What is Global Compensation?
When sending employees abroad on international assignments, or even when hiring employees overseas, it’s important to have a good understanding of processing global compensation. In addition to salary, consideration should be given to other benefits – specifically which make the most sense to offer, whether it be additional leave allowances or local national holidays.
Read on to understand more about global compensation and how it should be both administered and reported.
What is Global Compensation?
The term “global compensation” refers to any kind of compensation offered to employees working abroad. It includes their salary or wages, as well as any other company benefits.
Examples of benefits could include anything from a place to live and a company car, to healthcare or language lessons. Basically, anything that would have a monetary value that’s being offered to an employee as an incentive or compensation for work.
The Payroll Implications
The payroll department is responsible for making sure all employees – both at home and abroad – are paid correctly and on time. In addition to managing salaries and wages, the payroll team also needs to organize, and often report on, any benefits that are issued.
Regulating Global Compensation
Any company operating in another country needs to be familiar with the employment laws that are in place there. These laws will often have an impact on salaries and may even dictate other benefits and compensations, such as annual leave and sick pay.
One way to help stay compliant with such legislation is to procure the services of the experts. At IRIS FMP, our team operates in 135 different countries. We have the experience and knowledge of international HR and payroll that’s needed to keep your company running well within the law. Find out more about our global HR and payroll services.
One concern for the payroll team needs to be that of adequately reporting employee pay. When sending staff to work abroad, it’s likely that the tax jurisdiction in the host nation will require that their pay is reported for tax purposes. Likewise, the hosting country will also demand reporting. The term used to describe this dual reporting is “shadow payroll”.
Most countries have reciprocating treaties in place to prevent employees from being taxed twice over; however, this is not always the case. Either way, employers need to ensure that payroll information is properly reported in both countries, so that the individual’s income is accurate and readily available to the tax authorities.
In addition to supplying salary information, it may also be necessary to report employee benefits.
In the UK, for example, there are a number of benefits that need to be reported to HMRC and the employer must pay tax and National Insurance on each.
These include benefits like:
- company cars,
- and health insurance.
Similarly, in the US, information on everything from car and education allowance to host country housing and utility bills needs to be included on an employee’s annual W-2 Wage and Tax Statement.
Each host country will have its own legislation on this. The HR and payroll team will need to be familiar with the nuances of local employment laws, helping businesses to navigate overseas markets.
For a glimpse into country-specific employment laws from key global territories, see our in-country guides.
Costs of Benefits to the Business
All compensation offered to employees working abroad is generally paid for through the business. This is usually the case, unless the benefit must be offered because of local employment law.
Examples of this could be:
- Paid annual leave
- Sick pay
- Paid parental leave
- Paid compassionate leave
- Health care
Otherwise, the cost of the benefit (additional pay, for example) will be absorbed by the business as an overhead cost. When it comes to relocating abroad, benefits that are commonly offered and may be expected by employees include:
- Relocation costs
- Education for dependants
What Are the Best Practices Regarding Compensation in Global Assignments?
A global compensation strategy needs to offer more than just attractive salaries. It’s often necessary to offer competitive benefits to incentivize a move abroad for existing employees. As well as covering relocation costs and potentially housing, employers should consider what other benefits might be appropriate.
In addition to persuading existing staff to move abroad, adequate compensation is an essential magnet for new talent and helps in retaining new hires. This is a critical part of building an attractive recruitment process for international assignments.
When devising a global compensation strategy, it’s vital that the HR and payroll team thinks carefully about what’s appropriate in that location. Only with thorough knowledge about the local employment law and cultural norms, can relevant benefits be defined.
Examples to consider include:
- Private healthcare may not be necessary in a country where tax payments cover social security services, such as access to public healthcare like in the UK.
- Company cars may not be useful in a country where driving is dangerous, or if the employee would need to acquire a local driving licence.
- Overtime pay might be the norm in the host country, whereas it may be expected and possibly unpaid in the home country.
It can be a good idea to make a point of networking with other professionals in the host country, in order to get a better understanding of the kinds of compensation and benefits offered there. Armed with this information it should be possible to decide on a global compensation strategy that properly incentivizes staff and makes them feel truly valued.
How IRIS FMP Can Help
Speak to the IRIS FMP team for access to all the advice you need regarding successfully hiring employees abroad. Whether they are new and local hires or they have relocated from the company’s origin country, it’s important to provide access to a better than average global compensation scheme to attract and retain staff. With our wide knowledge of international HR and payroll law, our team will ensure your global expansion is a smooth as possible.