expatriate assignments main issues

Why 40% of Overseas Assignments Fail and What You Can Do to Prevent It

Four in ten international assignments are judged to be a failure. And yet the number of overseas assignments continues to rise. Global companies are under considerable pressure to determine what makes a successful overseas assignment and to understand why they so often fail.

To minimize the risk of such failure and to ensure the well-being of their employees, organizations must examine the key challenges facing expats deployed overseas, and determine the best way to prepare, support, and manage them during their time abroad.

Challenges of overseas assignments

International companies are realizing that expatriate employees require significant support to complete their assignment successfully.

With 40% of all overseas assignments failing, the cost of failure is high – the average cost of an expat assignment can amount to $311,000 per yea r. It makes financial sense for companies to ensure that they fully prepare and support expatriate employees before, during, and after their overseas assignments.

Global Mobility in the Age of Diversity

Companies sending employees overseas have a moral responsibility and a duty of care to ensure that they understand the legislation and cultural differences in the country assignees are going to.

Some of the most important services that should be available to all expats on overseas international assignments include:

• Pre-assignment health screening to ensure that the employee is fit for the assignment
• Cross-cultural training for the entire family
• Comprehensive travel and medical insurance packages
• Access to Employee Assistance Programs (EAPs) throughout the assignment

Why expatriate assignments fail and how to prevent this failure

According to INSEAD business school, the five main reasons for expatriate assignment failure, which they estimate at 40-50% of all overseas deployments are:

1. You chose the wrong person in the first place

Unless there is a previous track record of success, it is very difficult to isolate the qualities that successful expats require.

2. Lack of local support in the host country

The local branch of the company in the host country has a crucial role to play in supporting newly arrived employees.

3. Disconnection from the home country

It is very important for expats to keep in touch with colleagues and work life back home so that they have a more balanced view of their role within the global organization and are better prepared for repatriation once the assignment is over.

Further reading

4. Domestic difficulties

While children and spouses are frequent factors in early repatriation cases, these difficulties are extremely hard to spot because most expats are reluctant to share domestic or social difficulties with the company – the company needs to know that the assignee’s family is coping, and it should explain the need for open communication up-front.

5. Failure to plan

Individuals need time to prepare practically and mentally for an overseas assignment, and an organization needs time to put the right infrastructure in place.

It takes time to choose the right candidate, and to put in place the people required to support them, so effective planning for the overseas international assignment is crucial.

Preparing employees for overseas assignments

Preparation is key to ensuring a successful overseas international assignment and support should be offered throughout the process.

Global Mobility professionals must:

• Select employees carefully Success at home does not necessarily translate into high performance overseas for an employee. It is important to consider soft skills, such as flexibility, self-reliance, tolerance, and the ability to handle change and ambiguity, since these are qualities that point to the likelihood of success in a new environment.
• Prepare for departure This is where companies often fall short – pre-deployment programs such as cross-cultural training and intensive language classes need to be developed and supported financially by the organization.
• Offer ongoing support Proactive, ongoing support versus reactive actions by employers has been found to markedly increase the success rate of expatriate assignments, so this kind of support should be integral to the program.
• Prepare for repatriation This is an often overlooked factor in the success or failure of international assignments — expats need to have sufficient time to prepare for a new environment at home for themselves and their families.

The benefits of overseas assignments

There are numerous benefits for both companies and employees in meeting the challenges of successful overseas international assignments.

Advantages for companies

• Expansion into both new and existing markets: By building out a talented workforce abroad, a company can bolster its global influence and revenue
• Development of top talent: international experience can help train employees for leadership , managerial, and executive roles in the future
• Streamlined operations: if a company is looking to make moves quickly, sending an existing employee abroad can help streamline operations
• New perspectives are gained: having employees working overseas can help funnel new perspectives, ideas, and business practices back to headquarters

Benefits for employees

Likewise, there are significant benefits for employees of working abroad, and expatriates should understand that overseas deployments will often result in benefits not only for the company but for themselves:

• The potential for career progression
• An increased salary or compensation in many cases
• Attractive perks and benefits for the whole family
• The development of professional skills that could lead to future promotion
• Enhanced personal experiences and potential opportunities for travel
• The discovery of new people, traditions, and ways of working
• Familiarization with new languages and cultures

Managing expatriates on overseas assignments

Research shows that services that prepare, support, and show employees that they are valued typically represent just 1% of the total cost of overseas assignments.

The following tips apply to all global organizations managing expatriates on overseas international assignments:

• Ensure that your employees are medically fit
• Make sure that any drugs that the employee/family needs are legal
• Give cultural training to employees and their families prior to travel
• Offer intensive language courses for the whole family
• Sign up for an expatriate Employee Assistance Program
• Provide international medical insurance

Be prepared

When it comes to overseas assignments it is really a case of – fail to prepare: prepare to fail. Global mobility professionals must examine the challenges facing the modern assignee and determine the best practices to support and manage them throughout their assignment.

As International Management Consultant Audrey Rowley puts it:

“Successful overseas assignments depend on the individual and the support they receive. After the initial honeymoon period, it is common for employees to feel isolated because of the cultural and language barriers and the separation from friends and family. Having a benefit and support program that starts [at home] and continues throughout the assignment can alleviate the risk of failure, provide employees with support to address any issues, and ensure the assignment is a success for the company and the employee.”

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3 Major Challenges of Managing Expatriates

What are the biggest challenges of managing expats? We have the 411! ☆ Hiring expatriates gives a company the opportunity to reach minds across the world. With that comes innovation, new skills, ideas, and cultures. There are a multitude of reasons why expatriates make great company investments—but in working with expats inevitably comes unique challenges. 

In the international education industry, and particularly as a program provider, you’ll work with students and employees from all over the world. You’d be kidding yourself if you didn’t believe you’d run into problems here and there.

Knowing the greatest challenges of managing expatriates will allow a company to prepare accordingly, and this preparation could be make-or-break between a hefty investment and that investment’s success. So…what are the challenges of managing expatriates?

1. Culture Shock 

The primary challenge of managing expatriates is culture shock. It’s impossible to expect expatriates to acclimate quickly, if at all. Moving across the world and needing to adjust to a new culture, work environment, and social structure with no immediate support system is no small task. 

Place yourself in the expat’s shoes. Can you promise you would fit directly into your new world? That’s an impossible question to answer because it’s unpredictable. However, your company can take steps to help expatriates adjust.

Africa’s first online newspaper, Mail & Guardian , “ Managing expatriates ,” discusses the importance of a smooth transition for expats, saying, 

 “South Africa ranks ninth for overall expat experience, which looks at an expat’s lifestyle , especially the ease at which expats can set up in their new country and how well they integrate into the local community, and their overall quality of life.”

South Africa hosts over 60% of expatriates from the UK and after a survey they found that former expats had positive experiences because their expectations were met when arriving to South Africa. There are a number of ways to strive to meet expectations and informing expats about what they should expect is crucial. 

How can I overcome this challenge?

If you put yourself in the shoes of your expatriate employees, problems with culture shock will be much easier to identify and solve. One solution to help expats integrate into their new lifestyle is providing them with as much information as possible about their new home from the start of the process. 

This will not only vet applicants, but will help with culture shock. Giving information on the country, city, culture, company expectations, photos—LOTS OF PHOTOS—accommodation possibilities, the city, office, and even linking a current employee as a point of reference and guide can help expats make a more well-informed commitment. When they become confident of their decision, their ability to self-manage culture shock will improve.

Providing a surplus of information will also contribute to solving another challenge companies face: the culture shock of families. Whether families such as a spouse and children move with the expat, or if they remain at home, preparing the family is a crucial solution to culture shock. 

Expats face intense pressure from the family’s ability to adjust and it’s easy for companies to overlook this, especially when managing expatriates on international assignments. 

A similar solution to how a company should prepare the expat can be used for families, but this one needs to be geared more specifically towards the family itself. Sending family-specific information with photos and information such as accommodation, nearby grocery stores, parks, recreational activities, and the contact information of other families within the company can put those moving with the expat at ease.

Finally, regardless of whether you’re receiving a solo employee or their entire family, consider providing orientation on arrival. Assign a local employee to give your new hire a tour around town, and to be their point of contact if they have any questions.

Giving your new hire a sense of ease will help tremendously when it comes to combating culture shock. The right way to manage expats? Imagine yourself as one. 

2. Expatriation costs 

It is a costly investment to fly an employee across the world but the cost of a flight isn’t the main worry. If expatriates don’t become long term employees, the cost of overhead now includes expenses to fill the position.

When managing expatriates on international assignments, expatriation costs can be especially challenging if the expat isn’t able to stay for the required time in order to complete the assignment. 

The costly challenges of managing expatriates can appear in other forms. Visa and health insurance costs should also be taken into consideration. With this comes the cost of time and depending on the country, the process of obtaining a work visa can be long and unforeseeable. 

Other expatriation costs to assess include accommodation for the expat and possible family, transportation, living expenses, and taxation. These, among other unanticipated expenses, can be costly.

The cost of the company’s time should be considered as well. Expect delays ranging from readiness of expat to move, timing and cost of flights, securing a work visa, training when they arrive, and time for the expat and family to adjust. 

Imagine this dilemma comparable to summer storms. They’re unfortunate, and in the moment it will feel like you’re taking a hit, but a rejuvenation and growth of vegetation follows storms. 

Starting with the flight, expatriation expenses might feel like you’re at a loss, but soon you’ll begin to see the benefits. This can be seen in the form of new approaches, expertise, and insights that will contribute to much growth within your company.

To protect your investment, consider requiring a contract for foreign employees, with a clause stating that they must pay back a certain amount if they break their contract or leave early. That way, in case of a turnover disaster, you’ll have the chance to at least break even.

