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Managing International Assignments

International assignment management is one of the hardest areas for HR professionals to master—and one of the most costly. The expense of a three-year international assignment can cost millions, yet many organizations fail to get it right. Despite their significant investments in international assignments, companies still report a 42 percent failure rate in these assignments. 1

With so much at risk, global organizations must invest in upfront and ongoing programs that will make international assignments successful. Selecting the right person, preparing the expatriate (expat) and the family, measuring the employee's performance from afar, and repatriating the individual at the end of an assignment require a well-planned, well-managed program. Knowing what to expect from start to finish as well as having some tools to work with can help minimize the risk.

Business Case

As more companies expand globally, they are also increasing international assignments and relying on expatriates to manage their global operations. According to KPMG's 2021 Global Assignment Policies and Practices Survey, all responding multinational organizations offered long-term assignments (typically one to five years), 88 percent offered short-term assignments (typically defined as less than 12 months), and 69 percent offered permanent transfer/indefinite length.

Managing tax and tax compliance, cost containment and managing exceptions remain the three principal challenges in long-term assignment management according to a 2020 Mercer report. 2

Identifying the Need for International Assignment

Typical reasons for an international assignment include the following:

• Filling a need in an existing operation.
• Transferring technology or knowledge to a worksite (or to a client's worksite).
• Developing an individual's career through challenging tasks in an international setting.
• Analyzing the market to see whether the company's products or services will attract clients and users.
• Launching a new product or service.

The goal of the international assignment will determine the assignment's length and help identify potential candidates. See Structuring Expatriate Assignments and the Value of Secondment and Develop Future Leaders with Rotational Programs .

Selection Process

Determining the purpose and goals for an international assignment will help guide the selection process. A technical person may be best suited for transferring technology, whereas a sales executive may be most effective launching a new product or service.

Traditionally, organizations have relied on technical, job-related skills as the main criteria for selecting candidates for overseas assignments, but assessing global mindset is equally, if not more, important for successful assignments. This is especially true given that international assignments are increasingly key components of leadership and employee development.

To a great extent, the success of every expatriate in achieving the company's goals in the host country hinges on that person's ability to influence individuals, groups and organizations that have a different cultural perspective.

Interviews with senior executives from various industries, sponsored by the Worldwide ERC Foundation, reveal that in the compressed time frame of an international assignment, expatriates have little opportunity to learn as they go, so they must be prepared before they arrive. Therefore, employers must ensure that the screening process for potential expatriates includes an assessment of their global mindset.

The research points to three major attributes of successful expatriates:

• Intellectual capital. Knowledge, skills, understanding and cognitive complexity.
• Psychological capital. The ability to function successfully in the host country through internal acceptance of different cultures and a strong desire to learn from new experiences.
• Social capital. The ability to build trusting relationships with local stakeholders, whether they are employees, supply chain partners or customers.

According to Global HR Consultant Caroline Kersten, it is generally understood that global leadership differs significantly from domestic leadership and that, as a result, expatriates need to be equipped with competencies that will help them succeed in an international environment. Commonly accepted global leadership competencies, for both male and female global leaders, include cultural awareness, open-mindedness and flexibility.

In particular, expatriates need to possess a number of vital characteristics to perform successfully on assignment. Among the necessary traits are the following:

• Confidence and self-reliance: independence; perseverance; work ethic.
• Flexibility and problem-solving skills: resilience; adaptability; ability to deal with ambiguity.
• Tolerance and interpersonal skills: social sensitivity; observational capability; listening skills; communication skills.
• Skill at handling and initiating change: personal drivers and anchors; willingness to take risks.

Trends in international assignment show an increase in the younger generation's interest and placement in global assignments. Experts also call for a need to increase female expatriates due to the expected leadership shortage and the value employers find in mixed gender leadership teams. See Viewpoint: How to Break Through the 'Mobility Ceiling' .

Employers can elicit relevant information on assignment successes and challenges by means of targeted interview questions with career expatriates, such as the following:

• How many expatriate assignments have you completed?
• What are the main reasons why you chose to accept your previous expatriate assignments?
• What difficulties did you experience adjusting to previous international assignments? How did you overcome them?
• On your last assignment, what factors made your adjustment to the new environment easier?
• What experiences made interacting with the locals easier?
• Please describe what success or failure means to you when referring to an expatriate assignment.
• Was the success or failure of your assignments measured by your employers? If so, how did they measure it?
• During your last international assignment, do you recall when you realized your situation was a success or a failure? How did you come to that determination?
• Why do you wish to be assigned an international position?

Securing Visas

Once an individual is chosen for an assignment, the organization needs to move quickly to secure the necessary visas. Requirements and processing times vary by country. Employers should start by contacting the host country's consulate or embassy for information on visa requirements. See Websites of U.S. Embassies, Consulates, and Diplomatic Missions .

Following is a list of generic visa types that may be required depending on the nature of business to be conducted in a particular country:

• A work permit authorizes paid employment in a country.
• A work visa authorizes entry into a country to take up paid employment.
• A dependent visa permits family members to accompany or join employees in the country of assignment.
• A multiple-entry visa permits multiple entries into a country.

Preparing for the Assignment

An international assignment agreement that outlines the specifics of the assignment and documents agreement by the employer and the expatriate is necessary. Topics typically covered include:

• Location of the assignment.
• Length of the assignment, including renewal and trial periods, if offered.
• Costs paid by the company (e.g., assignment preparation costs, moving costs for household goods, airfare, housing, school costs, transportation costs while in country, home country visits and security).
• Base salary and any incentives or allowances offered.
• Employee's responsibilities and goals.
• Employment taxes.
• Steps to take in the event the assignment is not working for either the employee or the employer.
• Repatriation.
• Safety and security measures (e.g., emergency evacuation procedures, hazards).

Expatriates may find the reality of foreign housing very different from expectations, particularly in host locations considered to be hardship assignments. Expats will find—depending on the degree of difficulty, hardship or danger—that housing options can range from spacious accommodations in a luxury apartment building to company compounds with dogs and armed guards. See Workers Deal with Affordable Housing Shortages in Dubai and Cairo .

Expats may also have to contend with more mundane housing challenges, such as shortages of suitable housing, faulty structures and unreliable utility services. Analyses of local conditions are available from a variety of sources. For example, Mercer produces Location Evaluation Reports, available for a fee, that evaluate levels of hardship for 14 factors, including housing, in more than 135 locations.

Although many employers acknowledge the necessity for thorough preparation, they often associate this element solely with the assignee, forgetting the other key parties involved in an assignment such as the employee's family, work team and manager.

