The bulk of your global mobility policy is confirming the procedures and benefits offered to the relocating employee. Although no two relocations are ever the same, below are the most common costs incurred within a company’s global relocation services. With these policy provisions, you’ll want to clearly communicate which are covered or reimbursable by the employee. With this documentation, companies can simply their corporate relocation programs while paving a smoother road for the relocating employee, enabling them to move with greater comfort and confidence.
Repayment Agreement
Companies should protect the significant investment they plan to make in the assignee before benefit administration begins. A company representative should discuss repayment agreement terms with the assignee, ensure understanding and have the assignee sign the agreement when they accept the assignment. The repayment agreement should cover all voluntary terminations and involuntary terminations for cause. It should be effective throughout the scheduled assignment and for two years beyond the repatriation or localization date.
Best practice to include in: Short- and Long-Term Assignment Policies, Localization and Permanent Move Policies
Hardship Allowance
A hardship allowance is typically offered to an expatriate in a location with difficult living and working conditions. Factors used to determine hardship levels often include climate, severe pollution, political instability, availability of everyday goods and services, risk of disease and access to medical care, quality of education and local infrastructure. The allowance is typically a percentage of base salary based on either the hardship rating of the city or country as published by the U.S. Department of State or as evaluated objectively by a third-party data management company.
Best practice to include in: Short-Term and Long-Term Assignment Policies
Relocation or Miscellaneous Allowance
A relocation or miscellaneous allowance is a one-time payment issued at the beginning of the move process and after the repayment agreement has been signed and returned. This allowance is intended to cover expenses not explicitly mentioned or reimbursed in other sections of an organization’s global mobility policy. The allowance is typically one month’s salary up to a specific amount (ex: one month’s salary up to a maximum of $10,000) or an exact, capped amount (ex: $7,500 for long-term assignments and $3,500 for short-term assignments). Additionally, many companies will offer a repatriation allowance, albeit in a lesser amount, for those returning home upon assignment completion (ex: $3,500 for long-term assignments).
Best practice to include in: Short- and Long-Term Assignment Policies, Localization and Permanent Move Policies
Cost of Living Adjustment (COLA) (also known as a Goods and Services Differential)
The COLA compensates assignees for the incremental cost of purchasing typical goods and services in the host location. Employers offer a COLA when the spendable portion of the assignee’s income is significantly less in the host country than in the home country. The COLA is intended to help the assignee maintain their home country purchasing power while on assignment in the host country. An independent data provider calculates the differential based on the assignee’s salary, family size, and living costs in the home and host locations. Companies may choose to review the COLA figures quarterly, semi-annually or annually. Additionally, some companies might decide to review the COLA amount at an unscheduled time if exchange rates between the home and host countries fluctuate more than a pre-determined amount (ex: 5% fluctuation).
Best practice to include in: Long-Term Assignment Policies. Localization policies will either end the COLA upon the effective localization date or taper off the COLA over several years (ex: year one = 66% COLA, year two = 33% COLA, year three = 0% COLA).
Housing Allowance
The host housing allowance usually depends on the assignee’s level with the company, home and host cities (and appropriate expatriate neighborhoods) and family size. An independent data provider calculates this figure, and employers typically review the allowance when an assignee’s lease is up for renewal.
Best practice to include in: Long-Term Assignment Policies
Utilities Allowance
A utilities allowance is an ongoing allowance intended to cover essential utilities in the host country. Typically covered are electricity, heating (other than electric), water and sometimes basic cable. For short-term assignees, essential utilities usually are included in the monthly rent. For long-term assignees, a third-party data provider calculates this allowance based on the home and host cities, family size, and host country residence size.
Best practice to include in: Long-Term Assignment Policies
Transportation Allowance / Company Car / Rental Car / Car & Driver
The transportation allowance depends on the assignment location, family size and type of assignment. The allowance can also be based on typical benefits for a local employee of the same grade or level as the assignee. For example, a company car is often standard for employees at a particular level or in a specific role in some countries. Therefore, assignees coming to that country in an equivalent level or position will also receive a company car as part of the transportation benefit.
Alternatively, in some countries where security is a concern for assignees and their families, a car and driver can be a more appropriate transportation benefit. As with other allowances, an independent data provider calculates the amount, and it may cover all or part of the assignee’s host location transportation expenses.
It might be necessary to include a host country automobile disposition benefit for assignees who purchase or lease a car. Those on long-term assignments may need loss on sale or lease breakage assistance as the assignment ends and they need to dispose of the vehicle.
Best practice to include in: Short- and Long-Term Assignment Policies, Commuter/Extended Business Traveler Policies
Per Diem Allowance
The per diem allowance is the short-term assignment or commuter/extended business traveler equivalent to the long-term assignment cost of living adjustment. It is intended to cover meals and incidental expenses and offset the difference in costs of goods and services between the home and host countries. A per diem allowance benefit is location-specific. An independent data provider calculates the per diem allowance and considers that the assignee is typically unaccompanied and living in furnished accommodations with a full kitchen.
The per diem allowance calculation should not be based on hotel stays where the assignee cannot utilize kitchen facilities and must eat all meals at restaurants or other types of dining establishments. Per diem allowances are often used in place of expense report-based reimbursements for consistency, process efficiency and cost containment.
Best practice to include in: Short-Term Assignment and Commuter/Extended Business Traveler Policies
Learn more in this Global Mobility Policy whitepaper!
Read this whitepaper on Global Mobility Policy Trends, Design and Best Practices that will help you to assess your global mobility policies in light of current realities.