Don’t forget to consider the benefits of your new hire. Hiring expats means companies have far better opportunities and reach for recruitment. That means companies can reach specific and diverse skill sets that might not have been available locally or nationally.

Expertise can now be reached at a global level. Expats bring a new perspective, style of problem solving, motivation and cross-cultural competence. Those are all valuable perks for your business!

3. Language barriers

Depending on where your company is headquartered, or how wide your hiring radius is, language barriers can be a major issue in managing expatriates on international assignments.

Hiring employees who do not have strong skills in speaking the local language can pose a huge challenge to your company. These employees may have a longer adjustment period and take more time to increase their productivity.

If the issue is left unaddressed, they could be left feeling isolated both in and outside of the office, increasing the risk of them breaking their contract early or being uninterested in growing with the company beyond their term.

Language barriers can be difficult to transcend, because overcoming them involves the acquisition of a brand new hard skill—which is no easy feat. However, that’s not to say it’s impossible.

If you’re located in a country where English is not a primarily-spoken language but your company’s business language is English, make sure your current employees know that you are hiring someone who doesn’t speak the local language.

Making your local employees aware that there will be someone new on-site who doesn’t speak the local language will hopefully open them up to the idea of finding common ground and  helping your new hire integrate into the local culture.

Alternatively, if you’re based in an English-speaking country and have just hired a non-native English speaker, the same rule holds true. Ensure that you have employees willing to take your new hire under their wings and help them adjust.

Finally, consider setting up language lessons for your employee (paid for by the company, of course), or assigning them a language exchange buddy from within the country.

Understanding the challenges of managing expatriates will help them (and you!) succeed 

The challenges of managing expats should be carefully considered by companies. However, through diligent recruitment and disbursement of information regarding all aspects of the new culture, the risk in managing expatriates can be met with much preparation.  

It’s important to remember: The right way to manage expats is to imagine yourself as one.

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The 5 biggest reasons for expatriate failure

International assignments are exciting for the individual, and can be hugely beneficial for the organization. But they are risky too: according to INSEAD, the  proportion of expat assignment failures  can be as high as 50%.

There are a number of reasons – some down to the individual, some to the organization – but any single one of them can result in an early flight home and a huge disappointment for company and assignee alike.

1. You chose the wrong person in the first place

This is the fundamental decision – and one that many companies get wrong. The problem is that, unless there is a precedent (ie you choose an individual with a track record of successful assignments in different countries),  it’s very difficult to isolate the qualities that successful expats need .

Sometimes, an assignee will thrive because they are adaptable; they are both sensitive to their new environment and able to shape their behaviors and lifestyle to fit in with it. However, sometimes the opposite is true. It is equally often noted that a successful expat is one with  a clearly defined set of values  that enables them to perform consistently, professionally and effectively regardless of their social milieu. Clearly, both characteristics are desirable, and ‘compromise’ candidates may be the ones most likely to succeed.

2. Lack of local support

It is not all about the individual. The host country has a crucial role to play, and the most important individual is the host sponsor. Their role is to provide the support in helping the assignee fit in, whether on a social, professional or domestic level –  without their support assignments can go wrong very quickly . Don’t forget that busy work schedules will quickly dominate and leave little time for the assignee to manage their own affairs – and also distract the hosts from their obligation to support the assignee. But if one individual has a clearly defined role to support them, they will not it slip down their list of priorities.

3. Disconnection from home country

It is important to keep in touch with colleagues and work life back home too. The more isolated an assignee is, the more likely they are to reject it – whereas our experience suggests that it is helpful to stay in contact. For this reason, companies are wise to assign a contact who is responsible for  keeping the assignee ‘in the loop’  about developments at home. They not only have a more balanced view of their role within the global organization, but are also better prepared for repatriation once their assignment is over.

4. Domestic difficulties

While children and spouses are frequent factors in early repatriation cases, it is extremely hard to spot because  most assignees are reluctant to share domestic or social difficulties  with the company. They usually believe that any problems will suggest to the company that they are “not up to the job” and therefore paper over the cracks rather than asking for support. Ironically, therefore, the people who could help most are the last to know. To avoid this, frequent and open communication is essential. The company needs to know that the assignee’s family is coping, and it should explain the need for open communication up-front – before they even leave the country. 

5. Failure to plan

In a perfect world, every overseas assignment would be strategically planned and carefully implemented. The truth of modern business is that organizational resource needs can change overnight – so there is sometimes little or no warning. The individual needs  time to prepare practically and mentally  for the assignment, and the organization needs time to put the right infrastructure in place: as mentioned in the last three points, it takes time to choose the right candidate, and to put in place the people required to support them. Sometimes they get away with it; sometimes, it’s no surprise that they’re on one of the first planes home. 

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Sustainable Expatriate Management: Rethinking International Assignments

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This article explores the concept of sustainable expatriate management, which incorporates environmental, social, and economic factors, and how it can be implemented in a corporate context. We argue that with increasing societal and environmental issues, it is crucial to revisit the overall global philosophy and policies, including the expatriate life cycle. We apply the UN Sustainable Development Goals (SDGs) framework to examine how businesses can remodel their practices to become more resilient. Furthermore, based on a systematic literature review, we identified gaps in research on the integration of environmental factors into sustainable expatriate management. Lastly, this article presents a model for understanding the three layers of sustainability in expatriate management, which can assist practitioners in identifying blind spots and material topics.

Introduction

According to Ghauri, Strange and Cooke (2021) , the global business environment has improved awareness of sustainability as a ‘new reality’. Furthermore, addressing the UN Sustainable Development Goals (SDGs) in a corporate context is becoming increasingly popular (Liou & Rao-Nicholson , 2021; Montiel , Cuervo-Cazurra , Park , Antolín-López , & Husted , 2021; van Tulder , Rodrigues , Mirza , & Sexsmith , 2021) . Although “sustainable” and “green” global mobility are widely discussed concepts, they have not yet been widely integrated into sustainable expatriate management.

However, due to its nature, expatriate management is exposed to various societal and environmental issues that are forcing the field to move towards more sustainability-oriented practices. This implies that decision- and policy-makers should revisit the overall global philosophy, including policies and practices. Therefore, stakeholders should reevaluate topics like business trip policies, health, and equality, as well as other facets of the international assignment cycle (Fan , Zhu , Huang , & Kumar , 2021) . Consequently, in this paper, we will outline how practitioners can rethink expatriate management using a sustainable development lens and how this shift in perspective provides fertile ground to redesign the expatriate life cycle.

Inspired by the “strong sustainability” or embedded systems view (Giddings , Hopwood , & O’Brien , 2002) , we define sustainable expatriate management as any employee-related cross-border (work) activity, which, by its design, considers planetary and societal boundaries and acknowledges the embeddedness of economic impacts within this larger framework (see Figure 1 for clarification).

Source: Own illustration based on Giddings et al. (2002) , p. 192.

Theoretical Framework: Sustainable Development Goals

According to Finaccord’s (2019) latest research, in 2017, there were 66.2 million expatriates working abroad globally, and forecasts for 2021 expect 87.5 million in total. Therefore, this topic affects a relatively large amount of people moving across borders. Nowadays, increasing environmental, social, and economic crises are challenging global business practices. According to the World Economic Forum Global Risks Report, the risks that are most likely and will have the most impact are predominantly environmental risks (e.g., climate action failure, human environmental damage, biodiversity loss, natural degradation, extreme weather, natural resources crises) (World Economic Forum , 2022) . These are expected to affect multinational enterprises’ (MNEs) activities on a global scale.

As the complex, or so-called wicked, problems of our time are interconnected, it is crucial to avoid a siloed perspective of these risk categories. Therefore, we provide a holistic, SDG-focused perspective that addresses the question of how MNEs’ business practices need to be remodeled to become more resilient. We view business sustainability in terms of environmental, social, and economic systems and consequently apply the UN Sustainable Development Goals “wedding cake” framework (Stockholm Resilience Centre , 2018) . This model implies that the environmental, social, and economic layers are interdependent, as well as their respective sublevel SDGs, as indicated in Figure 2 .

Source: Own illustration based on Stockholm Resilience Centre , 2018

Based on Figure 2 , the biosphere/environment represents the foundation of economies and societies and, therefore, the general context in which all other SDGs must be placed. Society cannot survive without the environment, which is why society must pay attention to resources and the preservation of habitats. Such a conceptualization adopts an integrated and interconnected view of social, economic, and ecological development to ensure the future viability of the planet and its living species.

Three Layers of Sustainability in Expatriate Management: Identifying Blind Spots

Based on a systematic literature review of 238 articles clustered according to the 17 Sustainable Development Goals and their respective layers, environment/biosphere, society, and economy, it is evident that research in this field has been increasing in recent years. Furthermore, it shows that the expatriate management literature is dominated by social issues (80%), followed by economic literature (19%), and work that focuses on the environment/biosphere (1%) (Ommen , Schmitz , & Karlshaus , 2022) . Considering that expatriate management is a part of international HRM literature, it is unsurprising that the social category dominates; however given the growing importance of the climate crisis discourse, it is surprising that this has not yet been addressed in research and practice.

This social literature is dominated by articles addressing SDG 5 “Gender Equality” and SDG 3 “Good Health and Well-being” as well as limited literature focused on SDG 16 “Peace, Justice, Strong Institutions”. In the economic category, the literature most often addresses SDG 10 “Reduced Inequalities” and SDG 8 “Decent Work and Economic Growth”, followed by SDG 17 “Partnership for the Goals” as an overarching category. Finally, the ecological category is only represented in one article addressing SDG 13 “Climate Action”, which has only recently been published (Ommen et al. , 2022) (see Table 1 for an overview).