The expatriate

Consider these points in relation to the assignee:

• Does the employee have a solid grasp of the job to be done and the goals established for that position?
• Does the employee understand the compensation and benefits package?
• Has the employee had access to cultural training and language instruction, no matter how similar the host culture may be?
• Is the employee receiving relocation assistance in connection with the physical move?
• Is there a contact person to whom the employee can go not only in an emergency but also to avoid becoming "out of sight, out of mind"?
• If necessary to accomplish the assigned job duties, has the employee undergone training to get up to speed?
• Has the assignee undergone an assessment of readiness?

To help the expatriate succeed, organizations are advised to invest in cross-cultural training before the relocation. The benefits of receiving such training are that it: 3

• Prepares the individual/family mentally for the move.
• Removes some of the unknown.
• Increases self-awareness and cross-cultural understanding.
• Provides the opportunity to address questions and anxieties in a supportive environment.
• Motivates and excites.
• Reduces stress and provides coping strategies.
• Eases the settling-in process.
• Reduces the chances of relocation failure.

See Helping Expatriate Employees Deal with Culture Shock .

As society has shifted from single- to dual-income households, the priorities of potential expatriates have evolved, as have the policies organizations use to entice employees to assignment locations. In the past, from the candidate's point of view, compensation was the most significant component of the expatriate package. Today more emphasis is on enabling an expatriate's spouse to work. Partner dissatisfaction is a significant contributor to assignment failure. See UAE: Expat Husbands Get New Work Opportunities .

When it comes to international relocation, most organizations deal with children as an afterthought. Factoring employees' children into the relocation equation is key to a successful assignment. Studies show that transferee children who have a difficult time adjusting to the assignment contribute to early returns and unsuccessful completion of international assignments, just as maladjusted spouses do. From school selection to training to repatriation, HR can do a number of things to smooth the transition for children.

Both partners and children must be prepared for relocation abroad. Employers should consider the following:

• Have they been included in discussions about the host location and what they can expect? Foreign context and culture may be more difficult for accompanying family because they will not be participating in the "more secure" environment of the worksite. Does the family have suitable personal characteristics to successfully address the rigors of an international life?
• In addition to dual-career issues, other common concerns include aging parents left behind in the home country and special needs for a child's education. Has the company allowed a forum for the family to discuss these concerns?

The work team

Whether the new expatriate will supervise the existing work team, be a peer, replace a local national or fill a newly created position, has the existing work team been briefed? Plans for a formal introduction of the new expatriate should reflect local culture and may require more research and planning as well as input from the local work team.

The manager/team leader

Questions organization need to consider include the following: Does the manager have the employee's file on hand (e.g., regarding increases, performance evaluations, promotions and problems)? Have the manager and employee engaged in in-depth conversations about the job, the manager's expectations and the employee's expectations?

Mentors play an important role in enhancing a high-performing employee's productivity and in guiding his or her career. In a traditional mentoring relationship, a junior executive has ongoing face-to-face meetings with a senior executive at the corporation to learn the ropes, set goals and gain advice on how to better perform his or her job.

Before technological advances, mentoring programs were limited to those leaders who had the time and experience within the organization's walls to impart advice to a few select people worth that investment. Technology has eliminated those constraints. Today, maintaining a long-distance mentoring relationship through e-mail, telephone and videoconferencing is much easier. And that technology means an employer is not confined to its corporate halls when considering mentor-mentee matches.

The organization

If the company is starting to send more employees abroad, it has to reassess its administrative capabilities. Can existing systems handle complicated tasks, such as currency exchanges and split payrolls, not to mention the additional financial burden of paying allowances, incentives and so on? Often, international assignment leads to outsourcing for global expertise. Payroll, tax, employment law, contractual obligations, among others, warrant an investment in sound professional advice.

Employment Laws

Four major U.S. employment laws have some application abroad for U.S. citizens working in U.S.-based multinationals:

• Title VII of the Civil Rights Act.
• The Age Discrimination in Employment Act (ADEA).
• The Americans with Disabilities Act (ADA).
• The Uniformed Services Employment and Reemployment Rights Act (USERRA).

Title VII, the ADEA and the ADA are the more far-reaching among these, covering all U.S. citizens who are either:

• Employed outside the United States by a U.S. firm.
• Employed outside the United States by a company under the control of a U.S. firm.

USERRA's extraterritoriality applies to veterans and reservists working overseas for the federal government or a firm under U.S. control. See Do laws like the Fair Labor Standards Act and the Family and Medical Leave Act apply to U.S. citizens working in several other countries?

Employers must also be certain to comply with both local employment law in the countries in which they manage assignments and requirements for corporate presence in those countries. See Where can I find international employment law and culture information?

Compensation

Companies take one of the following approaches to establish base salaries for expatriates:

• The home-country-based approach. The objective of a home-based compensation program is to equalize the employee to a standard of living enjoyed in his or her home country. Under this commonly used approach, the employee's base salary is broken down into four general categories: taxes, housing, goods and services, and discretionary income.
• The host-country-based approach. With this approach, the expatriate employee's compensation is based on local national rates. Many companies continue to cover the employee in its defined contribution or defined benefit pension schemes and provide housing allowances.
• The headquarters-based approach. This approach assumes that all assignees, regardless of location, are in one country (i.e., a U.S. company pays all assignees a U.S.-based salary, regardless of geography).
• Balance sheet approach. In this scenario, the compensation is calculated using the home-country-based approach with all allowances, deductions and reimbursements. After the net salary has been determined, it is then converted to the host country's currency. Since one of the primary goals of an international compensation management program is to maintain the expatriate's current standard of living, developing an equitable and functional compensation plan that combines balance and flexibility is extremely challenging for multinational companies. To this end, many companies adopt a balance sheet approach. This approach guarantees that employees in international assignments maintain the same standard of living they enjoyed in their home country. A worksheet lists the costs of major expenses in the home and host countries, and any differences are used to increase or decrease the compensation to keep it in balance.

Some companies also allow expatriates to split payment of their salaries between the host country's and the home country's currencies. The expatriate receives money in the host country's currency for expenses but keeps a percentage of it in the home country currency to safeguard against wild currency fluctuations in either country.

As for handling expatriates taxes, organizations usually take one of four approaches:

• The employee is responsible for his or her own taxes.
• The employer determines tax reimbursement on a case-by-case basis.
• The employer pays the difference between taxes paid in the United States and the host country.
• The employer withholds U.S. taxes and pays foreign taxes.

To prevent an expatriate employee from suffering excess taxation of income by both the U.S. and host countries, many multinational companies implement either a tax equalization or a tax reduction policy for employees on international assignments. Additionally, the United States has entered into  bilateral international social security agreements  with numerous countries, referred to as "totalization agreements," which allow for an exemption of the social security tax in either the home or host country for defined periods of time.

A more thorough discussion of compensation and tax practices for employees on international assignment can be found in SHRM's Designing Global Compensation Systems toolkit.

How do we handle taxes for expatriates?

