and social) in their host country. Many companies offer tax gross-ups to employees in order to make them whole for any additional tax liabilities. You may also want to consider adopting a formal tax equalization policy if you want to offer this benefit to all employees. The tax consequences will depend on the host country’s tax structure, applicable treaties, the level of activity in the host country, and several other issues. Many companies offer tax preparation services to employees serving abroad, so this may be something the company wants to explore.
- Local Benefit Requirements. Many foreign jurisdictions have statutory minimum requirements for benefits that will need to be considered. For example, some countries have minimum holiday, insurance and severance requirements that may apply to the employee. Consideration should also be given to customary (as opposed to required) benefits that are offered to employees in similar positions in the host country. For example, automobile allowances are customary for executive level employees in certain countries.
- Equity Award Considerations. Equity has become an increasingly important part of compensation packages. Most companies have forms drafted for US-based employees, but you may want to consider re-drafting equity award agreements for employees working abroad. Particular things to consider for global transfers include data privacy provisions, tax provisions, and choice of venue provisions.
- Family Issues. Depending on the length of the assignment, the employees may bring their families. If so, there are additional benefits that come into play. For example, some companies offer tuition assistance for employees with children so that the children may attend an international school in the host country. Additionally, you may also want to consider offering spousal assistance to help the spouse find employment in the host country.
I realize we’ve provided you with a lot of information over the past several weeks, so please be in touch with any questions as you begin working internally to implement these practices and standards within your organization.