Compensation of Expatriates

2602 Words Oct 3rd, 2008 11 Pages
AN EXPATRIATE
An expatriate (in abbreviated form, expat) is a person temporarily or permanently residing in a country and culture other than that of the person 's upbringing or legal residence. The word comes from the Latin ex (out of) and patria (country, fatherland).
During the latter half of the 20th century expatriation was dominated by professionals sent by their employers to foreign subsidiaries or headquarters. Starting at the end of the 20th century globalization created a global market for skilled professionals and leveled the income of skilled professionals relative to cost of living while the income differences of the unskilled remained large. Cost of intercontinental travel had become sufficiently low, such that employers not
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TRADITIONAL PAY MODELS
 Balance sheet
Features:
• Build up from home pay including wide range of benefits
• Full income and social security tax equalization
• Employee pays hypothetical home-country income and social security tax, remains on Home country payroll
• Employer pays home and host taxes on grossed up basis
• May include personal/investment income & gains and equity income
• Common with US-based multinationals

Pros:
• Consistent application for entire population, regardless of location
• Generally seen as generous to the assignee
• Engenders ease of relocation due to consistency and certainty

Cons:
• High employer costs due to gross up tax
• Significant administration burden for the employer
• May hinder repatriation if employee perceives he/she will be “worse off”

 Net to net

Features:
• Full or partial tax equalization or protection
• Home country net compensation calculated. Gross equivalent Host country calculated. Generally paid in host country currency
• Home or Host country social security
• Generally full range of benefits provided on a net basis
• More common with European-based multinationals

Pros:
• Clarity of

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