Can employers pay employees in other countries on the corporate home-country payroll?

Measuring Expatriates' Performance

Failed international assignments can be extremely costly to an organization. There is no universal approach to measuring an expatriate's performance given that specifics related to the job, country, culture and other variables will need to be considered. Employers must identify and communicate clear job expectations and performance indicators very early on in the assignment. A consistent and detailed assessment of an expatriate employee's performance, as well as appraisal of the operation as a whole, is critical to the success of an international assignment. Issues such as the criteria for and timing of performance reviews, raises and bonuses should be discussed and agreed on before the employees are selected and placed on international assignments.

Employees on foreign assignments face a number of issues that domestic employees do not. According to a 2020 Mercer report 4 , difficulty adjusting to the host country, poor candidate selection and spouse or partner's unhappiness are the top three reasons international assignments fail. Obviously, retention of international assignees poses a significant challenge to employers.

Upon completion of an international assignment, retaining the employee in the home country workplace is also challenging. Unfortunately, many employers fail to track retention data of repatriated employees and could benefit from collecting this information and making adjustments to reduce the turnover of employees returning to their home country.

Safety and Security

When faced with accident, injury, sudden illness, a disease outbreak or politically unstable conditions in which personal safety is at risk, expatriate employees and their dependents may require evacuation to the home country or to a third location. To be prepared, HR should have an evacuation plan in place that the expatriate can share with friends, extended family and colleagues both at home and abroad. See Viewpoint: Optimizing Global Mobility's Emergency Response Plans .

Many companies ban travel outside the country in the following circumstances:

• When a travel advisory is issued by the World Health Organization, Centers for Disease Control and Prevention, International SOS or a government agency.
• When a widespread outbreak of a specific disease occurs or if the risk is deemed too high for employees and their well-being is in jeopardy.
• If the country is undergoing civil unrest or war or if an act of terrorism has occurred.
• If local management makes the decision.
• If the employee makes the decision.

Once employees are in place, the decision to evacuate assignees and dependents from a host location is contingent on local conditions and input from either internal sources (local managers, headquarters staff, HR and the assignee) or external sources (an external security or medical firm) or both. In some cases, each host country has its own set of evacuation procedures.

Decision-makers should consider all available and credible advice and initially transport dependents and nonessential personnel out of the host country by the most expeditious form of travel.

Navigating International Crises

How can an organization ensure the safety and security of expatriates and other employees in high-risk areas?

The Disaster Assistance Improvement Program (DAIP)

Repatriation

Ideally, the repatriation process begins before the expatriate leaves his or her home country and continues throughout the international assignment by addressing the following issues.

Career planning. Many managers are responsible for resolving difficult problems abroad and expect that a well-done job will result in promotion on return, regardless of whether the employer had made such a promise. This possibly unfounded assumption can be avoided by straightforward career planning that should occur in advance of the employee's accepting the international assignment. Employees need to know what impact the expatriate assignment will have on their overall advancement in the home office and that the international assignment fits in their career path.

Mentoring. The expatriate should be assigned a home-office mentor. Mentors are responsible for keeping expatriates informed on developments within the company, for keeping the expatriates' names in circulation in the office (to help avoid the out-of-sight, out-of-mind phenomenon) and for seeing to it that expatriates are included in important meetings. Mentors can also assist the expatriate in identifying how the overseas experience can best be used on return. Optimum results are achieved when the mentor role is part of the mentor's formal job duties.

Communication. An effective global communication plan will help expatriates feel connected to the home office and will alert them to changes that occur while they are away. The Internet, e-mail and intranets are inexpensive and easy ways to bring expatriates into the loop and virtual meeting software is readily available for all employers to engage with global employees. In addition, organizations should encourage home-office employees to keep in touch with peers on overseas assignments. Employee newsletters that feature global news and expatriate assignments are also encouraged.

Home visits. Most companies provide expatriates with trips home. Although such trips are intended primarily for personal visits, scheduling time for the expatriate to visit the home office is an effective method of increasing the expatriate's visibility. Having expatriates attend a few important meetings or make a presentation on their international assignment is also a good way to keep them informed and connected.

Preparation to return home. The expatriate should receive plenty of advance notice (some experts recommend up to one year) of when the international assignment will end. This notice will allow the employee time to prepare the family and to prepare for a new position in the home office. Once the employee is notified of the assignment's end, the HR department should begin working with the expatriate to identify suitable positions in the home office. The expatriate should provide the HR department with an updated resume that reflects the duties of the overseas assignment. The employee's overall career plan should be included in discussions with the HR professional.

Interviews. In addition to home leave, organizations may need to provide trips for the employee to interview with prospective managers. The face-to-face interview will allow the expatriate to elaborate on skills and responsibilities obtained while overseas and will help the prospective manager determine if the employee is a good fit. Finding the right position for the expatriate is crucial to retaining the employee. Repatriates who feel that their new skills and knowledge are underutilized may grow frustrated and leave the employer.

Ongoing recognition of contributions. An employer can recognize and appreciate the repatriates' efforts in several ways, including the following:

• Hosting a reception for repatriates to help them reconnect and meet new personnel.
• Soliciting repatriates' help in preparing other employees for expatriation.
• Asking repatriates to deliver a presentation or prepare a report on their overseas assignment.
• Including repatriates on a global task force and asking them for a global perspective on business issues.

Measuring ROI on expatriate assignments can be cumbersome and imprecise. The investment costs of international assignments can vary dramatically and can be difficult to determine. The largest expatriate costs include overall remuneration, housing, cost-of-living allowances (which sometimes include private schooling costs for children) and physical relocation (the movement to the host country of the employee, the employee's possessions and, often, the employee's family).

But wide variations exist in housing expenses. For example, housing costs are sky-high in Tokyo and London, whereas Australia's housing costs are moderate. Another significant cost of expatriate assignments involves smoothing out differences in pay and benefits between one country and another. Such cost differences can be steep and can vary based on factors such as exchange rates (which can be quite volatile) and international tax concerns (which can be extremely complex).

Once an organization has determined the costs of a particular assignment, the second part of the ROI challenge is calculating the return. Although it is relatively straightforward to quantify the value of fixing a production line in Puerto Rico or of implementing an enterprise software application in Asia, the challenge of quantifying the value of providing future executives with cross-cultural perspectives and international leadership experience can be intimidating.

Once an organization determines the key drivers of its expatriate program, HR can begin to define objectives and assess return that can be useful in guiding employees and in making decisions about the costs they incur as expatriates. Different objectives require different levels and lengths of tracking. Leadership development involves a much longer-term value proposition and should include a thorough repatriation plan. By contrast, the ROI of an international assignment that plugs a skills gap is not negatively affected if the expatriate bolts after successfully completing the engagement.

