What are the Risks of Global Employee Benefits Management?

Posted on 14 August 2023 by Chris Welsh

Categories: Global Benefits

Attracting talent, retaining key employees, and recognizing high performance are all integral to the success of a business. That’s why the compensation and benefits schemes provided by employers are so significant and have such far-reaching effects.

We know that a well-designed program will not only attract quality staff, but it will also contribute to business success by:

  • Driving employee engagement
  • Achieving greater productivity.
  • Reducing health care costs.
  • Reducing absenteeism.
  • Improving employee morale and loyalty.

Of course, none of this remains static. This is evident to all in a post-pandemic world, where business conditions have very clearly changed. After what in some quarters has become known as the ‘great resignation’, many employers are finding competition for talented people who have reassessed what is important to them, forcing them to rethink their focus. A successful employer will adapt. In many cases we will therefore work with our clients, helping them to ensure that a package remains meaningful, even as circumstances change.  

Colleagues gathered around a laptop

The international challenge

Operating internationally creates even greater challenges. In the US, where many of IRIS FMP’s clients are headquartered, employee benefits management can be relatively hassle-free, even across State borders. But as a business grows beyond those borders, new challenges will arise.

It’s a fact that no two countries are the same, so for a benefits package to be meaningful, it’s important to recognize these differences. However, it shouldn’t be ignored that as a business becomes truly global, if those differences are significant, then inadvertently they might become barriers to mobility. So, with an eye to the future, broad homogeneity should not be lost in benefit design.

Even within the EU, a block of 27 broadly aligned countries, each nation-state has its own political imperatives; they have control of their own fiscal policies; they operate their own health and social security services; they are at different stages of the economic cycle at any given time; they have their own traditions and customs, and within bounds, nations will interpret EU directives differently. Of course, the world is a far bigger place than the EU alone, where there is at least a reasonable amount of convergence.

Businesses need to accept and embrace national differences but be mindful of the fact that fully acceding to local differences may create barriers to international mobility as the company grows.

The risks of global benefit schemes

1. Language

This can often be the elephant in the room. From the benefit design stage onwards, clear understanding is key, it can be dangerous to make assumptions. Technical terms that mean one thing in one country might not have a direct equivalent in another. 

Whilst English versions of documents are commonly available, they will only be for administrative ease. Contracts will usually only be binding in the language of that State. There may therefore be cost involved in Counsel ratifying such documents before committing to them.

2. Employee communication

As employee benefit professionals we know that to best achieve recruitment and retention goals it’s rarely enough to just implement a benefit program. They need to be effectively communicated with employees and they should be given opportunities to engage with professionals in order to gain a full and rounded understanding of their value. In our experience, whilst ‘Head Office’ staff will often receive robust support, it’s common for smaller groups, in overseas territories, to be somewhat neglected. This is unwise since those small groups might be the pioneering teams, scoping out the market and building the foundations of the business in a new country. The impact of their dissatisfaction might be disproportionate to the size of their group.

3. Your local business structure

One of the first things to consider when setting out to implement a benefits program in a new country is how you intend to operate as a business in that country. Not having an established local legal entity, a local bank account or local signatories will likely constrain what can be done. At the least it might restrict the providers who would be willing to offer terms, at worst if a local fiscal entity does not exist, it might mean that a particular type of benefit cannot be offered at all. Of course, there are probably many factors that a business needs to weigh up before they decide on how they will conduct business in a new country but it’s important not to forget that it may well impact a benefits program.

4. International payments

This can definitely be an issue.  As mentioned above, when a business sets up in a country, it might initially decide not to establish a legal entity in the country. In these circumstances, local banks may not facilitate the implementation of a regular debiting mandate – to be fair, the Accounts Payable (AP) Team of the employing company might actually prefer the control offered up by an invoice-based process. However, there might be several other important implications of going down this route.

Firstly, the range of benefit/insurance providers who might offer terms will likely be restricted; those may not represent the best or the cheapest solutions. Secondly, where cover is reliant on AP paying an invoice, then there is a real danger that any delays in payment will result in a suspension of cover. We have experienced cases where reliance on a ‘manual’ billing process, coupled with a lack of comprehension of insurance on the part of an AP, has led to employees having to put off medical treatments! The impact cannot be understated.

Three colleagues reviewing a report

5. Small groups

The challenge of obtaining group insurance benefits with a very small headcount cannot be overstated. Establishing a group scheme potentially makes for light touch administration, arguably this is crucial when dealing at arms-length. It is always something we seek for our clients. However, insurance/benefits providers are commercial organizations; logically, they are free to decide what business they choose to accept.  Their decision will clearly be based on profitability. In practice, this often means that any requests for terms will require a minimum headcount. Of course, it’s very common for a business to start off with only a small number of staff. The headcount may not be sufficient to obtain group terms. This might mean considering individual policies. These policies will often be subject to rigorous financial services compliance requirements, require a protracted process of medical underwriting, and ultimately hold no guarantee that terms will be offered at all.  In these circumstances, there is a strong likelihood that this might dent the new hire’s relationship with their employer right at the beginning of their journey with them.

There are alternate solutions that might require imagination or require the ability to be able to exert leverage on the market to deliver what might otherwise be non-standard terms.

6. Statutory obligations

When setting out on foreign expansion, it’s likely that HR will not have extensive knowledge of local markets, so unless they intend to take on full-time specialist staff, they will need to rely upon third parties to help them to design, implement, and administer any programs they decide upon.

