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Relocating to and from the UK
Relocation: Understanding and Making the Most of What's on Offer
An employment opportunity in another country brings a huge number of opportunities, questions and concerns for all the family. Many companies offer a great deal of support by providing both information and services but there are still companies which may not offer so much.
Using support that is available is sometimes not as straightforward as it might seem. In the corporate world of international assignments and mobility, there are many specialist terms and acronyms in use that can confuse and distract the ‘lay' person and add to the general confusion and feeling of being overwhelmed by information rather than being helped by it.
This article aims to de-mystify some of these areas and to help assignees and their families understand and access the help on offer. It will provide some simple definitions of commonly used terms and information around how specific benefits work. It may also provide information to those who don't have a lot of support, to know what to ask for when the need arises.
First things first. When an assignment is offered, it's very typical that an Assignment Briefing will be offered to talk you through the details of the assignment. The briefing will sometimes use an Assignment Letter as the basis for addressing the compensation and benefits on offer and the procedures that will be followed in order to make things happen.
The first thing to understand is what type of assignment is being offered. There are a number of variations, but typically, temporary assignments to another country will be of the Short- or Long-Term variety. Short-Term assignments will normally be for a minimum period of 1 - 3 months and a maximum of 12 months. A Long-Term assignment, which is the main focus of this article, will usually be for a minimum of one year and last for a maximum of 3 – 5 years with an extension possible, subject to a robust approval process. There are some important distinctions as far as the usual scope of compensation and benefits offered under the two assignment types. Under short-term assignments, the tax treatment is often different to a long-term arrangement and these assignments are not automatically ‘accompanied.' In other words, often the spouse and dependent children are not invited to accompany the assignee.
Package or Policy – The Financial/s
When a potential assignee sits down to discuss the offer of an international assignment, this is often with a line manager or person who is filling the position. In the past, it would be common for a package to be put together for an individual who would then ‘negotiate' additional items until an overall agreement was reached. Today, this is a much less common although some companies build a degree of flexibility into their policies. Nowadays the discussion will more frequently involve HR and/or possibly an outsourced provider of relocation and assignment management services.
Typically, an assignee will be offered a base salary appropriate to the new job, the individual's skills and experience, education and so on. Sometimes this means an increase but not always. In addition, a typical approach to assignment compensation is to utilise what is called the Balance Sheet Approach. This approach aims to keep assignees ‘whole' in their purchasing power and with respect to taxation by using a Cost of Living Allowance (COLA) and a Hypothetical Tax Deduction (Hypo Tax). In addition, other targeted payments may be included to address the specifics of an assignment.
These allowances and deductions are based on survey data provided by independent companies which specialise in surveying and providing this type of information. Income level, family size and home country norms are the primary factors used to determine the “balance sheet” provisions for international assignment.
The COLA is paid in order to balance out any additional cost of living experienced at the host location. Each of us allocates a proportion of our income to purchase food and other consumables such as personal care items; fuel; entertainment; clothing etc. The COLA calculation incorporates a pattern of spending typical to expatriates in a particular location and prices all of the items in that location and calculates any difference between spending at home and spending in the assignment location, in the assignment location currency. This is then paid as an allowance and is updated for new pricing and foreign exchange changes over time.
There are several important things to recognise about this allowance. First, it is not intended that an assignee and family should be able to live on the allowance alone. It represents the difference between home and host costs and is intended to supplement expenditure that would have happened at home anyway.
Sometimes the cost at the assignment location is less than at home and some companies will even make a deduction from pay to recognise that living costs are lower. Most companies do not make this deduction and so as costs in the host location increase, assignees and families may not realise that it is still less expensive than at home. For long-term expatriates, it's also easy to forget that prices do increase at home and this will also have an effect on the amount of difference between home and host.
Finally, don't look at a host country government consumer price index as a guide as this may include expenditure on items that are provided to you in kind. This may be items such as rent, furniture, utilities, fuel and so on. Most companies are happy to recap how this type of allowance is used within policy, so feel free to ask.
Tax policy under this type of plan is know as Tax Equalisation and involves taking what's known as a Hypo Tax Deduction which will be roughly equivalent to the tax that would have been levied on base salary and usually any applicable bonus, had the assignee remained at home. In return, the company then pays all host country, and sometimes any additional home country taxes, on company derived income. It's very important to understand that this does not cover additional taxes on personal investment or other non company income.
Additional allowances are sometimes offered: a Relocation Allowance to defray extra expenses incurred in the move such as cleaning a primary residence so that it can be rented out or buying additional clothing for assignment to a country with a very different climate. For some locations deemed to be difficult in terms of climate, availability of goods and services, security or other extremes, a Hardship Allowance may be offered. This is also usually determined by reference to an evaluation provided by a specialist company.
Lastly, some companies include a deduction for housing, known as a Housing Norm or Housing Deduction. This is an equalising factor and usually assumes that the assignee will be able to rent out the property. Some companies will provide an allowance to cover partial property management expenses or may be willing to suspend the deduction if it is not possible to rent out the property.
Other Preparation – who gets to go?