Additional Resources

International Assignment Management: Expatriate Policy and Procedure

Introduction to the Global Human Resources Discipline

1Mulkeen, D. (2017, February 20). How to reduce the risk of international assignment failure. Communicaid. Retrieved from https://www.communicaid.com/cross-cultural-training/blog/reducing-risk-international-assignment-failure/

2Mercer. (2020). Worldwide Survey of International Assignment Policies and Practices. Retrieved from https://mobilityexchange.mercer.com/international-assignments-survey .

3Dickmann, M., & Baruch, Y. (2011). Global careers. New York: Routledge.

4Mercer. (2020). Worldwide Survey of International Assignment Policies and Practices. Retrieved from https://mobilityexchange.mercer.com/international-assignments-survey

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The Right Way to Manage Expats

• J. Stewart Black
• Hal Gregersen

Sending executives abroad is expensive, but most companies don’t get much back for their money. Those that do follow three practices.

In today’s global economy, having a workforce that is fluent in the ways of the world isn’t a luxury. It’s a competitive necessity. No wonder nearly 80 % of midsize and large companies currently send professionals abroad—and 45 % plan to increase the number they have on assignment.

• JB J. Stewart Black is a professor of global leadership and strategy at INSEAD and a coauthor of Competing in and with China: Implications and Strategies for Western Business Executives (Thinkers50). Email: [email protected]
• Hal Gregersen is a Senior Lecturer in Leadership and Innovation at the MIT Sloan School of Management , a globally recognized expert in navigating rapid change, and a Thinkers50 ranked management thinker. He is the author of Questions Are the Answer: A Breakthrough Approach to Your Most Vexing Problems at Work and in Life and the coauthor of The Innovator’s DNA: Mastering the Five Skills of Disruptive Innovators .

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How Companies Can Manage Overseas Assignments

Offering employees and families better support can lower the rate of failed international assignments.

Companies around the world send employees on international assignments typically for three to five years. According to Worldwide ERC, the cost of doing so can be over $1 million per person. Despite the cost, companies report a 42 percent failure rate in these assignments. What's wrong? Many companies are not adequately preparing employees or their families for life and work overseas.

Expatriates, those living outside of their native country, may receive support through their company upon departure, but many do not receive sufficient support once they arrive in their new location. The lack of familiarity and sudden increase of uncertainty can cause a high level of emotional distress on a family, which in turn can have a detrimental effect on an employee's performance. Here's how companies can do a better job managing overseas assignments .

[See: 25 Best Jobs That Don't Require a College Degree .]

Select Employees Carefully. If a person has been successful in their home country role, that does not necessarily translate into high performance overseas. It's important to take into account soft skills that point to likelihood of success in a totally new environment. These are flexibility, self-reliance, tolerance and the ability to handle change and ambiguity. In other words, you need to make sure your employee is independent and can get along well in unusual circumstances and with diverse groups of people.

Prepare for Departure. Where companies often fall short is in the preparation of employees and their families for an overseas assignment. According to Naomi Hattaway, founder of the I Am a Triangle online support community for those who have lived in other cultures and countries, employees who move overseas are often provided with housing search assistance, cultural training and language classes. However, as companies pare down budgets, many of these programs are the first to be cut. These services are often offered only for a short time before or at the start of an assignment. At that point, Hattaway says, everything is so up in the air because you aren't yet settled in a house nor do you have your belongings. As a result, the value provided by these services is short term.

Intercultural and language training are two important ways companies can help both employees and their families start off on the right foot. However, preparation support is frequently provided through print or video cultural seminars and resources and offer little to no in-person interaction. Therefore, Hattaway says that individuals needing additional help are unlikely to receive it.

[See: Tips for Surviving a Career Transition .]

When employees move abroad with their families, the adaptation process is more complex because of added pressures such as a spouse's or partner's career, children's schooling and relatives back at home. Many assignments fail not because of an employee's poor performance , but because of family issues. Setting expectations of the new country and culture from the beginning can help decrease some of the anxiety that comes with moving overseas.

Offer Ongoing Support. Hattaway states that employee assistance programs do not usually cover pre-assignment needs nor do they assess whether families are prepared for a future assignment. These programs are often billed as providing psychological assistance to the employee and family members, and often are only provided on an emergency basis. Proactive, ongoing support versus reactive actions by employers would increase the success rate of expatriate assignments.

While talks about mental health have grown since companies are more aware of the risks of overwork and burnout, there is still a stigma attached to depression worldwide. When you add the stresses of living outside your native country, it creates an endless cycle. Who do you confide in? According to Hattaway, because those who tend to move abroad have thick skins, employees and family members may hide mental illness, which can come to light when it's too late. It is also very difficult to impossible in many countries to find psychologists and psychiatrists, not to mention those who can speak English or your native language. Therefore, companies need to invest more resources into mental health support for those moving overseas as well as into activities that increase well-being for employees and their families. This may mean designing team-building activities for an employee's new team to help them build credibility. For a family, this could be hosting gatherings where local and expatriate families get together to socialize or work on a community project.

[See: The 25 Best Social Services Jobs of 2017 .]

Prepare for Repatriation. Unfortunately, Hattaway says there is little to no support when an employee is preparing to return and returns to their home country. This is especially true if someone is returning from a failed assignment. Expatriates need advance notice of up to a year when their international assignment is slated to end. This gives an employee and their family sufficient time to prepare for a new position at home. The human resources department can work with the employee to identify suitable positions and discuss their overall career goals. Companies can also offer support for families as they prepare children for new schools, find a new home and for partners and spouses who plan to continue their career back home.

While supporting an expatriate and his or her family on an overseas assignment is costly, the price of a high rate of failed international assignments drives those costs even higher. It's imperative for companies to offer employees and their families assistance to help them succeed in their new environment.

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Understanding Global Assignment Costs

By LaQuita Morrison, GMS

Confidence in the U.S. economy is rising, and with it, the number of companies seeking to establish, strengthen or expand their global positions is increasing. Often, this involves expatriating talent to fill key positions in other countries. Some companies will also provide global assignment opportunities to expand their employees’ knowledge and skills.

Whether your company is well versed or new to managing global assignments, the cost of them can be daunting. However, when appropriately managed, global assignments can positively impact a company’s global business goals.

Sending an employee and a family of three on a three-year global assignment could cost in excess of USD $1 million. So, it’s not surprising that many global companies believe traditional overseas assignments are cost-prohibitive. Some companies have reduced, frozen or even eliminated their global assignment programs. However, to remain competitive, companies still need to place the best talent at the appropriate locations, and often that talent isn’t available without a global transfer. This is when the proper management and oversight of relocation costs becomes imperative.

