A global mobility program can offer significant value to a company, not only because of the business opportunities it presents, but also because it helps to attract and retain quality talent. However, to remain in compliance with the rules and regulations of various countries, a well-run global mobility program needs accurate, timely administration and bookkeeping. Working with a global compensation services provider offers companies a cost-effective way to gain access to the expertise, manpower and resources needed to maintain centralized, organized payroll and tax reporting.
Today is the first in our series of posts about the services offered by global compensation services providers. Keep checking back to learn more.
A cost projection is a comprehensive, high-level estimate of expected costs specific to the global assignment. This is based on the client's mobility and compensation policies, as well as all additional assumptions that have been agreed upon for a specific assignment. In addition to the employee’s base compensation, which consists of his or her salary and any bonuses, it includes all estimated assignment expenses and hypothetical expenses. This can involve a range of expenses such as relocation expense reimbursement, cost of living allowance, home leave, housing allowance, expatriate premium, tax services and more, depending on the individual case. It also includes a breakdown of the projected domestic and host country taxes. Costs are assessed based on reliable data sources and projected for the duration of the assignment. For assignments that are longer than two years, inflation may be taken into account. However, it’s important to understand that actual costs may vary due to economic fluctuations that impact the cost of living, as well as other factors such as hardship, emergencies, changes to family size and more.
The main purpose of a cost projection is to create a data-driven estimate of costs that the company can use to make strategic decisions regarding its workforce needs in that location. With an accurate and comprehensive overview of the required financial investment, the company can determine whether the assignment is financially viable. If necessary, it can be used as a tool to consider alternative solutions that require a lower investment such as sending a less senior—and therefore less expensive—employee or working with a local staffing agency to hire short-term, local professionals.
Quick Cost Projection
A quick cost projection tool is a standalone tool that the company can use to plan and compare different scenarios. Whereas a cost projection is a detailed document that’s tailored to a specific assignment using the most current data, a quick cost projection tool uses more general data based on country-specific information. Based on the user’s input, it calculates cost of living, education costs, tax data, housing costs, health care expenses and more to create quick cost projections that can be used to compare the investment associated with various scenarios.
For example, a company might want to compare the costs of sending a senior manager with a spouse to Frankfurt for two years to the costs associated with sending a lower level manager who has a spouse and a child on the same assignment. Or a multinational company might want to compare the costs of sending an engineer from Detroit, Michigan on a 12-month assignment to London with the costs required to send an engineer with the same skills but who’s currently based in Milan on the same assignment.
Many quick cost projection tools are web-based platforms that companies can access themselves and use at any time. This makes them both easy to use and much more affordable than in-depth cost projections—although an in-depth cost projection will be required further on in the assignment process.
Letter of Assignment
A letter of understanding or letter of assignment outlines the details and benefits of the assignment. It’s a legally binding document that basically serves as an addendum to the assignee’s regular employment contract and lays out any varying or additional terms that apply for the duration of the assignment. As such, it must be signed by all parties. In addition to the start and end date of the assignment, job title and location, the letter of assignment must specify all contractual agreements, code of conduct, compensation and benefits, assignment-specific benefits such as moving expenses and repatriation allowance, tax equalization and other fiscal matters.
It’s important that the letter of assignment lay out all pertinent details of an assignment in a manner that leaves no room for misinterpretation. Any lack of clarity could lead to misunderstanding, which in turn could lead to costly and time-consuming problems. This can be a drain on resources, and it can create a distraction for the employee and impact the success of his or her assignment.
Initial Balance Sheet
The initial balance sheet is typically affixed to the letter of assignment. It provides details regarding the assignment allowances the employee will receive.
Check back next week for Part 2!