Expat contract negotiation
Expat Contract Negotiation
What should be included for an expat hired from overseas?
What should be included for an expat hired from overseas?
Salary | Hardship | Cost of Living | Healthcare | Accommodation | Schooling | Car | Taxes | Flights | Visas | Repatriation
According to the Wall Street Journal “the overseas posting is not the cushy gig it once was.” With the recession and a surplus of skilled workers, expat packages are being scaled down. So while top management often enjoys padded relocation packages, it is becoming increasingly uncommon for lower levels. Perks of expatriation that once guaranteed a luxurious lifestyle have been scrutinised and cut back - some important features that should not be compromised in your expat contract.
So when it’s your turn to negotiate a contract you need to be smart and informed about what to include. The key is to choose which battles to fight, and ensure you win them while conceding those contract features less important to you.
The best time to negotiate is once you have a concrete offer, but before you have signed the contract. Once you put pen to paper you can forget about improving subsequent conditions – and if you get too pushy too early you can jeopardise getting the job offer in the first place.
Salary/base - Foreign Service Premiums
Initially the contract negotiation is always to determine salary. This part is complex enough to warrant a field of specialist advisers. For example, if you’re moving from the US to Beijing, Corporate Resources Group, a subsidiary of William M. Mercer, can advise that your base salary should be increased 17 percent because Beijing lacks parks, freedom of speech and qualified doctors. In reality there is less science and a lot more negotiation. The most important part is to have plenty of information and data so you know what to ask for and can back up the requests. So login to expat chat rooms and bulletin boards, ask around, and get as much concrete information on costs as possible. Then you’ll know what the offered salary is really worth once translated into the living expenses of the new destination.
Initially the contract negotiation is always to determine salary. This part is complex enough to warrant a field of specialist advisers. For example, if you’re moving from the US to Beijing, Corporate Resources Group, a subsidiary of William M. Mercer, can advise that your base salary should be increased 17 percent because Beijing lacks parks, freedom of speech and qualified doctors. In reality there is less science and a lot more negotiation. The most important part is to have plenty of information and data so you know what to ask for and can back up the requests. So login to expat chat rooms and bulletin boards, ask around, and get as much concrete information on costs as possible. Then you’ll know what the offered salary is really worth once translated into the living expenses of the new destination.
Hardship pay
In addition to an expat’s usual salary, many relocated expats receive a hardship bonus. This is increasingly uncommon but should still be used as a negotiating chip. “Hardship” is difficult to define and quantify but is pretty obvious in destinations like Libya, Iraq and Nigeria. Factors such as pollution, restriction of freedoms, traffic, crime and danger all factor into the hardship of living.
In addition to an expat’s usual salary, many relocated expats receive a hardship bonus. This is increasingly uncommon but should still be used as a negotiating chip. “Hardship” is difficult to define and quantify but is pretty obvious in destinations like Libya, Iraq and Nigeria. Factors such as pollution, restriction of freedoms, traffic, crime and danger all factor into the hardship of living.
Cost of living
Another potential addition to an expats base salary is the cost of living in the expat destination. The largest of these may be housing. In Mumbai and Dubai, for example, housing is the single largest contributor to the cost of living while many other assets of the city are inexpensive. If housing is already paid for, than the city's higher cost of living may not be represented in a salary increase. When negotiating, employees should have previously researched what can be expensive in a given city and be able to reference prices. The numbers used to determine the cost of living by the employer are often based on bad information so it is always a good idea to bring your own. Visit the Cost of Living section for the relevant country in www.expatarrivals.com and consult Mercer's annual Cost of Living survey.
Healthcare
Many overseas countries do not have adequate public health facilities, so comprehensive medical insurance is essential. This should always be provided for by the hiring company to employees and their families overseas. Insurance is not all the same, with multiple levels of premiums and co-pays. Expats should discuss what happens in an emergency, if the initial payment is out-of-pocket and then reimbursed or immediately covered. Make sure evacuations are covered, whether for a natural disaster or a medical emergency.
