We’ve all heard stories of expats working overseas for a few years on massive salaries and then retiring a few years later in an exotic location. Unfortunately, the reality is that it is not that common. In this article, we explore the typical components of an expat salary package.
Different Terms & Conditions an Expat Could Be Employed Under
Before we explore the components of an expat salary package, it should be noted that not everyone that gets employed overseas is going to get an “expat salary package”. As an expat, there are a number of ways you might be employed. The employment terms are dependent on a range of factors such as whether you were recruited from abroad or being transferred within your company, the industry you work in, availability of local staff to do the same job, and company policy.
While there are numerous permutations and combinations, you could classify someone’s employment terms along the following lines
- Local Terms & Conditions – employed on the same terms and salary as any local (local salary and conditions, no relocation support, no other specific support like international health insurance or immigration assistance). Under these terms and conditions you may earn more or less than you are used to, and you may have more or less annual leave than you are used to.
- Local “Plus” Terms & Conditions – employed on the same terms and salary as any local, however the employer has agreed to provide some additional support recognising you will have additional expenses given you are not local. The additional support might come in the form of relocation support (which could be minimal or comprehensive relocation support package) or some other support such as expat health insurance.
- Expat Terms & Conditions – the focus of this article. People employed on expat terms and conditions would usually expect to have a salary commensurate or higher than their home country, include a comprehensive relocation package, as well as additional benefits including housing, education and health insurance.
In some situations, an expat might initally be employed on expat terms and conditions. However company policy may dictate that if the person stays in the same location / role for more than, say, 5 years, then their employment conditions will revert to local terms and conditions (or expat terms and conditions with a reduced level of support and benefits).
What is an Expat Salary Package?
The traditional expat salary package that we’ve all heard stories about are becoming less common now.
Expat salary packages are designed to cover the expenses of staff who move their families abroad, as well as providing compensation for the associated hardship. A traditional expat salary package (which we explore below) would include relocation costs, housing and education allowances, annual travel allowances, and a loading on your base salary.
In a more globalised, connected, and educated world the need for bringing in expats on big salaries is subsiding, and companies are needing to balance having the right capability on location, ensuring their people are compensated appropriately, and keeping the costs of running the business to a minimum.
The Expat Salary Package
If you are being offered an “expat role” whether it is being transferred with your current employer or a job offer overseas with a new employer you should expect your salary package to fully compensate you for the incremental costs of living overseas.
In negotiating your salary package you should keep in mind
- the employment alternatives your employer has (eg. if you are looking at a job in London how likely is it that there are similar candidates available locally to do the same job?)
- the expat policies of the company
- what is the norm for the industry and country you are heading to
- what will be your after tax income, and what will be your cost of living? How does that compare to your current situation? Many countries will have a much lower cost of living, or much lower tax rates than you are used to.
- what will you personally gain from the opportunity to work abroad
With that in mind, what are the typical components of an expat salary package?
1. Comprehensive Relocation Package
In our checklist for a comprehensive relocation package we discuss the typical components that a company should offer for someone moving overseas. As a minimum you should expect that your household furniture will be packed and shipped, you will be provided flights for you and your family to your new destination, temporary accommodation, immigration assistance, and reimbursement if incidental expenses associated with relocation.
As part of an expat salary package, it is likely your salary will be made up of a number of components. It is possible you could be offered a salary in local dollars, in Australian dollars, a third currency (eg. US dollars if you are living in a country with a volatile currency) or some combination.
The reason why a company may offer you a salary in two or more currencies is to reflect that you will have a portion of your living expenses incurred in local currency and a portion of your income will be used to pay expenses in your home country (eg. home mortgage) or for saving or investing in your home country. In addition, this provides a form of currency hedging versus the situation where you are paid your salary in only one of the currencies.
If you are being transferred by your employer from Australia, it may be possible for your employer to continue to making contributions to your Australian superannuation fund. Alternatively, your employer may contribute into a pension scheme in the country you are moving to.
Hardship Allowance or Location Loading
You may receive an additional allowance depending on the location you are working in. The allowance might be influenced by such factors as security, infrastructure, remoteness, cost of living, and hardship.
A significant component of any expat salary package is the inclusion of a rental allowance. Employers will usually use external market data to determine an appropriate rental allowance, and may be a function of your seniority. If you rent a house or apartment for less than the rental allowance, the employer usually keeps the difference. If you rent a house or apartment for more than the rental allowance, then the added cost would be to the employees account.
Depending on the structure of your expat salary package, you may be entitled to a utilities allowance to cover the cost of gas and electricity. Some expat salary packages will account for these expenses in location allowances or other parts of your expat salary package.
If you have school age children and are moving to a country where English is not the national language, you will probably want to send your children to an English speaking school. This immediately can add significant expense for expats, and so most companies will reimburse the cost of school fees associated with sending your school age children to an international school.
The principle behind tax equalisation is that you, as an expat, should be no better off or no worse off as a result of moving overseas.
If the tax burden is higher in the country you are moving to (than your home country) then the company pays the excess tax. If the tax burden is lower, then the company pockets the savings. The intention of tax equalisation is that it should not matter to you (from a tax perspective) whether you are being sent to the UK, Dubai or Singapore. Your net salary will remain the same. Obviously, this means there are winners and losers (you win if you move to a high taxing country, and lose, relatively speaking, if you move to a low taxing country)
Tax equalisation sounds simple in theory but the devil is in the detail. A subject for a future article. The point here is, to be aware of it, and be prepared for an employer to put this in your salary package.
Tax Preparation Assistance
Managing your tax affairs when working overseas can get very complicated. Dealing with a foreign tax office with different rules to Australia (and in a different language), determining your tax residency, or allocating income between Australia and the overseas country. As a result, including support to complete your tax returns in both countries is a common component of expat salary packages.
In addition, if your expat salary package includes tax equalisation provisions (discussed previously), then it is almost certain your employer will provide tax assistance.
International Health Insurance
Large international companies will often provide expat health insurance to their expats (and families) under a pre-negotiated arrangement with an international health insurer such as Cigna Global. One of the benefits this can provide is that you are automatically covered for any pre-existing illnesses. Other companies may provide you an allowance to take out your own international health insurance.
Questions you may want to ask your employer about the international health insurance policy they offer include whether pre-existing medical conditions will be covered; how comprehensive is the insurance coverage; does it include cover for dental treatment or pregnancy; is my family covered; and (if relevant) does it include medical evacuation.
If you are being provided an allowance for international health insurance, then you can obtain a free quote online from Cigna Global.
Annual Travel Allowance
Depending on whether or not you move overseas with your spouse and family, you may be entitled to one or more return flights to your home location.
If you move overseas with your family, it is usual to only have at least one return flight (business class?) to your home location each year for you and your family. If you leave your family in Australia, you may be entitled to more return trips to Australia during the course of the year.
Some companies will recognise that taking on an expatriate employment opportunity may have negative consequences for the career of the employee’s spouse. As such, there may be the opportunity for your spouse to receive support in terms of finding a job in your new country, or receiving financial support for further study.
Language and Cultural Awareness Training
Where appropriate, your employer may offer language and cultural awareness training to you and your family to enable you to settle into your new environment quickly and feel at home amongst your new community. Language training may also form an important part of your employment responsibilities.