Understanding the Costs

If you’re planning global assignments, there are ways to scale back costs without compromising operations or impacting employee productivity. Finding that balance between employee support and cost management to successfully oversee global assignments is a challenge, but it can be done. Below is a list of some of the expenses associated with a global assignment:

• Candidate Assessment – Conducted by the company to determine if the employee is the right candidate for the global assignment.
• Pre-Decision Assessment – Aligns the individual needs of the employee and the employee’s family with the business goals of the assignment.
• Immigration – Obtaining the appropriate documentation for the assignment. The reason for the assignment will dictate the appropriate visa type.
• Tax Implications – Determining the tax implications of the assignment and responsibilities of both the company and the employee.
• Tax Assistance – Providing the employee with tax assistance, which could include consultation; preparation (for both home and host countries); filing (for both home and host countries); tax equalization.
• Host Country Housing – Providing reasonable and customary rent and utility costs for the employee’s housing in the host country according to regional guidelines based on family size and location.
• Cost-of-Living Allowance (COLA) – An allowance or differential paid to the employee for similar goods and services in the host location that they have in the home location based on family size and salary. Intended to cover costs to purchase host country goods and services over those from the home country.
• Transportation – An allowance for a car for the duration of the assignment, the amount of which may vary by location and family size.
• Hardship – An allowance paid in addition to salary and COLA for assignments in locations designated as a hardship for the employee based on factors that include potential violence, incidence of disease, medical care quality, geographic isolation and availability of goods and services.
• Miscellaneous Expense Allowance – One-time payment made, separate from base salary, intended to cover expenses not expressly covered in the Letter of Understanding, like renter’s insurance, obtaining a new driver’s license, immunizations, taxis, etc.
• Cultural/Language Training – Provided to the employee and the family to assist in understanding the host country culture and language.
• Home Finding and Destination Services – Locating housing in the host country, as well as registering with local authorities and setting up accounts.
• Departure Services – Home sale, property management, lease termination, etc.
• Global Household Goods – Transporting (via land, air and/or sea) or storing household goods and personal effects.
• Temporary Living – Fully furnished housing at the destination location.
• Repatriation – Return of the employee to the home country following assignment completion.

To learn more about managing global assignment costs, download our free guide.

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Cutting the Costs of International Assignments for your Company

• July 31, 2015

Globalisation is changing the way companies operate. With emerging markets in the UAE , Bahrain and parts of Africa, the world’s workforce mobility is showing no signs of slowing down. While it is beneficial to send staff to these regions in order to populate international offices with your best talent, there are costs attached to sending your staff abroad. However, not all of these costs are unavoidable, say corporate health insurance experts at Medibroker International .

A recent study showed that the average investment in an international assignment is US $311,000 per annum – that’s £202 ,430.

This costs extends to health checks, flights, and general relocation fees. As a HR professional, you hold a duty of care towards the staff you send overseas and should supply them with everything they need to ensure a smooth transition, including a compliant health plan.

The cost of failing to protect your staff

Your staff are your company’s most valuable assets. Failing to properly look after your globally mobile staff can be extremely expensive – the cost of a failed assignment ranges from US $570,000 to $950,000 and health issues are a common reason for employees returning from international assignments early.

The benefits of implementing strategies to protect your staff’s health significantly outweigh the operating costs of international health cover.

Looking after your employees’ health before, during and after an international assignment is one of the best ways to save money.

Another main cause of failed expatriate assignments is spousal and family adjustment problems so it’s a wise idea to provide cover for the employee’s dependents along with other spousal support to help ease the transition.

Moving overseas for work can be a stressful experience, and the resulting health effects could darken your employees’ time abroad.  It’s vital that they have access to the best healthcare, medical evacuation, a 24-hour medical helpline and choice over the medical facility and doctor who treats them. Health facilities differ widely around the world, and employers should offer their staff international health insurance plans to compensate for the lack of free treatment overseas.

Can your company afford to skimp on staff health cover?

Last year’s shocking Telegraph article about cost-cutting HR bosses sending staff abroad with no health cover exposed the fact that a quarter of bosses feel they can’t afford to supply their valuable staff with health plans for their time overseas – despite their recognition of health insurance’s importance.

A worrying 16% of bosses surveyed assumed that travel insurance would cover their employees’ health overseas. Travel insurance is not suitable for expatriate workers as it only covers things like lost luggage and flight cancellations . At a time when the global market is expanding rapidly, this lack of awareness concerns Medibroker’s product development Manager Steve Nelson:

“Ensuring your expatriate staff have the right medical insurance product is so important; it cannot be left to guess work. If you are not sure whether a travel plan or an international private medical insurance plan is the best option then do not leave it to chance, ask an expert. Do not leave it until it’s too late, the implications of needing medical overseas without the right medical insurance can be disastrous – not just for your employees health but also financially for your company.”

How to avoid failed international assignments

HR executives may want to organise a medical check for international assignees aimed at identifying pre-existing medical issues before assigning employees to a foreign country. This ensures employees are fit for the assignment and conditions in their host country by identifying general and work-related health problems before the assignment begins.

Investing in pre-travel health check programmes could reduce the occurrence of failed assignments, and results in up to 2.5X cost savings. However, without proper health cover, these health checks could be seen as an unpleasant cost.

Get the best international health plan for your globally mobile staff

Medibroker can work with companies to find the ideal private medical insurance plan for your workforce, which can form a vital part of your employee benefits package. Medibroker’s expert health insurance advisors take the time to understand your requirements and then assess over 100 plans from more than 30 leading insurance providers to find the most suitable plan for your needs.

Our health insurance help is completely free and you will never pay more than the price of your plan. By using our broker service, you benefit from expert advice without paying more than you would by going to an insurer direct.

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Compensation and Benefits: Essentials of International Assignment Management

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Internationalization became an essential strategic dimension for companies to ensure profitable growth. International assignments play an important role to implement this strategy. As a consequence the number of international assignees is growing year by year; they work as interface manager between headquarters and branch office, as cultural ambassador, or as technical specialist to transfer knowledge. For ambitious and open candidates, a position in a foreign country and in a different culture can be an interesting step to further develop their professional career. International assignment management first of all needs a policy framework, defining the compensation and benefit package, especially the typical assignment allowances depending on distance to the home country and hardship of the host country. The administration of international assignments secondly requires standardized processes for all phases of an assignment, from selection to reintegration and with clear allocation of roles and responsibilities between all human resources partners involved. Organizations exchanging bigger numbers of specialists and executives between several countries work with centralized assignment management teams, who cooperate with local HR in the host countries and often use external partners for relocation, social security, payroll, and taxation to manage this complex task.