Source: Own illustration; for a full list of references, see Ommen et al. , 2022 , and the Appendix to the article. *“–” indicates SDG cases for which blind spots were not identified in this study

What Is Material for Sustainability in Expatriate Management?

In the sustainability reporting discourse, understanding materiality (i.e., identifying elements of utmost importance to a company’s sustainability challenges) has become increasingly important as part of the international ESG factors: environment, society, and governance. Furthermore, organizations attribute different levels of importance to specific environmental or social factors based on the sectors they operate in.

Considering the essential or material topics, MNEs need to first reduce or avoid their negative impacts (e.g., CO 2 emissions etc.) and also increase their positive impacts (e.g., fostering intercultural ties). By doing so, MNEs can significantly reduce the respective risks to which they are exposed.

The emission of greenhouse gases (GHG) is among expatriate management’s negative material environmental impacts, due to flights, shipments, hotel stays, and local transportation (SDG 13). These also include water and land use due to construction activities (SDG 6, 15), and waste management that should be reconsidered from an environmental perspective.

From a social perspective, negative impacts on equal opportunities can be caused by disparities in pay and promotion opportunities (SDG 5), working conditions, and health issues related to increasing travel activities and continuous readjustment (SDG 3). Furthermore, expatriates working in hostile environments or dangerous locations need adequate protection mechanisms and respective codes of conduct (SDG 16). Finally, integration into local communities during long-term stays might become relevant for some expatriates and their families (SDG 11).

From an economic perspective, a positive impact could be generated by supporting the local economy (SDG 8). However, negative impacts can arise through unequal opportunities because of the different treatment of expatriates and locals (SDG 10). To reduce this, companies should ensure responsible local consumption and circular use of respective household appliances or furniture in apartments (SDG 12).

In sum, MNEs should consider the following Sustainable Development Goals to reduce their negative impact and increase their positive impact:

Environmental : SDG 13 Climate Action

Social : SDG 3 Good Health and Well-being, SDG 5 Gender Equality, SDG 16 Peace, Justice and Strong Institutions, SDG 11 Sustainable Cities and Communities

Economic : SDG 8 Decent Work and Economic Growth, SDG 10 Reduced Inequalities, SDG 12 Responsible Consumption and Production

Sustainable Expatriate Management: Actionable Recommendations

The above discussion suggests that companies can derive a specific prioritized agenda. Inspired by the SDG Compass (Global Reporting Initiative , United Nations Global Compact , & WBCSD , 2015) , we advance these considerations by sharing how MNEs can best address the SDGs in sustainable expatriate management. For an overview of selected ideas for each of the SDGs, please also see Table 2 .

Source: Own illustration; based on selected measures of the SDG Compass Business Indicators; Note: Not all themes will apply to all types of MNEs or all sectors equally. As expatriates are usually relatively privileged, we suggest that they should use their privileged status to support disadvantaged groups and individuals to meet SDGs.

Defining Priorities

First, each of the material topics needs to be evaluated for each company. Certain topics may be more or less relevant in a corporate context, depending on the respective sector. Taking the example of GHG emissions (SDG 13), most emissions come from consultants on regular short-term assignments or business commuting trips if the company is in the service delivery sector. Therefore, these emissions play a more significant role for the company.

In terms of gender equality (SDG 5), a company should first investigate the share of women in their overall assignee population, including management positions. Based on a materiality matrix approach, respective stakeholders should evaluate their priorities alongside considering the judgment of material topics to attain a holistic perspective. By taking this approach for all topics associated with each SDG, MNEs can prioritize different materiality topics.

Setting Strategic Goals

To transform international assignments at the company level, MNEs need strategic concepts, including tools, to impact the defined materiality topics discussed above. There are different levers available to create change, including international assignment policy, processes, and culture. A policy can be designed so that assignees are nudged to not take air shipments, which cause significant GHG emissions (SDG 13). Further, by working with stakeholders across the supply chain, MNEs should implement key performance indicators (KPIs) to reduce negative impacts. To be effective, these should align with scientific facts and goals, such as the Paris Agreement’s target of limiting warming to 1.5°C.

Integrating the Goals

After defining their strategy and goals, MNEs should next address their implementation needs. This should particularly consider the sustainable consumption of mobility-related benefits (SDG 12), where there may need to be a mindset shift. Therefore, in the preparation phase, assignees need to be made aware of their choices. To do this effectively, departments taking care of international assignments may need to be trained on related topics while they consult assignees. Besides policy changes, MNEs should also implement profound changes, for example in terms of gender equality (SDG 5). Managers should be aware of equal selection principles and provide women with support mechanisms to ensure equity if they become the main caregiver for their children.

Measuring and Evaluating

Finally, MNEs need to track whether the implemented measures have been effective. This means measuring an international assignment program’s GHG emissions (SDG 13), environmental impact, gender share (SDG 5), and other measures. If the result does not meet the initial targets, the previous phases (strategy development, implementation) should be analyzed to see if adjustments are necessary. To better integrate the respective measurement indicators with those already existing in the corporate context, the SDG Compass website provides respective input categorized by SDG: https://sdgcompass.org/business-indicators/ .

Although there is awareness of pressing contemporary challenges in the field of expatriate management, action is still needed to decrease the negative impact on society, the economy, and the environment. Many concepts aim to address sustainability across borders. However, research has not yet produced a hands-on and integrated SDG framework for expatriate management. In this work, we aim to inspire and motivate practitioners to take action and further their sustainability ambitions. Although our paper is labeled rethinking expatriate management, the challenges outlined equally apply to inpatriates, repatriates, and other forms of cross-border assignments.

Companies need to be more aware of the environmental and social impacts of their programs and need to monitor processes to increase transparency across their vast service portfolios and associated supply chains. This is not only necessary because of sustainability but also to comply with legislative requirements (e.g., EU Taxonomy). However, corporate departments dealing with international assignments are not facing these challenges alone. They need to form partnerships (SDG 17) and collaborate with their vendors and internal stakeholders (enabling functions, corporate sustainability, procurements, etc.) to drive the much-needed change toward sustainable development.

About the Authors

Marina A. Schmitz serves as a Researcher and Lecturer at the Coca-Cola Chair of Sustainable Development at IEDC-Bled School of Management in Bled, Slovenia as well as CSR Expert/Senior Consultant at Polymundo AG in Heilbronn, Germany. She has worked as a Lecturer, Research Associate, and Project Manager at the Center for Advanced Sustainable Management (CASM) at the CBS International Business School in Cologne and the Chair of HRM and Asian Business at University of Goettingen. Enno Ommen is working in Bayer AG’s Sustainability Excellence Office at CropScience Division. He had previously worked in the area of Global Mobility for about 10 years, which equipped him with profound knowledge in the field of expatriate management. He studied International Business (BA) at CBS International Business School and International Human Resource Management (MSc) at Manchester Business School. Further, as one of Bayer AG’s Sustainability Champions, Enno is supporting the sustainable transformation of the company. Anja Karlshaus studied at the University of Cologne, Santa Clara University (USA), and the European Business School. In 2009, she took over the HRM professorship at CBS International Business School, later assumed the role of dean of the Business Administration faculty, before being appointed president. Moreover, she was previously employed at Dresdner Bank, Allianz and Commerzbank – being now member of various committees (Chamber of Industry and Commerce, City of Cologne, State of NRW). She researches sustainability, diversity, and agile HR.

