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International Compensation Package for Overseas Employees: Structuring Benefits

Benefits and allowances are a core part of any employee compensation package, and most companies have a standard policy they apply to different level employees.  This is a standard HR practice that is both equitable and simple to use for staff in the home country, but the home policy may not work for international assignments.

Many clients of Shield GEO often don’t realize that the benefits policy they use at home as part of compensation, can’t be applied in foreign countries.  Due to differences in labor and employment laws overseas, benefits and compensation packages might need to be adjusted or equalized to meet local standards.

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If you’re trying to offer standardized compensation packages across different countries, you can run into legal, financial and ‘philosophical’ questions with international assignments:

Tax & Social Security Regulations: some countries require a certain level of statutory benefit payment that may be greater than at home, or the host country could tax certain benefits to the employee.

Market Considerations: benefits packages are also influenced by market norms both at home and in the foreign location, as well as practical issues of reimbursement and payment. You will want to avoid undue enrichment of assignees based on benefit payments, while acknowledging the unique challenges facing international staff.

Cost vs Benefit: if an employee is required to make extraordinary withholding contributions or cannot claim tax-exempt expenses, then the company has to assess the overall cost of the assignment. In most cases, the company covers any discrepancy for the employee, so the extra expense needs to be compared to the value or necessity of the assignment.

These are some the main benefit areas to take note of:

  • Healthcare Cost
  • Pensions & Retirement Planning
  • Bonuses
  • Health & Life Insurance
  • Other Benefits, Allowances and Taxability

Almost every assignment will include these benefits, which will require pre-planning and advice on how to comply with local laws for planned or existing postings overseas.  This will form the basis for a global benefits policy that can be adapted as needed for each category of employee benefit.

A Few Examples from Shield GEO Clients

To give a better illustration, here are examples of issues that our clients have faced when sending employee abroad and adapting their benefits policy to meet local rules.  While some of these may seem trivial, failure to comply with the host country rules can result in unexpected taxation of staff or penalties for your company.

Germany: Mobile Allowances

One of our clients recently wanted to provide a mobile communications allowance for their employee in Germany.  This seems like a straightforward and necessary expense, especially for communication with the home office.  The problem arises when there is a mix of personal and business calls on any mobile plan.

They were keen on using their own expense reimbursement system they use at home, but unfortunately Germany is highly regulated when it comes to expense reimbursement. Here is how we explained their options in Germany to them and the pros and cons of each one.

Company Business Expense

This issue with claiming mobile expenses as a business expense will be a problem no matter what expense system is used. In order to classify a mobile phone bill entirely as a business expense (instead of taxable benefit to the employee) the mobile plan should set up one of two ways:

1) Provided by the employer on a company plan (this is the simplest option).  So, the bill and original plan should be in the name of the employer, and not simply a name change or adjustment to the employee’s plan.

2) Documenting that all the calls being reimbursed from the employee’s plan are for business purposes. Therefore, the employee needs to identify each individual work call on their personal mobile bill. This is painstaking to record, but perhaps necessary if the employee will make a lot of expensive international calls. 

Taxable Benefit to Employee

The other option rather than reimbursing mobile calls as a business expense, is to treat the expense as a taxable benefit to the employee and “gross up” the amount on their payslip. This will ensure that the employee will receive a net amount in their bank account equal to the whole phone bill.

Fixed Mobile Allowance

If the bill will be a regular monthly amount, then there is a third option.  A “mobile allowance” can be agreed to which covers the monthly expenditure. The employer can gross that amount up and put through the payroll so it is consistent each month.

The employee pays their personal bill with the amount of the allowance.  The actual bills could be audited every few months in case of a large discrepancy.

Mexico: Employee Laptop/Computer

Computers or laptops are a necessity for most employees, especially when they are working on foreign assignment.  One of our clients routinely provides their new employees with a new laptop as part of their benefit policy.  They were hiring a new employee in Mexico and were keen on sending them a laptop, rather than buying one in Mexico.  We explained to them the two options available under the circumstances:

Send a Laptop from Home

To send a laptop or computer internationally to an employee in Mexico is very lengthy process and can be costly. The laptop will be held in customs to determine payment of duties or taxes (all electronics will be held by customs in Mexico) which can take some time to clear. If you want it to clear quickly you will need to hire a customs agent which is quite expensive and may not be worth the cost.

Buy a Laptop Online

The other option is to buy a laptop online from a store in Mexico that delivers. There is no issue with customs using this method. 

We told our client that if they still wanted to go down the route of sending a laptop from outside of Mexico (and wished to engage a customs agent) to let us know, and we could assist.

Japan: Health Insurance

Health insurance coverage is a key employee benefit, both at home and for international assignments.  But, it can get complicated when dual coverage is needed both at home and abroad for some staff.

Recently an employee of one of our clients had a question about health insurance in Japan.  The employee was paying insurance premiums in Japan through our local employer of record, while at the same time paying for coverage in the United States.  Naturally, they wanted to stop paying the US premiums if the Japan coverage was enough, since the US policy would not offer coverage in Japan.

For many long term foreign assignments, the host country insurance coverage is all that would be needed if the employee were to remain in the country.  For example, a Japanese policy is sufficient for health care in Japan while the employee was in that location.

The issue in this case, is that the employee was traveling to the US frequently while on assignment in Japan, so the Japanese insurance policy would not cover them if they were to become ill or injured in the US.  So, we had to advise the employee that they would need to keep their US insurance coverage for their trips home, as well as the Japanese policy.

Obviously, this adds expense to the assignment, but there is no way to avoid this type of dual-benefit cost for employees that spend time in more than one country.

The Shield GEO Solution

As you can see from these examples, managing a global benefits policy is one way that Shield GEO supports our clients with their international employee assignments.  While it is tempting to try to use the existing home policy, often you will run afoul of foreign employment, tax and payroll laws that may have different requirements.

Compliance is the number one challenge facing multinationals with one or more foreign branches, and by using our local experts and employer of record our clients are ensured that every detail is handled accurately.  This saves your HR department the task of researching host country regulations, and then trying to find local assistance if issues arise.

If you are structuring a benefits and compensation package for an assignment overseas, we can help you at the early stages to anticipate any differences that you might face, as well the estimated costs of an assignment.  We offer the Shield GEO employment solution in over 90 different countries, and we invite you to contact us for guidance and information on how we can make international employment simple for your company.

Need help structuring your employee's international compensation package? Get in touch.

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