Compensation Options Offered to Expatriates - Research Paper Example

? Expatriate Compensation Expatriate Compensation Whenever someone is planning to live and work outside his or her native country, one should follow some protocols, guidelines, and recommendations. Working and living overseas can be exciting and sometimes rewarding but it is always important to keep in mind some of the employment rewards or exemptions entitled to an employee in that particular country one is planning to work (Froymovich, 2011). Employers compensate their employees after sometime due to a number of reasons. Compensation packages are those rewards that employees pocket after performing certain jobs. They are into two categories, which include intrinsic and extrinsic. In intrinsic compensation, employees receive rewards that represent their critical psychological states resulting from their job performance whilst monetary and nonmonetary rewards represent extrinsic compensation (Kwoh, 2012). This paper will seek to discuss about the different compensation options offered to expatriates as well as what they should expect in those compensation packages. Additionally, it will also include the hidden costs and other life costs that expatriates should consider as they could affect their compensation. Compensation options offered to expatriates Tax Many companies offer expatriates several compensation options. These compensation options can be in the form of taxes whereby a foreigner working in a particular country can be exempted from taxation. This means that, that employee has a compensation option, which is tax, and he or she can choose to be exempted with reference to this option (Froymovich, 2011). In this case, an employee becomes eligible for things like foreign tax exclusions. In addition, he or she can still eligible for extra compensation options that include credits and deductions that help protect the employee from double taxation particularly on the same amount of income he or she generates after a given period. Therefore, it is advisable that if an employee is going to be paying for his or her local taxes, hiring a qualified and eligible international tax expert who can help understand the kind of exclusions and credits an employee can qualify for in that specific country (Aenlle, 1996). For instance, in some countries such as Belgium, temporary international workers have the eligibility to claim for deductions that locals cannot. In tax preparation, employees tend to include what they commonly refer to as the tax equalization contract in expat packages. In this kind of situation, a company pays for an employees’ international or foreign taxes while the employee essentially pays for taxes in his or her home country as if he is still living in that country (Froymovich, 2011). However, noting that there are number of pitfalls in this case is crucial. An employee can end up owing the company he works for if that company’s accountants calculate the employee’s tax burden and establish it exceeds the total amount of money the employee has in his accounts especially if the employee is an American (Kwoh, 2012). Moreover, despite the point that the company may promise to pay for an employee’s tax preparation so that the employee complies with the US regulations, it may fail to inform the employee of any other local charges that the employee is responsible for in due time making it hard for the employee to comply immediately. A clear outlook into this situation indicates that the article provides evidence that there are hidden charges that an employee may fail to be aware of resulting to ambiguities. In this case, the hidden charges are the local charges needed to take care of the required paperwork and in the US, it can cost up to $1000 or more (Aenlle, 1996). Apart from this case, there are others where an employee may be responsible for his or her local taxes without prior preparation knowledge or assistance as per what date will the exemptions or deductions will be available. According to the senior portfolio manager, Maxim Global Wealth Advisors, Portland, Ore, Jeannie Pedersen, it will be wise for an employee to include his or her own tax advisor in the overseeing process even though the employer offers to provide tax-filing assistance. Inheritance issues In some nations, laws set by the government can void long inheritance plans. Due to this reason Robin Vos who is both a partner and specialist in advising internationals seeking to work in Britain at the London law firm MacFarlanes LLP narrates that in order for one to secure inheritance plans, it is good for expats to specify within their wills indicating that US laws should be eligible for governing their estates. He points out that, Americans can find themselves in a fix related to tax net when in Britain simply because they tend to use trusts as their substitute for a will (Froymovich, 2011). According to the laws of Britain, the determinant for taxes is the place where the trustee resides as opposed to his or her location. This means that, if an expat residing in Britain lost his life, the UK can put tax on his income gains as well as capital gains even before the sell of any assets. Additionally, the law defines that it is not possible to change the name of the trustee if the trustee is already a resident in the UK. According to the article, “Before You Get on That Plane...,” suggestions advise expats to purchase their estates using loans in order to avoid unnecessary inheritance tax on real estate purchases. This is so because, a real estate bought through a loan is more cost effective as this helps deduct real estate tax from the value of that property. This shows that thinking that one has kept every bit of his assets in offshore locations is wrong since such people would not only require to appoint an agent to who is not planning on going to UK, but also do away with the trust (Aenlle, 1996). Under this spectrum, it is assumable that tax on inheritance is part of the compensation options offered to expatriates. As such, an expat may be exclusive of tax on inheritance in some countries while in others such things are not available. In this compensation option, an expatriate should expect in exclusion from inheritance tax in his or her compensation package (Froymovich, 2011). Savings and investments When many people their native countries to go and work in a foreign country, they fall in a position to accumulate most