Another potential addition to an expats base salary is the cost of living in the expat destination. The largest of these may be housing. In Mumbai and Dubai, for example, housing is the single largest contributor to the cost of living while many other assets of the city are inexpensive. If housing is already paid for, than the city's higher cost of living may not be represented in a salary increase. When negotiating, employees should have previously researched what can be expensive in a given city and be able to reference prices. The numbers used to determine the cost of living by the employer are often based on bad information so it is always a good idea to bring your own. Visit the Cost of Living section for the relevant country in www.expatarrivals.com and consult Mercer's annual Cost of Living survey.
Healthcare
Many overseas countries do not have adequate public health facilities, so comprehensive medical insurance is essential. This should always be provided for by the hiring company to employees and their families overseas. Insurance is not all the same, with multiple levels of premiums and co-pays. Expats should discuss what happens in an emergency, if the initial payment is out-of-pocket and then reimbursed or immediately covered. Make sure evacuations are covered, whether for a natural disaster or a medical emergency.
Housing and Accommodation
Accommodation costs are perhaps the largest variable when negotiating a contract. This is a huge amount of money that a company doesn't pay in a home country, and they may be reluctant to include it in a relocation perk. Its significance changes greatly depending on the expat destination. Some expats in India find they can't afford housing even akin to what they have in their home country. In a less expensive city housing may be overlooked to negotiate for other perks or a higher salary. Expats are usually afforded luxury housing when it is included as a perk. It can either be included as an amount of money that the expat is free to spend on accommodation each month or less frequently, provided accommodation in an already rented or owned luxury flat, compound or villa.
Accommodation costs are perhaps the largest variable when negotiating a contract. This is a huge amount of money that a company doesn't pay in a home country, and they may be reluctant to include it in a relocation perk. Its significance changes greatly depending on the expat destination. Some expats in India find they can't afford housing even akin to what they have in their home country. In a less expensive city housing may be overlooked to negotiate for other perks or a higher salary. Expats are usually afforded luxury housing when it is included as a perk. It can either be included as an amount of money that the expat is free to spend on accommodation each month or less frequently, provided accommodation in an already rented or owned luxury flat, compound or villa.
Schooling and Education
Companies that relocate employees are obligated to look after their families as well. Largely this means tuition costs at international schools. No matter where the international school is, from France to Kenya, the cost of tuition is always high – from 10,000-60,000 USD annually. If not included as part of a relocation package, this can significantly eat into a salary. These would be new costs to expats as most children in an expat's home country can attend public school for free.
Note that many schools have long waiting lists and the best schools are often nearly impossible to be placed in when first arriving in a country. However, some large companies with continued presence in a foreign city have reserved spots in international schools for the children of their employees. Guaranteeing a student onto the enrolment list can be as important as having the company pay for tuition.
Adult classes are sometimes included for the entire family, including language lessons or cultural seminars. It can be worth negotiating for language and enculturation classes to expedite you and your family’s adaptation to the new country
Car
Few contracts will include the provision of motor vehicle, but it is often appropriate and necessary to negotiate for the cost of a driver. In so-called third world countries it is perilous to drive oneself around and having a driver is essential. You should also consider that having a four-wheel drive vehicle may be essential, to cope with both off-road terrain and terrible inner-city road conditions.
Taxes
Taxes get very complex when filing in two countries with one salary. Some countries tax expats on their worldwide income, while others only tax expats on salary derived from the country. Countries also have a maze of tax treaties, protecting expats from double taxation, but not all countries have treaties with your country of origin.
To avoid complications companies often pay all the expat's taxes for the year in both the home country and the overseas posting. They then take from the expat the amount of tax they usually pay in their home country or from their last filings.
Expats can also time the start and end of their contract around tax dates. For example, if an expat's one year contract begins six months before the end of the tax year and goes for another six months after, they may be put into a smaller tax bracket based on only half their annual wage. Often countries only require taxes paid after an expat has spent a certain amount of consecutive days in the country in one year. With strategic vacation times and contract start and end dates, expats may be able to avoid some payments. If the expat is taxed on his salary twice or the tax in a foreign country is greater, the expat may be entitled to compensation from the hiring company.
Tax status is further complicated whether the expat is seeking residency or is on a temporary visa. It is strongly advised to use a tax planner in filing your taxes between two countries, and this is sometimes not covered by a hiring company, but will probably end up saving the expat money.
