Off to Work Abroad? Make Sure to Negotiate Your Relocation Package!
Most expats understand the differences in cost of living expenses when they move to a new country. Housing, education, healthcare and travel expenses can change dramatically along with other aspects of their lives.
However, there are more technical costs that families tend to forget when they’re considering an offer to move abroad.
If you’re entering negotiations with a company, add these factors and costs to your existing needs.
Tax Coverage and Payment Assistance
Taxes vary by country, but you could end up paying more than you should without a little education in local tax law.
The first element to factor in is residency qualifications. Most countries have different tests in their tax codes that decide who qualifies for tax breaks. Greenback Expat Tax Services explains the rules for citizens of the United States, which are notoriously unique.
“Most expats use the Physical Presence test to qualify, which requires that you are inside a foreign country for 330 of any 365-day period,” the Greenback team writes. “...You will eventually be able to use the Bona Fide Residence test to qualify, as it requires that you live outside the US for a full year and have no intentions of moving back.”
They caution against planning long trips home, as you can easily hit the 35-day mark and end up paying taxes in both countries.
International telecoms executive Bradshaw Hall tells new hires to make sure they have the tools they need when tax season arrives. “[Tax assistance] can be particularly attractive as the new rules for reporting foreign income and bank accounts is cumbersome,” he writes at BlueSteps’ Executive Career Insider blog.
“Another benefit expats are given is tax equalisation. This will reimburse the expat for any taxes paid in the host country that are greater than what the executive has to pay in their home country.”
Without help or compensation from your company, your tax obligations could end up cutting deeply into your family’s budget.
Know The Country’s Laws and Your Legal Rights
Along with tax law, it’s important to understand how the contract will be interpreted if there’s a legal dispute.
The Banker in the Sun blog explains the regulations for signing an employment contract in Saudi Arabia: “All expat employment contracts in Saudi Arabia should be in English. A contract should be signed by both parties, employee and employer/sponsor. There is also an Arabic version of this agreement which is often signed. ... The Arabic version of the employment contract will be the one used if you get into any kind of labor dispute, so it is recommended you obtain a copy and have it verified by a translator.”
Another aspect of your employment contract that few expats want to think about is termination. Expatica Netherlands created a strong guide for legal additions to employee contracts in the region, including termination.
“Employment contracts for an unlimited term can only be terminated by the employer with consent of the employee, the labour office ... or the Court,” Sanne van Ruitenbeek of Pallas Attorneys at Law writes at Expatica. “The court and labour offices assess whether there are grounds for a valid termination. If an employer gives notice of termination without obtaining prior approval, the employee could nullify the termination.”
Knowing your rights and your employer’s options could save you — or at least provide you time to find another job — if you find your contract terminated during your stay.
Understand the Region’s Expat Economic Climate
The supply and demand for expat labor is changing around the world, which could affect the value, length and type of contract you’re offered.
In Expat Living Singapore, Dr Yvonne McNulty explains that most contracts only last a few years, and then switch to a localisation package. “Localisation describes the company's practice of replacing an expat compensation package with something comparable to that offered to locals. ... Localised expats are viewed and treated like local employees and offered few or no special benefits.” Many expats take this option because they enjoy living in their new home country, but it can be hard seeing your comforts stripped away.
McNulty isn’t the only one who has noticed a rise in localisation packages. Journalist Ansuya Harjani explained to CNBC why relocation packages aren’t as popular in places such as Singapore and Hong Kong anymore. “With Asia's economic resilience and multinational companies attributing increasing strategic importance to the region, there's little [to] no shortage of talent willing to relocate. On top of this, Asian companies prefer local professionals, so international candidates often have to negotiate a local package.”
Simply put, the willingness of Westerners combined with the knowledge of locals means the supply of qualified workers has gone up, lowering the need for companies to lure them with luxury offerings.
Factor in Hardship Allowances When Applicable
Wherever you’re going, consider possible factors that may result in hardship allowances that add to your package.
Sebastian Reiche of IESE Business School found companies in Beijing are offering hardship allowances because of the air quality. “The annual survey by the American Chamber of Commerce in Beijing showed that nearly half of the foreign companies say that air quality problems are driving foreign talent away from China. ... Panasonic is referred to as the first foreign company to declare paying pollution allowances to attract an international workforce.”