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Deutsche Industrie- und Handelskammer in Japan (DIHKJ) –Auditor – (2007) Expatriate versus Local, Vor- und Nachteile von Expatriates in japanischen Tochtergesellschaften deutscher Unternehmen. http://japan.ahk.de

Kast S (2010) Mapping the successful expatriation process. Diploma thesis at Eberhard – Karls – Universitaet Tuebingen

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Weber S (2010) Implementierung westlicher Standards an einem neuen Unternehmensstandort als Voraussetzung fuer den internationalen Mitarbeitereinsatz. Diploma thesis at Hochschule Pforheim

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Czajor, J. (2016). Compensation and Benefits: Essentials of International Assignment Management. In: Zeuch, M. (eds) Handbook of Human Resources Management. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-44152-7_73

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Long-term assignments: tips to manage expatriate allowances

By Olivier Meier , Viviane McLeod-Domon , and Anne Rossier-Renaud , Mercer

It is easy to start drowning in the details when designing expatriate compensation packages for long-term assignments. The ongoing pressure from management to contain costs, multiple requests for exceptions from assignees, and the ever changing local circumstances increase the complexity of the task for mobility teams. In this article we are providing five pointers to help you design packages and focus on the essentials.

1. Having a holistic view of the international assignment package

Having your assignees argue about elements of their packages, item by item, provides a stark reminder that the individual components of the assignment package should not be discussed in isolation.

What’s the total value of the package? All too often employees are not even aware of the total cost (direct and indirect) covered by companies to facilitate their relocation. What lifestyle will the compensation package enable? If the package includes incentives, what is the windfall that the employee could expect and is it in line with the company’s objectives? Dismissing these questions too easily could open the door to further negotiations and requests for exceptions.

Explaining the link between the different elements in the package helps justify the total value of the package as well as show how one allowance could compensate for another one that is perceived as low by the employee. It also helps explain the real purpose of some benefits and allowances included in the package.

The value of establishing the correlation between the degree of hardship in a given location ( quality of living assessment ) and the need for expatriate housing is a good example. Housing is one of the most expensive items in assignment packages. Companies could be tempted to reduce it whenever possible by aligning housing allowances with accommodation costs for locals as opposed to expensive accommodation costs for expatriates based on best city areas. Such an approach is applicable only in the absence of hardship and risks in host locations.

Understanding the interactions between the different components of the expatriate package implies having a clear logic behind each of them.

2. Finding a logic: equalization allowances and incentives

The balance sheet approach is based on a no-win/no-loss logic. In other words, employees should not lose out by going on assignment but they should also not automatically gain just because they are expatriates.

This has implications on the way allowances and benefits are implemented and communicated. A majority of allowances in the expatriate package should be viewed as tools to ensure equalization between the home and the host locations and remove barriers to mobility. Using them as incentive (i.e. a bonus or an opportunity to gain financially) could be problematic.

The cost of living allowance is the most obvious example. Receiving a high cost of living allowance is not good news; the allowance will be used to pay for higher costs in the host location. Conversely, being told that a cost of living allowance is not necessary in the host destination should not be a cause for alarm for assignees. It could reflect the fact that prices are lower in the host location than at home and that the purchasing power of the assignee is not at risk.

Furthermore, cost of living fluctuates widely overs the years. Allowances could go down dramatically as a result of currency or inflation changes, but this evolution is not lowering the assignee’s purchasing power – this is a normal adjustment to keep the assignee’s purchasing power stable. If the cost of living allowance had initially been presented as an incentive, decreasing it could undermine the credibility of the policy.

On the other end, an expatriate allowance (or “foreign service premium”) is designed to encourage employees to accept an assignment abroad and is an incentive and not designed to cover a specific cost. Its purpose is to reward the willingness of employees to relocate to another country. A growing number of companies use this allowance sparingly to encourage specific assignee groups. It is the first allowance to be reduced or cut when companies try to reduce costs. It could also be used as a negotiating tool to sweeten the deal, something that should not be done with an equalization allowance. Once a logic has been established, one of the main objectives of the expatriation package is to ensure that the assignees’ purchasing power is protected throughout their assignment.

3. Maintaining assignees’ purchasing power

There are two drivers behind the evolution of cost-of-living for international assignees: home/host inflation differentials and currency fluctuations. How pay is actually delivered – in home currency, host currency, or split between the home and the host currency – determines which part of the salary could be at risk.

When relying on a home-based balance sheet approach, cost-of-living issues are addressed through the provision of cost-of-living allowances. When using a local approach however, the absence of a link to the home country doesn’t mean that assignees will not face issues linked to exchange rate and inflation differentials. Most mobile employees still expect to retire in their home country and have their savings in a preferred currency – without proper communication and planning, assignees might discover that their hard-earned savings have melted away.

Host currency approach

The first option is to pay the entire salary in the host currency. The spendable income portion of the salary is protected by the cost-of-living adjustment, but the remaining portion is exposed to currency fluctuations that might result in loss and gains for the expatriate.

There is also something flawed in the logic of this approach: in a home-based approach, by definition, a large part of the non-spendable income amount (savings or reserve) is to be spent or used in the home country and it does not really make sense to provide this part of the salary entirely in host currency.

Home currency approach

The second approach is to pay the entire remuneration in the home currency. This approach, favored by many American companies, has some advantages. The non-spendable income part paid and spent in the home country is protected. The home currency approach provides stability, provided that the home currency stays strong.

Nevertheless, there is still a risk with the home currency approach. The expatriate must convert the spendable income into host currency to pay for daily living expenses. The timing of the exchange could lead to a loss or gain for the expatriate. The loss or gain is especially pronounced when currency volatility is high.

Split-pay Approach

The third approach is the split pay approach: spendable income (which is spent in the host country) is paid in the host currency while the non-spendable income (which is meant to be spent at home) is paid in the home currency.

When setting payment policy, you also have to take into account country laws and currency transfer restrictions. As with many expatriation issues, there is no perfect delivery solution that will fit all situations. However, a clearly defined policy will reassure employees and make your job easier.

4. Knowing when to use lump sums and benefits in kind

Several factors such as tax considerations and ease of management drive how allowances and benefits are delivered. This is the case with housing . Providing housing as a benefit in kind can sometimes reduce or eliminate the tax liability in some countries.

The preferences of company’s management and the expectation of the assignees also play a role. In a context of increasing policy segmentation and diversity of the workforce, meeting the expectations of the different groups of assignees can be difficult. Companies are trying to strike a balance between removing barriers to mobility for all employees and not going too far in terms of segmentation. From that perspective, using lump sums can be a way to address the needs of all employees while simplifying assignment management processes.

A traditional limitation of the lump sums is not disappearing though; employees are quick to forget the initial purpose of cash amounts they have received. The sums paid in cash to the expatriate might originally have been designed with a specific purpose in mind but that purpose could be quickly forgotten. After a few years, employees might even turn back to the company and complain that the difficulties they have faced have not been properly handled and their cost not properly reimbursed. Spousal support is an example of a benefit that cannot be easily delivered as a lump sum. Providing practical and visible support is much more effective to facilitate the relocation of a couple than just providing a cash amount, even if that amount is significant.