Submitted : September 30, 2022 EDT

Accepted : April 06, 2023 EDT

Full list of references: Alamgir, F., & Alakavuklar, O. N. 2020. Compliance Codes and Women Workers’ (Mis)representation and (Non)recognition in the Apparel Industry of Bangladesh. Journal of Business Ethics , 165(2): 295–310. Bader, B., & Berg, N. 2013. An empirical investigation of terrorism-induced stress on expatriate attitudes and performance. Journal of International Management , 19(2): 163–175. Bader, B., Stoermer, S., Bader, A. K., & Schuster, T. 2018. Institutional discrimination of women and workplace harassment of female expatriates: Evidence from 25 host countries. Journal of Global Mobility , 6(1): 40–58. Bader, A. K., Reade, C., & Froese, F. J. 2019. Terrorism and expatriate withdrawal cognitions: the differential role of perceived work and non-work constraints. The International Journal of Human Resource Management , 30(11): 1769–1793. Bailey, L. 2021. International school teachers: precarity during the COVID-19 pandemic. Journal of Global Mobility , 9(1): 31–43. Bhanugopan, R., & Fish, A. 2008. The impact of business crime on expatriate quality of work-life in Papua New Guinea. Asia Pacific Journal of Human Resources , 46(1): 68–84. Bücker, J., Poutsma, E., Schouteten, R., & Nies, C. 2020. The development of HR support for alternative international assignments. From liminal position to institutional support for short-term assignments, international business travel and virtual assignments. Journal of Global Mobility , 8(2): 249–270. Bullough, A., & Renko, M. 2017. A different frame of reference: Entrepreneurship and gender differences in the perception of danger. Academy of Management Discoveries , 3(1): 21–41. Chang, C., & Cooke, F. L. 2018. Layers of union organising and representation: the case study of a strike in a Japanese‐funded auto plant in China. Asia Pacific Journal of Human Resources , 56(4): 492–517. Dickmann, M., & Bader, B. 2020. Now, Next and Beyond. Global Mobility’s response to COVID-19. RES Forum Research , 1. Dickmann, M., & Watson, A. H. 2017. “I might be shot at!” exploring the drivers to work in hostile environments using an intelligent careers perspective. Journal of Global Mobility , 5(4): 348–373. Faeth, P. C., & Kittler, M. G. 2017. How do you fear? Examining expatriates’ perception of danger and its consequences. Journal of Global Mobility , 5(4): 391–417. Faeth, P. C., & Kittler, M. G. 2020. Expatriate management in hostile environments from a multi-stakeholder perspective – a systematic review. Journal of Global Mobility , 8(1): 1–24. Fee, A., McGrath-Champ, S., & Berti, M. 2019. Protecting expatriates in hostile environments: institutional forces influencing the safety and security practices of internationally active organisations. The International Journal of Human Resource Management , 30(11): 1709–1736. Fischlmayr, I. C., & Puchmüller, K. M. 2016. Married, mom and manager–how can this be combined with an international career? The International Journal of Human Resource Management , 27(7): 744–765. Gannon, J., & Paraskevas, A. 2019. In the line of fire: Managing expatriates in hostile environments. The International Journal of Human Resource Management , 30(11): 1737–1768. Giorgi, G., Montani, F., Fiz-Perez, J., Arcangeli, G., & Mucci, N. 2016. Expatriates’ multiple fears, from terrorism to working conditions: development of a model. Frontiers in Psychology , 7: 1571. Greppin, C., Carlsson, B., Wolfberg, A., & Ufere, N. 2017. How expatriates work in dangerous environments of pervasive corruption. Journal of Global Mobility , 5(4): 443–460. Kirk, S. 2019. Identity, glass borders and globally mobile female talent. Journal of Global Mobility , 7(3): 285–299. Lirio, P. 2014. Taming travel for work-life balance in global careers. Journal of Global Mobility , 2(2): 160–182. McNulty, Y., & Hutchings, K. 2016. Looking for global talent in all the right places: a critical literature review of non-traditional expatriates. The International Journal of Human Resource Management , 27(7): 699–728. McPhail, R., & McNulty, Y. 2015. 'Oh, the places you won’t go as an LGBT expat!'A study of HRM’s duty of care to lesbian, gay, bisexual and transgender expatriates in dangerous locations. European Journal of International Management , 9(6): 737–765. McPhail, R., McNulty, Y., & Hutchings, K. 2016. Lesbian and gay expatriation: Opportunities, barriers and challenges for global mobility. The International Journal of Human Resource Management , 27(3): 382–406. Ng, E. S., & Sears, G. J. 2017. The glass ceiling in context: the influence of CEO gender, recruitment practices and firm internationalisation on the representation of women in management. Human Resource Management Journal , 27(1): 133–151. Pinto, L. H. F., Bader, B., & Schuster, T. 2017. Dangerous settings and risky international assignments. Journal of Global Mobility , 5(4): 342–347. Posthuma, R. A., Ramsey, J. R., Flores, G. L., Maertz, C., & Ahmed, R. O. 2019. A risk management model for research on expatriates in hostile work environments. The International Journal of Human Resource Management , 30(11): 1822–1838. Stoermer, S., Davies, S. E., Bahrisch, O., & Portniagin, F. 2017. For sensation’s sake: differences in female and male expatriates’ relocation willingness to dangerous countries based on sensation seeking. Journal of Global Mobility , 5(4): 374–390. Toh, S. M., & Denisi, A. S. 2005. A local perspective to expatriate success. Academy of Management Perspectives , 19(1): 132–146. van Bakel, M. 2019. It takes two to tango: a review of the empirical research on expatriate-local interactions. The International Journal of Human Resource Management , 30(21): 2993–3025. Walsh, P. R., Dodds, R., Priskin, J., Day, J., & Belozerova, O. 2021. The Corporate Responsibility Paradox: A Multi-National Investigation of Business Traveller Attitudes and Their Sustainable Travel Behaviour. Sustainability , 13(8): 4343. Wilkinson, A., Knoll, M., Mowbray, P. K., & Dundon, T. 2021. New Trajectories in Worker Voice: Integrating and Applying Contemporary Challenges in the Organization of Work. British Journal of Management , 32(3): 693–707. Wu, T.-Y., Liu, Y.-F., Hua, C.-Y., Lo, H.-C., & Yeh, Y.-J. 2020. Too unsafe to voice? Authoritarian leadership and employee voice in Chinese organizations. Asia Pacific Journal of Human Resources , 58(4): 527–554.

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Managing International Assignments: Compensation Approaches

A new international assignment landscape is challenging traditional compensation approaches

For many years, expatriate compensation has been focused on a dilemma: having assignees on expensive home-based expatriate package versus localization - which is about replacing expatriates with locals or at least transition expatriates from an expatriate package to a local salary. Many predicted that the traditional home-based balance sheet approach would gradually disappear. The predictions of the demise of the typical expatriate approach have been greatly exaggerated. We are witnessing the emergence of new compensation challenges instead, due to the complexity of having to manage multiple types of assignments and assignee categories.

The home-based approach still retains its utility for certain kinds of moves (e.g. business-critical assignments or moves to hardship locations). Local strategies are becoming more common but, due to the difficulty of applying them consistently in all transfer destinations, they are used only in some cases (moves between similar countries, developmental moves) and take multiple forms as “purely local” or local-plus approaches. Additional approaches like international compensation structures have emerged to address issues of global nomads.

The challenge for HR managers is, therefore, not so much to find the best approach applicable for all assignments as to deal with individual assignment complexity, envisage greater mobility policy segmentation and, if relevant for the company, map each compensation approach to a particular assignment in a consistent way.

The increasingly complex international assignment landscape: One size does not fit all anymore

Expatriates vs. Locals

One size fits all?

Let's localize assignees as soon as possible!

Expatriates

Rise of the third-country nationals

Need to add a cost efficient category for junior employees/developmental moves?

Traditional expatriates

Global nomads

Permanent transfers

Employee-initiated moves

Local or local plus?

Foreigners hired locally

Commuters (cross-border or regional

Multiple types of short-term/project/rotational assignments

Increasing number of home locations

Reviewing international assignment approaches in three steps:

Step 1: Understand the options available

Approaches linked to the host country (local or local-plus)

While these approaches sound logical and natural (when relocating assignees to a new country, they will be paid according to the local salary structure in that destination country) their practical implementation is often tricky. Few employees accept a salary decrease when moving to a low-paying country. It is often difficult to reintegrate assignees relocated to a high-paying country into their original salary structure due to their inflated base salary.

The host approach was historically not the most common for assignees on long-term assignments. However, we have witnessed a growing interest in recent years in host-based approaches – either a host approach or local-plus approach (host salary plus selected benefits or premiums) – as companies are trying to contain costs and as significant salary increases in many emerging markets make host strategies more attractive.

Approaches linked to the home country ("balance sheets")

Home-based approaches have been traditionally the most commonly used to compensate international assignees. Assignees on a home-based approach retain their home-country salary and receive a suite of allowances and premiums designed to cover the costs linked to expatriation. The equalization logic behind the balance sheet approach (no gain/no loss) encourages mobility by removing obstacles. Retaining the home-country salary facilitates repatriation. The balance sheet approach can, however, be costly. Many companies either look for alternatives or try to reduce the benefits and premiums included for less significant moves.

Other Solutions

Hybrid approaches attempt to combine the advantages of the home and host-based approaches. These often mean running a balance sheet calculation and comparing the results with the host market salary to determine what solution would make sense. A hybrid approach can work well for a small assignee population but it can generate inconsistencies when companies expand globally, and the assignee population grows significantly.

Finally, some companies rely on international compensation structures that do not use the host and the home structures at all. These might utilize the average salary in a selected group of high-paying countries where the companies operate. This approach facilitates mobility for global nomads and highly mobile employees. It is, however, often very expensive and doesn’t solve all assignment-related issues (e.g., currency issues, pension, taxation). It is typically used in specific industry sectors (e.g., energy and engineering) and for a few assignees (top level managers and global nomads.)

Step 2: Assessing assignment patterNs and business objectives

Assignment patterns

Are assignees moving between countries with similar salary levels, which would make the use of local or local plus easier or, on the contrary, are expatriates sent to host countries with different pay and benefits structures (low-paying to high-paying, or high-paying to low-paying country moves)? Are moves for a fixed duration – e.g., assignments lasting one to five years – or will the company rely on permanent transfers with no guarantee of repatriation?

Assignee Population

Are assignees coming mainly from the headquarter countries (typical for early stages of globalization) or is the number of third-country nationals already significant? A growing number of multinational companies report that the number of moves between emerging markets (“lateral moves”) is catching up with or exceeding the number from the headquarters, prompting a review of compensation approaches.

Are some assignees becoming true global nomads who move from country to country without returning home during their career? Employees, and especially the younger generations, are becoming much more mobile, but only a minority would be global nomads. These assignees are usually top-level managers, experts with unique skills, or globally mobile talent sourced from small or emerging countries where the absence of career opportunities perspective would preclude repatriation perspectives.

Company's philosophy and sector

Some industry sectors like services and finances relocate employees between major regional and financial hubs which facilitate the use of local approach, whereas energy and engineering companies transferred employees to hardship locations are a key feature of the business – and requires comprehensive expatriation packages often based on balance sheets and international salary structures.

Step 3: Assess segmentation needs

An increasing number of companies rely on expatriate policy segmentation to reconcile the cost control versus international expansion dilemma – how to have the same number of assignments or more without increasing the budget dedicated to international mobility. Segmentation means reallocating part of the budget to business critical assignees and limits the costs of non-essential moves.

Some of the commonly used assignment categories include strategic moves (business-critical), developmental moves (which benefit both the company and the employee), and self-requested move (requested by the employee but not essential to the business).

A consistent policy segmentation approach allows HR teams to present business cases or assignment options to management and provide a clearer understanding of the cost and business implications of relocation for different assignees.

It could also help manage exceptions into a well-defined framework based on a consistent talent management approach, as opposed to ad hoc deals.

Example of segmented compensation approach: the four-box model

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Four Considerations for Expatriate Assignments

Moving people around the world is a necessary part of doing business in a global economy. Many large companies have been doing this for a very long time. Newer companies entering the global marketplace may find it necessary to have an employee on-site, to look after their interests in another country. If your company is considering setting up expatriate assignments, here are four considerations to keep in mind.