In any given country there will usually be mandatory insurance to put in place as soon as you employ someone; be it Workers Compensation Insurance, health checks, health & safety training, or pension. Every country will be different. Of course, many of these insurances will not be viewed by employees as benefits, but logically you will need to meet these statutory obligations before you begin deciding what you’d like to put in place to help you attract and retain the type of staff you need to make your business a success. 

In quite a few countries, a business must adhere to a Collective Bargaining Agreement (CBA) relevant to its industry. To an extent, these CBAs will dictate the terms and conditions on which you employ someone and will set down some parameters for the provision of benefits. Some CBAs might also suggest specific requirements for employees of different levels of seniority; Italy is a good example of a country where such differences exist.

We must not forget that Governments periodically review statutory requirements, so these obligations will change. Without adequate support, it is a risk that an international business might start off compliant, but they may not remain so.

So, helping clients understand these statutory obligations and how they might respond to them both initially and on an ongoing basis, is one of the first steps we take with any new client. 

7. Benchmarking & relevant technical knowledge

Realistically, when setting out on foreign expansion, it’s likely that headquarters HR will not have extensive knowledge of local foreign markets but based upon what they know they might have fairly firm ideas as to what they might like to offer. We hinted at the danger of having firm preconceived ideas earlier in this piece. But support from the State in such things as health, disability, retirement, etc. will vary from one country to another country; the mandatory requirements will therefore differ; expectations of employees in different locations will logically be affected.

Many of our clients are headquartered in the US. It is well documented that US citizens do not enjoy the ‘free at the point of use’ healthcare that people in other countries around the world take for granted. Rightly, US-headquartered HR might therefore assume private healthcare to be the number one priority for any employee benefits package, but this might be completely wrong.

Any employer will only have a finite amount of money to spend on salaries and employee benefits, so it’s important not to rely on preconceived ideas and sketchy knowledge to direct monies into areas that won’t optimize the impact on recruiting and retaining good staff. 

Of course, the private healthcare issue is only one such example; if you compare two different countries, there are many more.

Setting aside preconceived ideas on what type of benefits should form part of the package, it’s also important to identify at what level these benefits should be set. A good example might be life cover. In the UK, it’s common to provide a lump sum equivalent to 3 or 4 x salary; in the Netherlands, the expectation is more normally 1 or 2 x salary.  Again, we are in the business of helping our clients deploy their scarce resources to the best effect. It would be all too easy for a client to direct too much money towards one part of a benefits program, perhaps at the expense of something else. Local benchmarking is therefore extremely important. 

8. The cost of living

In our experience, it’s quite common for some of the first few employees in the country to be redeployed from their home territory. In this scenario, it’s right to think of the differential in the cost of living between those two countries. It’s also sensible to remember that any redeployed member of staff might reasonably compare the benefits package they receive at home with what is on the table in that new country. 

Certain allowances might need to be made for a package to be meaningful.

If instead of redeploying staff, a company employs them from the local talent pool, then it’s quite possible that expectations will be lower.  This might logically save money.

If an employer doesn’t take into consideration the source of talent, then on the one hand the risk is you don’t attract or retain the talent you need, and on the other you overspend.

9. Cost control and transparency

Arguably a key factor for growing businesses to succeed is that they keep control of costs. For businesses dealing in multiple jurisdictions, ongoing budgeting can be difficult, for example, medical inflation will differ, mortality rates vary, different tax rates apply, and exchange rates fluctuate.

We do what we can to help our clients predict and control their costs. Regular exposure to competitive tender is an important tool in controlling costs, so we work with our clients and strategic broking partners to undertake these exercises at regular intervals and help them transition to new providers if the advice suggests they do so. At the same time, we will often use our knowledge and experience to reshape those benefits, if costs accelerate too much. 

It is a risk that merely using an adviser will allow costs to drift upwards.

10. Administrative processes

Nobody likes undertaking admin but unfortunately, it’s what makes the world go around. It’s a fact that no two countries adopt the same administrative processes. Onboarding requirements, deadlines, penalties and tax, claims processes, etc. the list is endless, and the consequences of getting it wrong can be severe. We act as a coordinator for our clients to ensure they understand what is required of them when it is required and the consequences of not doing so.

Employees celebrating

What else is needed when hiring an employee internationally?

As an employer, you must have a clear understanding of what is legally required of you in whichever country you employ someone. Sick pay, vacation, bereavement leave, transport allowances, the need for health checks, collective bargaining, and more. A compensation package is much more than salary and benefits, it extends into terms and conditions.

You might need to include enhanced vacation, car or green transport schemes, maternity leave and/or paternity leave, and severance pay into your terms and conditions of employment. At IRIS FMP, we know better than many what these terms and conditions look like. We work seamlessly with our human capital colleagues to help our growing client businesses shape these policies into meaningful terms and conditions for their employees deployed around the world.

Why are employee benefits so important?

Ultimately all employee benefits are about attracting and retaining the staff you need in order to make your business a success. If it’s you versus a competitor attracting top talent in your industry, your employee benefits scheme might be what clinches the deal.

How IRIS FMP can help you navigate complex benefit risks

There are many risks to achieving success with benefit and compensation plans. We work with our clients to help mitigate these risks with our international benefits and compensation service.