5. Aligning packages with employee’s needs and expectations

While they are sometimes disparaged for being overpaid compared to their local peers, international assignees rarely anticipate all the financial hurdles they may have to go through later in their career. International assignees are at risk of having a fractured pension history, healthcare coverage gaps, and savings issues.

These challenges are leading a growing number of companies to provide financial education, training, and advisory services to their employees, not only expatriates.

Furthermore, a lot of assumptions are made about what international assignees value. Companies need to articulate a clear Employee Value Proposition (EVP) for their assignees – a proposition which is not limited to the allowances and benefits in the remuneration package and represents the total value an employee receives from the company: compensation, benefits, career management, workplace/lifestyle, and employee pride.

When dealing with the intricacies of expatriate allowances, it is easy to lose sight of the bigger picture. After having spent a lot of time setting competitive and consistent packages, don’t let the absence of clear value proposition undermine your efforts.

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  Changes to international assignments in 2022 

The 2020 pandemic has impacted every element of the business world to varying degrees. one of the most impacted areas was that of the globally mobile employee. research from 2018 by finaccord anticipated growth in every expatriate segment up to 2021 . although updated data on the impact covid-19 had on overall expat numbers has yet to be released, we know there were short term impacts as business travel virtually ground to a halt. , internationally mobile employees in 2022.

Research by global advisory firm Willis Towers Watson at the end of 2021 amongst 107 multi-nationals indicated that 31% intended to send employees on international assignments in 2022 . Almost 75% of these assignments are expected to take the traditional form, lasting from 1-5 years. Indicating that although large businesses have found it very challenging to move their workforce in the last two years, there is a desire to keep talent globally mobile. 

To understand what is feeding this desire we have to delve into the reasons behind global mobility in 2022. From a HR perspective it is easy to get caught up in the tactical elements of expat assignments like relocation or costs. For the wider business the objective of an expat assignment usually falls into one of the following:

• Ensuring the right leadership talent pipeline is in place in the destination country.
• Managing an international talent pool.
• Managing skills shortages in important markets.
• Fostering talent diversity . 

While the majority of assignments may follow a traditional format, the area has not been unaffected by the pandemic. Some of the changes we may see to international assignments in 2022 include an increase in:

1. Commuter assignments

Commuter assignment challenges.

Commuter assignments are not without their challenges for the business and employee alike. From a business perspective: 

Tax compliance is a challenge when an employee lives in one country but works in another. Despite the increase in popularity of commuter assignments , many businesses have no formal procedures in place for managing this sort of mobile employee. The majority of companies surveyed by Deloitte indicated that commuter assignments were managed on a case by case basis. This is surprising given their increasing popularity and something that will need to be addressed if it is a long term business strategy. 

If your business is hoping to use commuter assignments more because they suit the needs of the business or employee chosen to travel, it is a good idea to put some formal processes in place including:

• Agree and establish a framework for managing commuter employees.
• Be clear on how supports should be provided.
• Train key stakeholders on risk of commuter assignments from a tax compliance perspective.
• Allocate commuter assignment governance to corporate tax, HR or global mobility team so it does not fall between business gaps.

2. Short-term assignments

Short term assignment challenges.

Although STAs may be more financially viable for businesses, they are not without their challenges. Tax, legal and social insurance contribution compliance is essential. This can be complex, depending on where assignees are going to be working. For the expat themselves, the most common issues include:

• Poor work-life balance while overseas without family and friends.
• Greater difficulty with culture shock without the support of family.
• Social isolation while they are overseas.
• Higher stress levels.  

On the plus side, there are many advantages to implementing short term assignments. Research indicates that the majority of STAs are successful with candidates more likely to exceed their assignment goals .

If STAs sound like they might be a good option for your business in 2022, there are some things you can do to improve your chances of success:

• Set your business up for success by improving planning around expat assignments as a whole to ensure the objective is specific enough for an STA.
• Some of the challenges with short term assignments can be mitigated by choosing the right candidate for the role. 
• Have a career plan for STAs when they return. 

3. Remote working assignments

Remote working was introduced as a temporary measure for office based employees in many countries around the world during the pandemic. Some expats due to start traditional expat assignments began them virtually while business travel was limited. 

There is some debate around whether virtual assignments are feasible in the long term, but they offer an alternative where more flexibility in global mobility programmes is required. However, they are not without their risks. Although sometimes employed as a solution to family issues around moving overseas, for some people remote assignments may complicate family problems as there may be a need to work outside of office hours in their home country. 

Mercer report additional risks associated with virtual or remote assignments include:

• Damage to company culture 
• Cultural misunderstandings
• Tax compliance issues

Growth in Expat assistance programmes

We may have to wait and see whether alternative forms of expat assignment prove popular in the long run. However, what does seem to be assured is an increase in the well-being support offered by organisations for their expats. Willis Tower Watson research indicated that the majority of employers are providing enhanced telehealth and Expat Assistance Programmes [EAP] to their employees . Seventy-one percent of businesses provided their employees support in the form of EAP in 2021 which is a significant increase on 53% in 2019.

Provide your expat employees with access to international healthcare should they need it with international health insurance tailored to businesses of all sizes today.

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The real cost of expatriate assignment failure

This article was written by Rob Chipman, President of FIDI, and CEO of Asian Tiger Mobility in Hong Kong. Rob is a global mobility expert with many years of experience, during which time he has learned how to ensure that global assignments work – and has a better idea than most of how much it costs when they don’t.

A failed international relocation is likely to have a devastating impact on the employee, the employee’s family and to the employer itself. While none of these parties will want to dwell on the reasons for failure, it is particularly important that companies understand the financial (and non-financial) costs of failure, in order to assess the overall return on investment, the viability of their global assignment program – and to help plan more successful assignments in the future.

Expatriate costs: let’s do the math

The cost of a failed assignment depends on the salary level of the transferee, the size of his family and the destination country. In addition, there are the non-financial costs such as lack of productivity, and the mental and emotional toll on the employee and on the family. Let’s delve into both of these aspects:

The  financial aspect , falling primarily on the employer, includes transportation costs such as several international flights, short-term accommodation, rental on long-term housing, at least two household goods shipments (to and from the destination) school fees, and miscellaneous ancillary charges. The cumulative cost can mount up quickly. The following is a typical set of numbers for a family of four with two school-aged children, assuming the assignment is terminated within the first year:

• Salary and benefits, fully loaded, $250,000/pa
• Air Fare $5,000 x 2 for look-see trip
• Air Fare $5,000 x 4 at beginning of assignment
• Air Fare $5,000 x 4 at end of assignment
• School fees (tuition for 2 @ US$20,000/year)
• Household goods shipment US $15,000 to the destination
• Household goods shipment US $15,000 back to origin
• Ancillary charges $30,000
• Total hard costs = $400,000

It’s worth noting that salary costs account for just over 60% of the total cost of the year-long assignment. This is a cost that would have been incurred if the assignee had stayed in his or her previous role – but the company of course has to place a value on the contribution the assignee made to the organisation during that period. Since the assignment was cut short, it is unlikely that any objectives were met. The other costs – which account for 37.5% of the total – deliver nothing to the organization...