Flights home and vacation
Flights to and from the country of employment are expected. For an extended contract flights should also be included for vacation. Usually one round trip ticket is provided annually for the whole family. Sometimes this is first covered by the employee and then reimbursed by the company. Allotted vacation times are similar to the time allotted in the home country but several extra days of vacation are common to accommodate time spent flying. Companies often include paid-for company trips to other countries not included as vacation time.
Work and residency visas
Expats shouldn't worry about negotiating or paying for their work or residency permit. In most cases the paperwork needs to be submitted by the company justifying their employment. Mostly, companies hiring expats are accustomed to the procedures and expats only need to follow directions. The work permit and visa fees are usually not much and should be covered by the employer.
Companies that relocate employees are obligated to look after their families as well. Largely this means tuition costs at international schools. No matter where the international school is, from France to Kenya, the cost of tuition is always high – from 10,000-60,000 USD annually. If not included as part of a relocation package, this can significantly eat into a salary. These would be new costs to expats as most children in an expat's home country can attend public school for free.
Note that many schools have long waiting lists and the best schools are often nearly impossible to be placed in when first arriving in a country. However, some large companies with continued presence in a foreign city have reserved spots in international schools for the children of their employees. Guaranteeing a student onto the enrolment list can be as important as having the company pay for tuition.
Adult classes are sometimes included for the entire family, including language lessons or cultural seminars. It can be worth negotiating for language and enculturation classes to expedite you and your family’s adaptation to the new country
Car
Few contracts will include the provision of motor vehicle, but it is often appropriate and necessary to negotiate for the cost of a driver. In so-called third world countries it is perilous to drive oneself around and having a driver is essential. You should also consider that having a four-wheel drive vehicle may be essential, to cope with both off-road terrain and terrible inner-city road conditions.
Taxes
Taxes get very complex when filing in two countries with one salary. Some countries tax expats on their worldwide income, while others only tax expats on salary derived from the country. Countries also have a maze of tax treaties, protecting expats from double taxation, but not all countries have treaties with your country of origin.
To avoid complications companies often pay all the expat's taxes for the year in both the home country and the overseas posting. They then take from the expat the amount of tax they usually pay in their home country or from their last filings.
Expats can also time the start and end of their contract around tax dates. For example, if an expat's one year contract begins six months before the end of the tax year and goes for another six months after, they may be put into a smaller tax bracket based on only half their annual wage. Often countries only require taxes paid after an expat has spent a certain amount of consecutive days in the country in one year. With strategic vacation times and contract start and end dates, expats may be able to avoid some payments. If the expat is taxed on his salary twice or the tax in a foreign country is greater, the expat may be entitled to compensation from the hiring company.
Tax status is further complicated whether the expat is seeking residency or is on a temporary visa. It is strongly advised to use a tax planner in filing your taxes between two countries, and this is sometimes not covered by a hiring company, but will probably end up saving the expat money.
Flights home and vacation
Flights to and from the country of employment are expected. For an extended contract flights should also be included for vacation. Usually one round trip ticket is provided annually for the whole family. Sometimes this is first covered by the employee and then reimbursed by the company. Allotted vacation times are similar to the time allotted in the home country but several extra days of vacation are common to accommodate time spent flying. Companies often include paid-for company trips to other countries not included as vacation time.
Work and residency visas
Expats shouldn't worry about negotiating or paying for their work or residency permit. In most cases the paperwork needs to be submitted by the company justifying their employment. Mostly, companies hiring expats are accustomed to the procedures and expats only need to follow directions. The work permit and visa fees are usually not much and should be covered by the employer.
At some point the expat will want to return home. Negotiate that the costs of this process will be covered, and crucially, lock-down the precise length of the overseas assignment. There should be clauses in the contract that specify compensations should the assignment run over. This is a routine grey area in contracts that companies often exploit later on when leveraging more work or less pay from the expat employee.
In conclusion
In conclusion
Expats that bring more information to the negotiating table are much more likely to walk away with expatriation extras. The best advice is to research the destination well and predict what costs you could incur. Also always ask for the perk, as companies often won't include what they are willing to offer unless the potential expat brings them up at the negotiation table.
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