of their savings especially in their new postings (Froymovich, 2011). Many wealth advisors suggest that this is risky and if the expat is a US citizen, he or she should save in an American bank. Don Freeman who is a managing director at Freeman Capital Management points out that many expats save substantial amounts. This is so because, in countries where they work, the cost of living is very low (Kwoh, 2012). This aspect gives them an opportunity to save substantially thus setting up a savings plan is very essential. Advisors in this sector suggest that if an expert plans to go back to the US in the near future, it is vital to maintain the bulk of his investments and savings in America in order to protect his savings against currency change rates and ensure that both his savings and investments comply with the Internal Revenue Service. Forex rates Ideally, it is truly painful for employees to have their salaries decline drastically mainly due to decreased exchange rates. Forex rates are yet another compensation option offered to expatriates. Advisors maintain that for expats from the US with limited contracts should find it necessary to seek and negotiate for portion of their salaries be paid in local currency for both medium and immediate term needs. At the same time, another segment of these expats should also negotiate for their salaries to be paid in dollars for long-term savings (Froymovich, 2011). If this option is not possible and an expat receives his salary exclusively in-home currency, request if the employment contract can consist of regular reviews regarding the exchange rate in order to compensate for considerable changes. While a larger number of experts advice maintaining a huge portion of their income within the U.S., healthy cash aloofness in the international country is imperative in order to avoid exchanging currency in situations when time is inopportune. Specifically, Forex rates make part of the best compensation options that an expat should seek to accumulate (Aenlle, 1996). Based on this fact, foreign exchange rates play a very vital role in purchasing a home in an overseas country. Money managers explain to expats that it is important to keep watch of foreign currency mortgages. This may be congruent as foreign currency mortgages could leave the borrower at risk of losing his savings and other properties at times when financial markets become volatile. This happens when the gap between the mortgage liability currency and the income currency end up widening dramatically (Kwoh, 2012). Synopsis of the articles “Before You Get on That Plane...” Given that insurance coverage is, also, another compensation option offered to expatriates, this article explains that confirming that an individual’s health care in addition to other insurance plans is acceptable (Froymovich, 2011). Buying and renting are yet other options, which this article expounds on as it confirms that setting up different or new residence helps in establishing a transitional beginning. Nonetheless, in the case of buying or renting for expats, advisors explain that renting is the best option (Aenlle, 1996). For once, when buying, taxes charged on real estate transfer can prove to be quite high hence ending up lengthening the holding period, which is necessary for recouping expenses. Frankly, this article makes it clear that renting a house in the new country as opposed to buying. Article 2: A Few Guidelines This article points out that once expatriates settle and ensure their employer has completed paying for all their essentials (necessities of life), they start seeking ways to save (Aenlle, 1996). As a result, the author sets out that it is advisable for expatriates to investigate whether the country in which they are residing offers tax concessions to people with temporary residence. If this is the case, this article expounds that it is wise for the expatriate to request the company to be making part of his or her salary into that account (Kwoh, 2012). Surprisingly, one of the trickiest things is that expatriates get confused on whether to maintain their contributions to their states or corporate pension plans or make their payments to the country’s visitors. The overall perquisite in this article is that getting access to professional advice is important. Article 3: Affording the expatriate life Japan leads in terms of the most expensive cities for expatriates in the world. The latest annual rankings depicting the cost of living in different cities position Japan at number one followed by Luanda the capital city of Angola. The cost of living in these in cities is very high and living in such cities as an expatriate can be ineffective especially the amount of money an expatriate gets is less when compared to the expenses incurred (Kwoh, 2012). The survey provided by this article aims at capturing how the cost of living can affect any multinationals planning to venture into such markets. Overly, the report is of the essence as it helps multinationals establish and adjust in order to meet their expatriates’ compensation packages. Relation to compensation in a human resources department and conclusion The information obtained from these articles helps a human resource department in a way that they are able to establish the kind of expatriate packages that the company ought to give an employee. Additionally, the cost of living in some cities is different and a bit costly or less expensive when compared to others (Kwoh, 2012). Consequently, human resource management department makes use of the data to determine the expatriate packages that they should give an employee. In conclusion, things involved in compensation range from results to efforts to talents hence the total rewards accorded to expats deliberately link or integrate with five core elements which include work life, benefits, compensation, development, career opportunities, recognition, and performance. References Aenlle, C. (1996). Negotiating an Expatriate Compensation Package: A Few Guidelines. Retrieved from http://www.nytimes.com/1996/02/24/your-money/24iht-chase.t.html on November 4, 2012. Froymovich, R. (2011). Before You Get on That Plane... Retrieved from http://online.wsj.com/article/SB10001424052748703730804576321411442008294.html on November 4, 2012. Kwoh, L. (2012). Who Can Afford the Expat Life? Retrieved from http://blogs.wsj.com/atwork/2012/06/14/who-can-afford-the-expat-life/ on November 4, 2012. Read More