It’s not all about the money

Now let’s turn to the non-financial aspects.  A recent study claimed that eight to ten work days are lost when an employee relocates within his country, and up to 20 days for some international relocations. In addition, a disenchanted employee may not fit in back at his origin country and, if so, they are likely to have  far lower productivity . There are often issues with low self-esteem, lack of motivation, family problems, and even depression.

What are the  causes of failed relocations  and what can be done to minimize the risks?  The most often cited cause of a failed relocation is the family’s inability adjust to the destination country environment.  This far outweighs pure job performance.  The typical adjustment problems include a spouse that doesn’t fit in, doesn’t create a social network, and becomes disengaged. Less often, but still of major concern, are kids that do not adjust well among their peers.  Families often cannot find the support services they require for special-needs children.  It all boils down to an overall inability to fit in and assimilate with the local culture and language.

So what can you do to minimize this risk?

A first step would be better  screening  to assure the candidate, and his family, are well suited to the new location.  Another key is to provide appropriate, professional relocation  support  services for the relocating family’s personal needs.  Cross-cultural and often language training are likely to be major components. Finding the right school for the children can be a tremendous challenge and take up considerable time to determine the right fit. Finally, the family’s attitude such as learning about the new country’s customs, culture, food, and etiquette also have to be factored in.

Each of these pieces constitute a complete puzzle that, when assembled properly, can lead to a positive experience for the transferee, their family, and the employer.

Categories:

• Expat Productivity

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• Foreign Assignments & US Expat Taxes

Foreign Assignments & US Expat Taxes

International employees are becoming much more common as businesses expand internationally; and it’s vital for US business owners to be familiar with the many US expat tax liabilities which may arise for both the employer and the employee. The cost of sending an employee abroad to complete an international assignment can add up quickly. With detailed plans and advice from a tax professional in place, however, some of the high costs of foreign assignments can be eliminated or greatly reduced.

The employer is not the only entity which needs to be well-versed on every aspect of US expat taxes; it should also educate its employees fully before asking them to accept a foreign assignment. Let’s examine the most important aspects of international operations in regard to US expat taxes. 

FEIE (Foreign Earned Income Exclusion)

The FEIE is an option available to your employees which would allow them to exclude a specific amount (up to $92,900 in 2011) of their earned income from their US expat tax liability. In order for this to take place the employer must assign the employee to an area which is classified as a “tax home” overseas for a time period of at least one year.

It’s important to remember, also, that just because an international employee qualifies for FEIE they are not automatically going to receive it; they need to file Form 2555 with their US expat taxes in order to receive exclusion. Aside from the need to be placed in a tax home, an employee on a foreign assignment must also meet at least one of the following conditions:

• Physical Presence  The employees international assignment must require their his/her presence in assigned country for a minimum of 330 days out of 365, which can be any time before the deadline filing date of US expat taxes.
• Bona Fide Residence  The employee’s foreign assignment is set to last for an indefinite period of time which exceeds one full year abroad.

Foreign Housing Exclusion and Deduction

A qualification for FEIE is a default qualification to claim deductions for foreign housing costs. If the employer is covering the cost of foreign housing for an employee or employees, this housing exclusion amount will be claimed on Form 2555. If the employee is responsible for his/her own housing out of regular payroll, he/she can deduct the amount from Form 1040. The deductible amount is different in each host country, and specific allowable deductions and amounts can be found on Form 2555 Instructions. Generally deductible items include: Furnishings, insurance on property, rent, repairs, residential parking fees, and utilities excluding phone.

There are cases in which a US employer will compensate an international employee for living expenses. In this situation these reimbursements are viewed as taxable income to the employee, but the amount can still be claimed as a deduction on the employee’s US expat taxes. If the reimbursement amount from the employer exceeds the allowable amount by the hosting country the employee’s expat tax liability will be increased. 

Foreign Tax Credit

Depending on the country hosting the international employee, there may be foreign taxes due in that country. In this situation a US taxpayer can use this amount to earn a foreign tax credit on US expat taxes, which will reduce their US expat tax liability by the dollar amount equal to that of their liability to the host country. An employee can only claim foreign tax credit if the income has not already been deducted by foreign housing exclusion or FEIE. 

Payroll Taxation

If the international employee does not qualify for FEIE the employer must withhold payroll taxes. If the employee does qualify for FEIE, an exemption request must be submitted on Form 673 to the employer. 

Benefits to Employee by Employer

Personal expense reimbursements to an international employee by a stateside employer will be viewed as taxable income by the IRS. Among these reimbursements are: 

• Moving expenses
• Continued education
• Spouse allowance
• Automobile reimbursements
• Family/Home medical leave

Business related expenses are a different story, however; any businesses expenses for which the employee is compensated will not affect taxable income. Even moving expenses are deductible if they meet the following qualifications: 

• The relocation must be relevant to the job – either starting a new job or performing the same job in a new location.
• The job’s new location must be more than 50 miles from the employee’s previous location.
• The employee must retain employment for a minimum of 39 weeks after moving.

The aforementioned qualifications are very specific and only include the actual cost of moving and/or storing household goods. Temporary living arrangements, meals, and travel seeking a new home are not included in deductible reimbursements and will be viewed as taxable income. Any non-reimbursable employer compensation amounts must be included on the employee’s W-2 to be reported on US expat taxes. 

Equalization Program

Many employers are attracted to the equalization program which would ensure foreign employees that their tax liability would not be any different than if they had continued working in the states. Through an equalization package expenses of both the employee and employer are minimized. The tax equalization program considers employee benefits such as cost of living, housing, travel, and school tuitions. It also takes into account the amount of foreign tax due and other taxable factors of the overseas assignment. Through the equalization package an employer agrees to reimburse its employee for excessive US expat tax liability. 

Final Notes

Every host country has unique tax laws and rates and is governed by a different treaty with the US. For example, some countries hosting US employees will result in hefty corporate tax liability. If you are a United States based company who is making use of international employees, you may want to seek advice from a well-informed tax professional that has experience dealing with the tax laws and regulations of each hosting country. 

There are numerous facets of working overseas as a United States citizen, and they all should be considered before an agreement is established between the stateside employer and the employee being considered for a foreign assignment. You may be wise to seek advice not only from a professional in the United States, but also from a tax professional from the country to which you intend to send employees.