Most companies will apply an ‘accompanied' status to long-term international assignments. This means that benefits such as travel and immigration will be offered to a spouse and dependent children. As we all know, families have become more complicated and the plain vanilla nuclear family is no longer the only option likely to occur. Many companies are now recognising this and will offer benefits to unmarried or same sex partners, provided that the host country immigration rules or other legal framework does not prohibit this. In addition, if adopted children, step children or children in the custody of a divorced parent are in the picture, be sure to ask your company how they will be treated under the company's assignment policies.
Pre-Departure – Immigration, Household Goods, Travel & Temporary Living
Virtually all companies will offer an assignment subject to the required immigration permissions being forthcoming. Depending on the country of assignment and the citizenship of the assignee and family members, this will usually involve a work permit for the assignee and residence permits for all family members. In the case of spouses or partners who would like to work in at the assignment location, most companies will not offer support in this area but it's always worth asking.
Companies will make provision for you to ship personal or household goods . The amount that may be shipped will depend on whether furnished or unfurnished accommodation is provided in the host location. Entitlements are sometimes a combination of surface (sea) and air, with the air shipment consisting of articles which will be needed prior to the arrival of surface shipment such as clothing and children's toys and supplies.
The majority of companies will have a list of excluded items and families should be aware of these. Pets may or may not be included and obviously it is important to factor this into the overall picture.
Household goods policies often also include storage of any household effects which are to remain in the home country.
When it's time to travel to the host location, it's typical for companies to use its business travel policy to determine class of travel and reimbursable expenses. Some companies still permit some business class travel, usually based on a single sector being of more than six or sometimes nine hours duration. More often, economy is now the rule. Additional reimbursable expenses are usually the travel to and from airports and possibly some en-route incidental expenses.
Temporary Living consisting of hotel or a serviced apartment may be provided at the host location prior to being able to move into permanent accommodation. Transport costs may also be reimbursed during this period.
Arrival – Housing, Children's Education and Settling-In
Of most concern to assignees and their families are usually housing - where to live and where will the children go to school . Companies typically set a budget for housing by family size and position, at each location. Sometimes an outside supplier provides the information to base this on, sometimes internal or external resources at each location are used and more often a combination of various sources. The budget may include utilities or sometimes they are reimbursed separately. Occasionally they are not reimbursed at all. Most countries have a property related tax such as Council Tax in the UK and this is typically reimbursed.
Options for locating housing range from help from colleagues and local HR through to a full service home search facilitated by a local relocation or Destination Services Provider (DSP). A DSP will prepare and accompany visits to properties and then provide assistance to negotiate the lease, obtain required signatures and facilitate inventory and the move-in day. The DSP may also provide settling in services consisting of an area orientation, connection of utilities, obtaining a driver's license, obtaining a local social security ID and help with banking.
On the education front, the type of assistance available will range from local schools to private schools offering a “home country” education system or an international school. Support will usually be limited to tuition, books and sometimes transportation. It will definitely exclude field trips, extra curricular activities and other non-mandated activities.
Language Training & Inter-Cultural Training
The ability to speak the language of the country of assignment adds tremendously to the experience of living in another country and many companies will provide lessons up to a prescribed limit to the assignee and spouse. Curiously, many do not extend this benefit to dependent children, expecting that this will be offered by the local school. Likewise, with Inter-Cultural Training, this is frequently offered to the assignee and spouse but infrequently to children. It is often seen as optional but worth taking if time permits.
Host Transportation
The provision of a vehicle is not typically part of an assignment policy. Most companies provide (or not) according to local policies applicable to all employees in that particular location, and this is often Grade or Band based. In circumstances where an assignee was entitled to a vehicle in the home location but not in the host, some companies will make an allowance which the assignee can use to provide either a vehicle or pay for alternative transportation.
Visiting Home
Home Leave is a common component of assignment policies and is usually provided to be used in conjunction with vacation. Unlike initial travel to the location, home leave is normally not based on business travel policy and is commonly restricted to economy class travel. Some companies provide an element of car rental to be used during home leave but this is not terribly common. In the past many companies required that home leave be taken in the home country to ensure that personal and work ties were maintained and although this persists in some companies it is by no means common practice today. This is a policy area where companies have implemented a lump sum policy. This type of policy, as the description implies, provides a lump sum (taxable to the employee) based on a proportion of a full or sometimes discounted economy class airfare to the home location. Assignees are then free to use the money as they wish.
Repatriation
Benefits provided under this description are most of the elements described above but in reverse. Assignees who resign or who are terminated for some reason may not be provided with all of those benefits and assignees should be familiar with these provisions for obvious reasons.
Conclusion
A little bit of knowledge goes a long way and companies are typically anxious to make sure that its policies and practices are well understood by everyone. Most include spouses in briefing meetings and if not invited, spouses should be proactive in arranging to participate. Assignees and their families are undertaking a significant life change in accepting an assignment and making assumptions should not be a part of the decision making process as to whether or not to accept the opportunity and what this will mean to them as a family both financially and otherwise.
This article was written by Gill Aldred, and is correct at the time of publishing.