It’s Complicated

The world of global compensation, and dealing with the details of payrolls, taxes, retirement, and deferred compensation is highly complex, and can’t be covered in any detail in this blog post. Before heading very far down this road, you’ll need to work with legal and tax specialists to make sure that you are meeting the requirements of all national and international laws that apply. However, we can cover the major considerations for handling an expatriate assignment, which are:

• Selecting the correct employee;
• Understanding the international assignment;
• Deciding which compensation approach to use; and
• Understanding the different tax laws that apply.

Selecting the Correct Employee

According to Brian Friedman, the founder of The Forum for Expatriate Management, in the past, the employees selected for expatriate assignments were typically those who were failing in the home office. It was thought they might have a better chance of success overseas, or maybe it was a case of getting a little distance from the problem. Today, however, that is no longer true. Due to the expense and impact potential of overseas assignments, the “best and the brightest” are being selected.

According to the Society for Human Resource Management (SHRM), employees should be selected according to the goal of the assignment (i.e., if the job is technical in nature, an engineer is needed). However, the job skill set is not the only issue that needs to be considered. As SHRM states, “ Achieving the company’s goals in the host country hinges on that person’s ability to influence individuals, groups and organizations that have a different cultural perspective. ” Thus, selecting for these abilities is as important as any specific technical skill. And while you may think only younger workers are interested in traveling, it’s important to note that there is an increasing number of baby boomers willing to take overseas assignments.

Understanding the Assignment

Friedman et al. and SHRM both emphasize the importance of understanding the assignment. What exactly is the company trying to accomplish? Is this a short-term assignment or a multi-year assignment? Does it make sense to have multiple positions overseas, or would a “global nomad,” someone who is willing to move from country to country, suffice?  Or, can locally-hired individuals do the trick?

Having a goal for the return on investment (ROI) is also important. What are the financial goals? Can the person accomplish an adequate return, given the cost of an assignment, which, depending on the location, can easily top $1 million?

Deciding Which Compensation Approach to Use

There are five approaches to use when compensating expatriate employees, as listed below.

• The Balance Sheet: This approach is used in almost 75% of expatriate employee cases worldwide. The main emphasis of the balance sheet is to pay an overseas employee comparably to incumbent employees in the same or similar positions in the home country. The expatriate should neither gain nor lose, from a monetary perspective. This can be determined for both home-based and office-based scenarios.
• Negotiation: This is the most straightforward approach. The two parties simply find a mutually-agreeable package. However, negotiating every position can become time-consuming and expensive, and may lead to problems of comparability if you have multiple expatriates involved. Negotiation is most often used for special situations, or in organizations with only a few expatriates.
• Localization: Localization involves basing the expatriate’s salary on the host country’s pay scales. This approach provides for cost-of-living allowances, which can be applied to taxes, housing, and dependents. Advantages of localization include ease of administration and providing equal footing with local nationals. Disadvantages include the need for negotiated supplements, and paying on the basis of local economics rather than on the basis of the assignee’s performance and job responsibilities.
• Lump sums: In this method, the expatriate is offered a sum of money, based on the home country’s system for determining a base salary. The employee can then determine how much he or she wants to spend on travel, moving, housing, etc., rather than having the company provide these things. A disadvantage to the lump sum approach is having to calculate the amount, which usually involves a complex and time-consuming analysis. This approach is usually used for one- to three-year assignments.
• Cafeteria: Used for senior-level expatriates, the cafeteria method offers the expatriate a selection of options to choose from. These might include the use of a company car or company-paid tuition for the expatriate’s children. There is, however, a limit to the number of options and amounts to be offered. This approach is similar to the lump sum method.

Understanding Different Tax Laws

It would be nice if the entire world operated under the same tax law, but it does not. Understanding tax laws in the country your employee will be working in is critical. Questions to ask include the following:

• Are there limits on the amount of time the expat can be in the country before local tax laws apply?
• Is the tax rate based on the individual’s country of citizenship or his or her country of residency, or both?
• Are there tax equalization agreements between the two countries?
• What are the standards, if any, for dealing with deferred compensation?
• Do the laws allow for a “tax gross up”?

These are just some of the many considerations you should keep in mind when entering the world of expatriate employment. Take the time to study the complexities of your specific situation, and be sure to seek the help of legal and tax professionals, to ensure the success of your expatriate assignments.

I think every company before planning to relocate their employees overseas must have a ready expatriate policy at hand. This policy should include not only the monetary basics mentioned in the article, but also such thing as medical insurance (the necessity for immunization should be discussed with the employee), also the holidays should be discussed – whether an employee should observe host or native country holiday schedule – there are too many things to be included in the policy and I won’t be able to mention all of them here.

Every company wants their expatriate to improve the state of things and drive their business to success. However, too often, the selection criteria for those who are sent abroad is simply whoever has the necessary business skills or is available or willing to go. These factors are important, but a person’s ability to build relationships across cultures should not be overlooked, because even if the business requirements are a good match for a given candidate it does not mean that this candidate will succeed in a different country.

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Making Your Expat Assignment Easier on Your Family

• Katia Vlachos

When temporary relocations fail, it’s seldom about the work.

Where do expats go wrong? About 80% move with a partner or family, and it’s often the inability of those people to acclimate to the new environment that causes assignments to fail. Before accepting a temporary reassignment to another country, involve your partner or family in the decision and anticipate the changes it will mean. Prepare for the move well in advance, and discuss the tradeoffs of the choices you’ll need to make. Be particularly sensitive to the possibility that your transition experience may differ from theirs.

As companies expand globally, executives are increasingly being tapped for expatriate assignments. The idea is to spread talent, expertise, and knowledge from headquarters to foreign offices, and vice versa. But these are costly moves — $311,000 per year, according to a  report by PwC and the Cranfield School of Management — and many fail to generate a return on investment. Studies show that an estimated 6%–10% of such assignments are terminated early, while an unknown but sizable percentage involve unnecessary struggle and underperformance.

• Katia Vlachos is a public policy analyst, researcher and writer on cross-cultural transitions and expatriate life. She has a Ph.D. in policy analysis from the RAND Corporation.  

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How to Avoid Expatriate Failure

Anne morris.

IN THIS SECTION

Deploying an employee to work overseas on assignment or as a relocation is an investment which can help your organisation take advantage of the global economy. Unfortunately, as is the case with any potentially lucrative investment, international assignments carry a high risk of failure. Expatriate failure can be expensive for your company and an unwelcome experience for the assignee, especially if they are forced to return to the UK prematurely and having not completed their assignment or met their objectives.

An awareness of the common causes of expatriate failure can help your HR department plan a water-tight international relocation strategy, to protect your organisation’s commercial objectives and the employee’s wellbeing and support their ability to perform.

This guide discusses practical steps that HR professionals can take to minimise the chances of expatriate failure, but also to derive the maximum benefit from overseas assignment success. In most cases, international assignments afford the expatriate employee the chance to acquire valuable new skills and experiences, which can be put to good use by the company upon their return.

What do we mean by expatriate failure?

Expatriate failure is a term used to describe any unsatisfactory outcome of sending an employee on an international assignment. This encompasses ‘complete’ failures, which would usually result in the employee returning to the UK without completing the assignment; and ‘partial’ failures, which may include poor performance or failure to achieve specific commercial outcomes.

The cost of expatriate failure

Globally, expatriate failure rates are consistently high due to the mental, emotional and physical strain placed on employees who relocate abroad.

Research has shown that expatriate failure rates are higher among employees sent to developing countries and lower among those sent to economically flourishing countries. In some parts of the world, relocating an employee from the UK carries around a 50% chance of failure.

Successful long-term international assignments typically cost an employer as much as three times the employee’s annual salary.

If the assignment is not a success, your organisation may not see the commercial gains needed to balance the investment and could be forced to spend more money bringing the employee home ahead of schedule.

Beyond the financial cost, there is also the impact of the experience on the employee. They may have been selected for their skills and knowledge, and a premature and unsuccessful return to their home country may impact their confidence and their pride, potentially precipitating a fresh start with a new employer.

Reasons for expatriate failure

There are many factors that can contribute to expatriate failure. Often, failings in the expatriate employee’s support system both at home and abroad are to blame.

In other cases, the assignment was doomed to failure from the outset, as the employer choose the wrong person to send on the overseas project.

If your expatriate employee does not possess the personal qualities necessary to thrive in the new environment, no amount of support provided by the organisation can ensure the assignment is a success. When planning any international relocation, keep the following common causes of expatriate failure in mind.

Poor candidate selection

When there is a lot riding on the success of an overseas project, employers often select their best and brightest employee for the international role with little regard for the other qualities they will need to be successful. While you must choose an employee with the skills and experience necessary to complete the project, personal qualities such as adaptability, open-mindedness and a love of different cultures are arguably more important. To avoid expatriate failure, employers should consider their candidate’s personality, lifestyle, interests and previous experience with foreign cultures. Keep in mind that a ‘love of travel’ will not always translate to expatriate success, especially if the employee in question spends a lot of their travel time in English-speaking areas, around other British people (e.g. at holiday resorts) or in foreign places where they can easily access familiar foods and other items from home.