Hardship stations are one of the main reasons why cost of living doesn’t translate directly into your package’s value. According to ECA International, India is one of the best-paying countries for relocating expats, despite the low cost of living there. “In order to attract talent to some of the cheaper, less developed locations companies often need to provide greater incentives than they do when moving employees elsewhere.” On top of this, half of the employee’s salary is consumed by taxes, a further reason companies have to pay expats more to keep them happy.
Deciding Between a Housing Allowance or Company Housing
Most expats are offered two options when they move: finding their own housing, or letting the company find something for them. Ron Thomas, Managing Director of Strategy Focused Group DWC LLC in Dubai, recommends choosing the company-provided option, at least for the first year.
“If you prefer to choose something yourself and live in a different location, stay for at least one year in company housing and have your contract adjusted upward at renewal time as you find your own place to live,” he writes at TLNT. This way, you can find a neighborhood you like, find an affordable home or apartment, and shop for furniture on your own time. This ensures you won’t pick a neighborhood at random because you’re pressured to find something before the move.
Carole Hallett Mobbs of Expat Child emphasises the value of knowing your housing costs before you move. “Make sure you know how much typical housing costs are in your new location so you know if your housing expenses are enough. If your company won’t pay a housing allowance, make sure your salary amply covers this fee.”
Think about the cost of living in London. Will you be forced to live in a shoebox or two hours out of the city just to find something in your budget? If so, you need additional housing assistance.
The Small Costs of Moving Quickly Add Up
Beyond the costs of housing and transportation, make sure you’re covered in every aspect of the moving process.
Steve Nelson at Experts for Expats says candidates shouldn’t overlook the small fees that add up during your move. “Visa application fees, shipping your belongings overseas and plane tickets are just some of the costs involved in the actual act of moving abroad. There may also be a penalty fee attached to breaking a lease at home that you have to consider.”
Your future company may offer a flat stipend for these costs, or ask you to produce moving-related receipts for reimbursement once you’re settled in.
Author Tor Constantino tells The Muse he has been relocated multiple times, and has learned to build in a small stipend for miscellaneous expenses. “During every move, unforeseen expenses will pop up. Because, life. During my most recent relocation, the company gave us a $5,000 stipend upfront for miscellaneous use.” This can be applied to everything from travel cancellations to packing tape.
Constantino is a firm believer in the phrase “you don’t have because you didn’t ask,” and encourages employees to make sure all of their needs are covered.
Plan for the Future Expenses in Your Life
Even if your contract only lasts a few years, it’s important to factor in expenses that could occur in the long run, especially if you hope to extend your stay.
According to Skye Wellington at HoneyKids Asia, the best way to ensure your family and kids are covered in the move is to ensure clauses are included before you sign. “Even if you don’t have children upon relocating, you may want to ensure the relevant clause is inserted in your contract because typically these things are more difficult to negotiate once you are on the ground.”
If your kids aren’t of school age, are staying behind, or haven’t been born yet, a children’s education clause can help you significantly a few years down the line.
Another concern for expats leaving their home countries is their state pension. The UK in particular has infuriated expats with a pension freeze that prevents the funds for retirees outside of the UK to grow with inflation.
Tanya Jefferies at This is Money explains how much this damages expats in the long run. “More than half of the one million pensioners living abroad don't receive annual increases in their state payouts — meaning someone who retired when the basic rate was £67.50 a week in 2000 would still get that, rather than the £115.95 received by everyone else now.”
Expats need to meet with their companies or a financial advisor to determine what methods are best for retirement savings — and to make sure it’s covered in the relocation offering.
Research Your Company’s Expat Experience
Asia Expat Guides recommends evaluating your company’s experience with expats. “Some companies never, or rarely send employees abroad and look to the employee to figure it out ... and request what you and your family will need for your relocation. Other companies send thousands of employees abroad and have a very set idea of what a relocation package should include, so you must negotiate any extras.”
Your company might be just as clueless to your needs and expenses if expat relocation isn’t something they do often. Knowledge of your company’s expat history will help you decide how much wiggle room you have to add more coverage to your plan.
Martin Laird at Human Resources IQ explains the pros and cons of hiring expats, and cost is a major drawback. “You should expect to pay two to five times more on an expat than you would on a local employee. In any case, you have to decide if this significantly higher cost is worth it.”
If your company is already uneasy about the costs, you might get a worse package — and inflexible human resource associates — than companies that regularly send employees abroad.
There are so many factors for relocation costs that extend beyond grocery expenses and transportation cards. You have to consider how the company will move you, and how you will be treated when you arrive. If you keep the above factors in mind, you should be able to negotiate a strong relocation package that keeps your family comfortable abroad.