Expatriate Compensation Packages

Expatriate compensation packages can vary enormously from company to company and location to location. When negotiating an expat contract that is right for your needs and those of your family, it is important that you carefully consider several factors:

1) Nature of the Employment

One of the first major considerations of any expatriate compensation package should concern the nature of the relationship between the employee and the employer and should address what the employment relationship will constitute. There are several different types of expatriate contract and these will determine what the employment obligations will be-

  • Local-to-local: When you are working abroad for a local employer, you may receive a local-local contract. You will be on the same kind of contract as the local people, which may be better or worse than you are used to. Your salary will be in line with that of the local employees, as will the weekly hours, holiday entitlement and notice period. You will be expected to pay local tax and will be obliged to adhere to all the local policies and plans of the UK company. There will be no perks for being an expat.
  • Local-to-expat: This contract is again for expats who are working for a local company abroad. This time however the contract recognizes that you have moved abroad and are likely to have been hired because of your skills and expertise. You will no doubt be on a higher salary than the local workers and you will be entitled to more holidays and possibly less working hours. It is unlikely that you will receive any kind of expat package aside from relocation costs.
  • Expat-to-local: This is for people working for an international company, but still on a local contract. Many small businesses work like this as they cannot afford the expensive expat packages that are usually associated with big multi-national companies. There will not be much difference to a local contract with a local company.
  • Long-term expat packages: Most expats on a long-term contract with large corporations will find that their expat package is very generous. Most packages include a housing allowance, children’s school fees, travel allowance, good holiday entitlement and a high salary. It is these packages that attract so many expats to move overseas.
  • Short-term expat packages: Similar to the long-term packages, but usually without the holiday entitlement and school fees. These contracts are for people working abroad on a short contract of six months or less.

*Tips for contract negotiation*

When preparing to negotiate your contract you should not make any assumptions about the types of contract that you will be expected to agree to, as it is not always as simple as it seems. If for example, you are a UK citizen working for an American advertising agency in the UK and are requested to move to New York you may be expected to sign a “local” contract, even though your move is international. In this case, even though you are a UK citizen who has been requested to move abroad, you could be expected to live like a US resident and pay all US taxes, without any other traditional expatriate advantages. Understanding the type of relationship a company has in mind for your overseas contract is therefore crucial and should be done as early as possible, this will allow you to identify the consequences and highlight their requirement when negotiating your expatriate compensation package.

2) Contract duration and termination notice

There are a number of different types of expat contract, those with specified end dates or durations, and those that are ongoing. In the US there is also a contract type that is referred to as “employment at will”.

It is of utmost importance when you enter into a contract negotiation that you have a firm understanding of the duration of your assignment and the type of contract you are signing, as this will impact the terms and conditions of your relationship. Failure to fully consider the implications of your contract type could have serious repercussions. Some of the things that you should consider are as follows-

  • In an “employment at will” type contract, either party may be able to terminate the agreement without liability. If you do not like your new job you can simply walk away from the contract at a moment’s notice and will not face any serious repercussions. On the downside, however, your employer may be able terminate your job at a moment’s notice, leaving you without work.
  • If the duration will be impacted by the completion of a pre-agreed objective, you need to be aware of what the estimated time taken to complete this objective will be, how success will be measured and how your performance will be evaluated and assessed. You should also ensure that the contract accounts for your repatriation once the objectives are fulfilled.
  • If the contract is to be conducted on an ongoing basis, you may wish to include a provision for review of the contract terms and conditions on a regular basis. This may be important if your contract contains details of specific amounts for expatriate compensation benefits, repatriation or tax equalization as, with the passage of time, these may need to be increased in order to adequately meet your needs.

The type of contract that you are expected to agree will be determined by your seniority and local law. In China or Japan, for example, there is no “employment at will” system.

3) Governing Law and Jurisdiction

It is important that you identify and understand the law and jurisdiction that may apply to your expat contract and expatriate compensation package. This will usually be the local law in the country you will be employed in, the law of the home country from which you relocated or the law of the country in which your employer is incorporated. There is simply no such thing as a standard expatriate contract that can be implemented in any country. The clauses and inclusions need to be modified according to the law of the foreign jurisdiction and tailored in such a way that ensures that any conflict between the law of the host country and the law of the country of the corporation or hiring entity do not conflict.

Any international contract will need to take into account several factors-

  1. The applicable law of the agreement
  2. The jurisdiction that will be applied when resolving any disputes
  3. Local mandatory laws that may take precedence over any terms in the agreement.

Many companies will include a clause in their contract that specifies that all local laws be waived in favor of the law of the employing country. However, despite this, it is worth noting that in many countries, especially those within the EU, this is unenforceable. In addition to this, although the law varies from country to country, it is generally accepted that, in the absence of a clear choice of law in the contract, the employment agreement will be carried out in the country within which the employee will carry out their work.

*Tips for contract negotiation*

It is clear that even where a contract is robust and watertight in one country, variations in global law can entail that it becomes void and difficult to enforce. In order to adequately negotiate a contract you, or your legal representation, should have a good knowledge of the host country’s statutory law provisions. It is always worth noting that, on the whole, any terms and conditions you negotiate will only be valid if they do not conflict with the local law of the host. One useful resource for identifying local jurisdiction and how it may impact your expat compensation packages is the International Expatriate Employment Handbook by Andrius Kantrimas and Mary Samsa.

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