The following attributes may also minimise the likelihood of expatriate failure:

• The ability to speak a foreign language (even if that language is not spoken in the overseas location, interest in foreign languages suggests interest in other cultures, and a willingness to learn new skills)
• Being single or without children (do not rule out people with dependant families altogether but finding a candidate who could relocate by themselves reduces the chances of expatriate failure being caused by domestic issues)
• Excitement about the project itself (it is not enough simply to find an employee with exceptional skills, they must also be genuinely passionate about the organisation’s goals and feel personally invested in the success of the overseas project)

Inadequate support systems

Comprehensive support structures are essential for international assignment success. Expatriate failure is often caused by lack of practical support in the host country and/or disconnection with the home environment. It is crucial that relocation support does not end as soon as the employee has arrived at their new destination. Your expatriate employee should be assigned a personal mentor in their host country, whose role it is to oversee their adjustment to the new environment and be a first point of contact when they require additional support. You should account for both in-work and personal-life issues when assigning a mentor. Consider that the employee may need assistance with:

• Negotiating the new work environment
• Building social connections outside work
• Organising services like having a phone line installed or making an appointment with a doctor

Just as employers must choose the right employee for an overseas assignment, they must choose the mentor for that employee wisely. If possible, select a mentor with expatriate employee experience so that they can empathise with the relocating employee’s struggles.

Lack of expatriate training

Expatriate failure becomes far more likely in situations where the employee has been given insufficient training prior to the move. Expatriate preparation should not be rushed and must include cultural and language training where applicable, in addition to basic training regarding their role and assignment. Your expatriate employee must be prepared with:

• The language skills necessary to communicate with their colleagues, navigate, purchase provisions and services, and make casual conversation
• Knowledge of cultural and societal norms in their host country (especially any differences which could lead to conflict or cause offence when not acknowledged)
• Basic knowledge of the area in which they will be living and working (e.g. public transport, schools, restaurants and other facilities)

Effective planning is the key to avoiding expatriate failure. Employers must ensure that every aspect of the employee’s new work and living situation has been considered, so that measures can be put in place to prevent problems. International relocation training plans vary in content and structure, depending on location and the duration of time the employee will be abroad. In general, it is wise to allow for at least one month of training time prior to the move. Preferably, this training should be conducted within your employee’s normal working hours.

Poor communication

Employers should develop a plan for structured communication with their overseas employee. Part of your support plan should include keeping the expatriate employee ‘in the loop’ with regular communications from the UK office. Consider assigning a point of contact at home and scheduling weekly or fortnightly update calls or emails. ‘Casual’ communication arrangements are not sufficient as the absence of a structured plan often results in dwindling contact, which may leave the employee feeling isolated.

Make sure your expatriate employee knows who to contact if they require additional support beyond scheduled communications. Your training programme should include making the employee aware of potential issues they may experience while settling into the new environment, such as culture shock, social isolation or domestic difficulties (when relocating with a spouse or child). The employee must understand that such difficulties can ultimately lead to expatriate failure and for that reason, they have a responsibility to report problems and seek assistance. Make it clear that you are keen to offer all necessary support but that you can only do so when you are kept informed about problems, as they arise.

Prepare for repatriation 

When planning to avoid expatriate failure, keep in mind that it is not only your employee’s experience abroad that must be considered. Depending on the length of time your employee was overseas, they may need help settling back into the UK work environment. You cannot call the international assignment a success if the employee’s performance or personal wellbeing suffer due to insufficient support when they return home.

Failure to consider the implications of repatriation often results in poor talent management. Consider the fact that the returning employee has likely acquired valuable new skills, knowledge and experience during their time abroad. These are assets to your business that may be wasted by sending the employee back to their previous job role. It may be more appropriate to move the employee to a new role in higher management or an entirely different sector within the company. Ideally, this is something you should consider and discuss with the employee when ironing out your initial plan and the terms of the international relocation. Remember that at every stage of planning, prioritising your employee’s career goals and personal wellbeing is the secret to avoiding costly and disruptive expatriate failure.

Need assistance?

DavidsonMorris’ global mobility specialists work with global employers to support development of high-impact talent mobility strategies and programmes. We understand the challenges pf overseas assignments facing both the employer and the employee and can work with you to provide expertise and insight into effective management of assignments to avoid expatriate failure.

Expatriate failure FAQs

What are the major causes of expatriate failure.

A number of reasons are commonly cited for expatriate failure, including social isolation, culture shock, family pressure and responsibility overload. Ultimately, the employer should develop and follow a robust and extensive candidate selection process and provide ongoing support while the employee is overseas to minimise the risk of assignment failure.

How should you select candidates for overseas assignment?

Beyond technical and organisational knowledge and competencies, assignees should also demonstrate an understanding of what the experience will entail and the ability to cope with the full demands of living overseas such as having a positive mindset, showing adaptability in challenging circumstances, language ability, local cultural knowledge and confirmation of family support for the move.

How can DavidsonMorris help?

DavidsonMorris are experienced global mobility advisers, working with global employers to help improve the impact and return on their global mobility programmes. We can provide guidance and insight into how to select and support overseas assignees to minimise the risk of expatriate failure.

Last updated: 2 May 2023

Founder and Managing Director Anne Morris is a fully qualified solicitor and trusted adviser to large corporates through to SMEs, providing strategic immigration and global mobility advice to support employers with UK operations to meet their workforce needs through corporate immigration.

She is a recognised by Legal 500 and Chambers as a legal expert and delivers Board-level advice on business migration and compliance risk management as well as overseeing the firm’s development of new client propositions and delivery of cost and time efficient processing of applications.

Anne is an active public speaker, immigration commentator , and immigration policy contributor and regularly hosts training sessions for employers and HR professionals

• Anne Morris https://www.davidsonmorris.com/author/anne/ UK Register of Licensed Sponsors Guide
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About DavidsonMorris

As employer solutions lawyers, DavidsonMorris offers a complete and cost-effective capability to meet employers’ needs across UK immigration and employment law, HR and global mobility .

Led by Anne Morris, one of the UK’s preeminent immigration lawyers, and with rankings in The Legal 500 and Chambers & Partners , we’re a multi-disciplinary team helping organisations to meet their people objectives, while reducing legal risk and nurturing workforce relations.

Read more about DavidsonMorris here . 

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The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct at the time of writing, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.

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International Assignments: Managing Benefits and Taxes for Expatriate Employees

Written on February 28, 2019

Given the complexity of the U.S. tax code and the myriad regulations related to ERISA plans, managing benefits for domestic employees is a complicated undertaking. But managing benefits for employees who your U.S. company sends to work overseas—known as expatriates, or expats—adds several layers of complexity.

As globalization continues to be a defining characteristic of the economy, many U.S. companies are finding opportunities to grow abroad. But before their employees ever step on foreign soil, employers need to learn about the various taxes other governments may impose on benefits and compensation and think through the various questions that go into developing a sound policy for managing benefits for expatriate employees. Employers also need to help their employees understand what the foreign assignment means to them with respect to taxes and benefits.

Understand the Basics of Expatriate Taxation

For purposes of this article, an expatriate is a U.S. citizen or green card holder who is sent by their U.S. employer to work at a branch or other linked organization in a foreign country. Assignment duration may vary anywhere from six months to several years. Employees must obtain a work visa, and—depending upon the host country—may be eligible for certain benefits offered by that country while working abroad.

U.S. citizens, green card holders, and their employers need to understand that expatriates will still have an income tax liability and income tax return filing obligation at home regardless of where they work globally. The United States is unusual in this regard with respect to taxing their citizens and permanent residents (green card holders) who are living and working abroad; many foreign governments allow their citizens to fall under the host country’s tax code when working abroad and home country taxation is often suspended until the individual returns to their home country.

The United States’ unusual approach, however, doesn’t mean that U.S. expatriates will always face double taxation. The U.S. tax code looks to offset this, at least partially, by allowing certain foreign tax credits and/or the foreign earned income exclusion. Employers take these credits, the foreign earned income exclusion, and the foreign country’s tax policies into consideration when developing the compensation package for the employee.

In addition to understanding how the U.S. will tax the expatriate’s foreign compensation and benefits, employers also need to understand how the host country will tax this income. Almost every country requires some kind of tax to be paid by foreign workers. While taxation of salary and bonuses may be relatively straightforward, things can get quite complicated when it comes to how benefits—such as retirement matching contributions or profit sharing—are taxed.

Consider Your Options for Making Expatriates Whole

Employers need to study foreign countries’ tax laws and be aware of each country’s nuances so a fair, balanced and competitive compensation package is developed. The good news is that employers have flexibility in navigating these issues and developing their policies.

The first option is to do nothing. Sometimes, in this scenario, the expatriate is responsible for the taxes and other costs incurred while working in the host country. A more common strategy is to equalize the tax burden on the employee. This is a tax-neutral policy, often referred to as tax equalization, where the employee is no worse or better off while working abroad. In this case, the goal of the compensation package is to keep employees whole—which means maintaining roughly the same financial standards they would have experienced at home.

Beware Double Taxation of Retirement Benefits

Expatriates are allowed to participate in U.S.-based retirement plans while working abroad. They can contribute pre-tax dollars to their traditional 401(k) plans, and employers can offer a match to the employee deferral. Unfortunately, many foreign countries consider the deferral to be taxable income.

What’s more, the employer contribution may be considered regular income subject to foreign taxes as well. In this case, the employee is double taxed: first by the host country for the “income” sent to the retirement plan, and then by the United States when it’s time for the participant to withdraw assets. (Double taxation may also happen in a Roth situation, where participants pay taxes up front when making the deferral.)

In these situations, employers will need to decide whether expatriates should be excluded from the plan and possibly compensated outside of the benefit to avoid the double taxation—or utilize a tax equalization policy where the expatriate is made whole. The latter approach would be in keeping with the U.S. system, in which qualified retirement plan contributions are only taxed once when the employee takes a distribution from the plan at or after retirement.

Insight: Take a “No Surprises” Approach to Your Expatriate Benefit Policy  The goal of any expatriate compensation package should be to ensure that neither the employee nor the company encounter any surprises. To achieve this, employers need to think through many issues well before sending an employee abroad.

The first issue is to decide whether or how to make employees whole. After that major issue is resolved, employers need to focus on finer points such as evaluating foreign tax policies, reviewing plan documents to determine eligibility and analyzing foreign tax credit structures to maximize value.

It’s also important to have strong communication strategies and resources for employees. A solid two-way communication plan aids expatriates in clearly understanding what they will be receiving and responsible for, and offering them access to experts who can help them feel that they are not alone in navigating the oftentimes complex tax structures in host countries.

Employees working at different companies often compare notes about their employer’s compensation policy for expatriates with other expatriates they meet abroad, so understand that there are competitive reasons for developing a fair, robust approach.

When sending employees abroad, employers have a lot to manage from a benefits perspective, between adequately rewarding employees, understanding individual countries’ tax rules, filing the appropriate forms in the foreign jurisdictions and keeping costs under control.

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Expat Failure — And Three Essential Things to Help Prevent It

25 July 2017 · by Margit Grobbel

Failure is a pretty harsh word. Obviously, nobody likes talking about their own life in terms of failure — although nobody succeeds at everything they try. Even expats can fail, though you might be wondering what this means.

Strictly speaking, the expression “expat failure“ is used in the HR and global mobility industry, as well as in management studies. It refers to expatriates in a narrower sense of the word: highly qualified and highly paid specialists and executives sent on a foreign assignment by their employer.

What’s Expat Failure Anyway, and Why Is It So Expensive?

For foreign assignees, expat failure describes several negative outcomes from what seemed like a great career option: they move back before their assignment is officially over; they underperform in their new position, or they struggle with repatriation after completing their assignment. Sometimes, they are let go or quit themselves after they return.

As foreign assignees are often corporate employees who easily earn more than 100,000 or 200,000 USD a year, the literal costs of failure for the company are often huge. If an expatriate moves with a spouse and two children, receiving considerable financial support from their employer, and then returns prematurely after one year, this could cost the company an estimated 400,000 USD. And the original business goals haven’t even been reached!

The Psychological and Emotional Burden of Expat Failure

Other expats — those who aren’t corporate assignees with a fast-track career and generous remuneration — might not identify with this kind of expatriate failure at first. But it can affect them too: They may return home sooner rather than later. They, too, may struggle in their new job abroad or even quit. They might not like how they feel if or when they do go home, as though their life had gone off the rails.

Although the average expat won’t accrue costs of nearly half a million bucks if their international move doesn’t go according to plan, they have to dig into their own pockets for shipping their belongings, plane tickets, etc. In addition to the financial burden, failure takes an emotional and psychological toll.

That’s what “failed“ assignees and other expats have in common — a feeling of wasted time, lower productivity, a pervasive lack of motivation, and the emotional re-entry shock they may experience after heading home. That’s also why both assignees and everyone else should ask the right questions before they leave!

Preparing for what might await you can help to prevent it.

The Right Soft Skills for Expats-to-Be

The hardest question is the first to consider: are you the right person for the job? You don’t just need the proper hard skills, like management experience for the assignee, professional know-how for the self-made career expat, or language skills for everyone interested in moving abroad. It’s the soft skills too. Without openness to change, independent thinking, and self-reliance, you won’t get far.

But it’s cultural flexibility or agility that matters most: to recognize the best strategy for acting in situations where the outcome depends heavily on cultural context. Should you simply adapt to the context of your new country’s culture? Is it better to stress your own cultural background in this particular situation? Had you rather strive for compromise?

If you can figure out how to react, you’ll smooth out lots of difficulties in your professional and private life.

A Family That Has Your Back

The next question isn’t about you, your personality, or your abilities, but about the people you love best. Is your family onboard?

If they are lukewarm about your plans, it might be time for a long, honest conversation — or for second thoughts. Especially in corporate assignments, it’s an unfortunate truth that the traveling spouse or the kids can make or break an assignment.

While family members also benefit from financial perks, they often suffer from uprooting their lives. Older children lose a familiar environment, their circle of friends, and their budding sense of adult identity, threatening to turn into morose teenagers sulking even more than the average adolescent.

More importantly, the spouse may have to give up her own career and social life for the assignee’s sake. (Yes, it’s also an unfortunate truth that most traveling spouses are women.) This might create isolation, frustration, and resentment. In the worst-case scenario, the result isn’t just a failed assignment, but also a failed marriage.

Even if you are not the typical assignee, make sure that your nearest and dearest have your back. Is your boyfriend or girlfriend okay with the two of you moving abroad together? Or do you think your bond is strong enough to lead an international long-distance relationship for a couple of years?

Will moving abroad affect your decision to have (more) kids, and does this matter strongly to either of you? Are you the only (potential) caretaker of aged parents?

In short: What will happen to your family ties once you move? Of course, everything might go off without a hitch. But you need to be at least prepared for some folks being less than enthusiastic about your relocation.

A Supportive Work Environment

The third and final question is, of course, what kind of support you will receive at work. If your company’s branch office or your new employer abroad is well prepared for your arrival, they will create an environment where you are allowed to ask questions and request help. A personal mentor or sponsor would be ideal, particularly to discuss cultural as well as corporate topics .

If your company doesn’t provide such a mentorship program for new employees and assignees, try being proactive and finding a mentor yourself. In case of a corporate assignment or a foreign company headhunting you, an in-depth discussion with HR could help to convince the uppermost echelons of management.

A smaller company, where you have applied on your own, will probably be more reluctant. Perhaps they don’t have any relevant experience or HR just doesn’t have the resources right now. Then you could still ask a friendly new colleague to aid you in getting your bearings. However, if your new employer reacts with hostility to the very suggestion, this could be a first warning sign.

Have you ever experienced “expat failure” — especially on a foreign assignment? What would you recommend to other expats to prevent it? Share your story with us!

(Image credit: iStock)

Reader Interactions

22 December 2018 at 16:33

That’s a lot of extra money for an expatriate assignee for large international company…..ིིི

13 August 2018 at 13:14

Need to find international consultant resources for American construction engineering company operating in Istanbul.

22 August 2018 at 10:04

Thank you for getting in touch! As this is an older blog post and the blog is now on hiatus, I doubt that many people will see your enquiry, though.

If you are already an InterNations member, it might be more helpful to ask the other members of our Istanbul Community for advice. Perhaps they have heard of a local consulting company they would recommend.

https://www.internations.org/istanbul-expats

Best, Margit

4 December 2017 at 23:09

What a good article reminding the importance of having bits of all to balance. Not easy being an expat at times but so rewarding at others. 🙂

18 October 2017 at 22:58

A good reminder. As an intercultural consultant, I see how important the above it. In a recent case, a senior manager felt that cultural preparation was not essential. In her words, “I expect my employees to be mature, independent human beings.” There are cases when the assignee does not take advantage of cross-cultural training…and later regret it.

19 October 2017 at 09:04

Oh, that sounds like a rather unfortunate reaction by the senior manager you cite! Of course, maturity and a certain self-awareness are a good basis to start cross-cultural training, but they probably won’t just be enough.

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Expatriate Assignment Failure

What is Expatriate Failure?

Expatriate failure describes when an international transferee on an expatriate assignment Returns home before the agreed upon end date, leaves the company for a new job at another company, or fails to meet the goals or the performance expectations defined for the assignment.

Historically, expatriate failure was used to describe the organizations perspective more so than the international transferee, but that has changed to some degree. It may also be used to describe the expat's perception of the assignment rather than the company's or, more likely, some combination of the two.

The emotional and relational impact of a failed assignment can be devasting for the expatriate employee and any family members, and the financial and organizational impact can be damaging for the firm that selected, trained and relocated them abroad.

The costs involved with a failed assignment are exceedingly high. It is hard to pin down an exact number, but figures cited in various surveys or articles run well into the hundreds of thousands of dollars. If the company must replace the expatriate who experienced failure abroad, then the costs can double and send hard costs towards $1,000,000 or more.

Expatriate failure is a concept that gained momentum after Rosalie Tung published an article that described the phenomenon in 1981 article about the expatriate selection and training of expatriates. It soon became an important area of expatriate research as companies, governments and other global organizations tried to understand and prevent early termination of assignments.

In order to prevent expatriate failure, significant resources have been devoted to preparing expatriates before they move abroad and after they arrive in their destination country. These services can included cross-cultural training , language training, settling in services and more. After problems arise, expat counseling services for individuals and families may also be engaged to help work through the challenges of cultural adjustment.

Why do Expatriate Assignments Fail?

Expatriate assignments fail for a variety of reasons. Here are some of the most promenant causes:

• Family Members Have Difficulty Adjusting

Expats generally experience a broad group of challenges when they move to another country . This is particularly true for expatriate families due to the varying stressors placed upon each individual member in the family system.

Those who are able to work face all of the customary challenges that accompany any new position, plus the addition of any hurdles that come with the immersion in new host and work cultures.

Trailing spouses or partners who are unable to work do not have the social support system that their significant other has the potential to develop in the workplace.

Children often must leave behind friends and attend a new school in a different culture. There are international schools that specialize in education for children from other countries, but it can still be a very trying time for both students and their parents.

• Lack of Support from the Company or Organization

The level of support that some companies offer their employees and families to adjust to the new country and culture is inadequate . Experienced leaders understand that costs can escalate quickly if there is an assignment failure. Those who lack this insight or who seek to cut costs often make the acculturation process more difficult and the assignment more likely to fail.

• Flawed Expatriate Selection Process

One of the most important areas of expatriate research is expatriate selection. There are a large number of firms who either lack the resources to find the best candidates or do not sufficiently prioritize the process. This can result in a disaster for both the organization and the expatriate. When an expatriate assignment fails and the HR department must send the expatriate (and family) home, they wish they had gone the extra mile to ensure they selected the right candidate for the assignment.

Is Expatriate Failure an Actual Phenomenon?

There has also been push back against the concept of expatriate failure altogether. Some researchers have asserted that failure rates aren't as high as publicized and that there should be a greater focus on appropriate. Researchers in the article Expatriate Failure: Time to Abandon the Concept? argued that the phrase was essentially meaningless without appropriate understanding of individuals outcomes, their causes, and the context in which they occurred.

How is Expatriate Assignment Failure Prevented?

Providing expatriates with pre-departure training has been shown to enhance both cultural adjustment and the performance in meeting the goals defined for the assignment. Additionally, training after arrival in the destination country is important and can make a big difference in the success of an international assignment.

Other Sources:

Themes in Expatriate and Repatriate Research over Four Decades: What Do We Know and What Do We Still Need to Learn? , identified highly-cited articles within topical themes and specified time periods from 1975-2014:

Enhancing Expatriate Adjustment and Performance Through Pre-Departure Training: An Empirical Investigation on Indonesian Migrant Workers in South Korea Sartika, D., Djatnika, S., Sondari, M.C., Anjasmara, W.

Factors that Influence Expatriate Failure: An Interview Study . Hung-Wen, Lee.? International Journal of Management; Poole Vol. 24, Iss. 3, (Sep 2007): 403-413,619.

The Effectiveness of Expatriate Coping Strategies: The Moderating Role of Cultural Distance, Position Level, and Time on the International Assignment. Stahl, G. K., & Caligiuri, P. (2005). Journal of Applied Psychology, 90(4), 603–615.

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Designing Global Compensation Systems

An international assignment compensation system has to finely balance adequately rewarding and motivating expatriates while keeping costs under control for corporate headquarters. The cost of a three-year international assignment can easily exceed $3 million.

Because of the enormous investment, developing a comprehensive global compensation system for expatriates is one of the most critical challenges facing global human resource management.

Developing a Compensation Philosophy and Strategy

Companies with multinational operations need to develop compensation plans for employees that are in line with their global business strategy. Companies that articulate a clear global pay philosophy and develop corresponding compensation programs are best positioned to effectively execute their strategy. An effective global compensation strategy creates consistency in pay management and facilitates global employee mobility. See Viewpoint: Cross-Border Considerations for International Executives .

Establishing guidelines and practices with consistent communication of key messages is vital to the success of the compensation program.

Although multinational employers are striving to globalize their compensation practices, local and regional approaches to international pay are still most common.

Approaches to Global Compensation

International assignment compensation has many moving parts and is difficult to standardize. Many factors affect the compensation of a particular expatriate, including assignment type and length, location, family needs (if any), and benefits. The main compensation items for expatriates involve base pay, cost-of-living adjustments, housing allowances, home leave, education assistance for dependents and premium pay. See How Should We Compensate an Employee on a Foreign Assignment?

The U.S. Department of State indexes the living costs abroad, quarters allowances, hardship differentials and hazard pay allowances. The information, published quarterly, is used by many organizations to assist in establishing private compensation systems. See Salaries, Cost of Living and Relocation .

While the U.S. Fair Labor Standards Act does not apply to employees working outside of the U.S., employers must be familiar with the host country's labor laws.

Do U.S. employment laws apply to U.S. citizens working abroad?

The New UAE Labor Law—What You Need to Know

Multinationals Strive to Meet Stringent Pay Equity Requirements

Compensation Plan Elements

A global compensation plan includes elements typical of any rewards strategy along with a few extra incentives and allowances, depending on the host country.

When an employee accepts an international assignment, it is up to the employer to determine the base rate of pay (referred to as the base salary). The base salary is normally related to pay ranges in the home country, which then may be adjusted based on local variances (i.e., fluctuations in the economy). Companies take one of the following approaches to establish base salaries for expatriates:

• The home-country-based approach. The objective of a home-based compensation program is to equalize the employee to a standard of living enjoyed in his or her home country. Under this system, the employee's base salary is broken down into four general categories: taxes, housing, goods and services, and discretionary income.
• The host-country-based approach. With this approach, the expatriate employee's compensation is based on local national rates. Many companies continue to cover the employee in its defined contribution or defined benefit pension schemes and provide housing allowances.
• The headquarters-based approach. This approach assumes that all assignees, regardless of location, are in one country (i.e., a U.S. company pays all assignees a U.S.-based salary, regardless of geography).
• Balance sheet approach. In this scenario, the compensation is calculated using the home-country-based approach with all allowances, deductions and reimbursements. After the net salary has been determined, it is then converted to the host country's currency. Since one of the primary goals of an international compensation management program is to maintain the expatriate's current standard of living, developing an equitable and functional compensation plan that combines balance and flexibility is extremely challenging for multinational companies. To this end, many companies adopt a balance sheet approach. This approach guarantees that employees in international assignments maintain the same standard of living they enjoyed in their home country. A worksheet lists the costs of major expenses in the home and host countries, and any differences are used to increase or decrease the compensation to keep it in balance.

Some companies also allow expatriates to split payment of their salaries between the host country's and the home country's currencies. The expatriate receives money in the host country's currency for expenses but keeps a percentage of it in the home country currency to safeguard against wild currency fluctuations in either country.

Variable/incentive compensation

The globalization of business has increased the use of variable and incentive pay around the world. But some cultures do not readily accept the practice of linking pay to individual or group performance. Other roadblocks to pay for performance include financial (not enough funding of the pool), target setting (defining performance parameters) and pay equity. Yet when it is done right, pay for performance effectively allocates limited rewards and retains top performers. As such, variable pay has become an increasingly important compensation element in many countries.

Variable pay plans generally fall into one of two categories:

• Short-term incentive plans are usually annual plans that link awards based on meeting individual or group performance criteria and objectives. Unlike long-term plans, these incentive pay plans provide for the payout to be awarded yearly.
• Long-term incentive plans, on the other hand, can vary in length from three to five years. These plans typically include equity-based incentives, such as stock options, restricted share grants and other types of equity-based plans like phantom stocks or stock appreciation rights. Awards are closely linked to the achievement of company goals and objectives over the three- to five-year period.

Participation and eligibility for each type of plan, as well as the level of incentives and average payouts, vary greatly among different companies, industries and countries around the world.

Premiums and allowances

Premiums and allowances are added to the base salary so expatriate employees can maintain their standard of living. Those add-ons are removed when the employee repatriates. Some types of premiums and allowances are as follows:

• Hardship and hazard/danger pay. Employers sometimes need to send employees on assignments to host countries where conditions are difficult or hazardous (i.e., remote locations or countries with high rates of violence). As a result, a hardship allowance may be granted as an additional incentive to compensate employees for accepting assignments in less-than-desirable countries. Premiums typically range from 10 percent to 50 percent of base pay, depending on the severity of the hardship. For assignments in developing countries that have a history of violence or are experiencing political unrest, expatriates often receive some form of hazard pay, such as an additional 25 percent of their base salary. See Hazardous Duty Pay Policy: By Position and Location .
• Cost-of-living adjustments. A cost-of-living adjustment is an increase or decrease of an expatriate employee's pay in response to fluctuations in the economy, such as inflation or deflation. To prevent attrition of the global employee's purchasing power, companies often raise the employee's base salary to keep up with inflation. When price levels drop, companies may also decrease the base salary accordingly.
• Educational assistance. Educational assistance for dependents of expatriate employees varies based on conditions in the host country. Assistance is usually not provided if local educational institutions are deemed adequate. When the educational system of the host country is substandard, employers may use a variety of benefits, such as employers operating a school in the foreign country; paying for dependents' educational expenses, including room and board, to attend schools in the United States; or providing an allowance for attendance at private schools in either the United States or the host country. Other employers may simply choose to pay employees a specified amount (stipend) considered necessary for schooling at the nearest adequate school, and the employees make up any difference to send their dependents to an institution of their choice.
• Housing assistance. Assistance for housing is usually provided either in the form of free company-owned housing or via a housing allowance that is typically equal to the difference in housing costs between the home and host countries or based on a specified percentage of an employee's base salary. Housing allowance rates are usually calculated based on either a single person or a two-person household. For employees with larger families living with them, employers may provide an additional supplement, typically ranging from 10 percent to 30 percent of the two-person allowance.
• Home leave. The objective of home leave policies is to give the assignee and his or her family the opportunity to maintain personal and business relationships and remain abreast of any economic, political, social or cultural changes in the home country. Although home leave policies vary among multinational corporations, most policies grant leave based on the employee's level within the organizational structure. Executives, managers and more senior-level professionals are most often granted home leave once a year, or once every other year for a duration of up to four weeks, and lower-level employees may be allowed only a single visit during the course of their assignment. Companies that provide home leave allowances generally purchase or reimburse the employee for any travel-related expenses, such as airline tickets for the employee, spouse or partner and any dependent children younger than college age.

Compensating Third-Country Nationals

Third-country nationals (TCNs) are employees who are not from the home country or the host country. TCNs have traditionally been technical or professional employees hired for short-term employment and are often considered international freelance employees. See What are the differences among a local national, an expatriate, a third-country national, and an inpatriate?

In the case of TCNs, multinational companies have one of three options regarding compensation:

• Pay the TCNs as if they were local nationals.
• Treat them as any other U.S. citizen would be treated.
• Establish an arrangement based primarily on the third country's existing pay ranges.

The option a company chooses depends primarily on how these employees were hired into the organization or how they obtained the international assignment. The most common practices include the following:

• If the company is hiring locally in the host country, a TCN who applies for a job (including a professional or managerial position) may be assumed to be applying under the terms being offered. In this case, unless the TCN was specifically targeted and individually recruited for the position, he or she would most likely be offered the same compensation package provided to other local nationals.
• If a TCN who is already employed by the company transferred or reassigned from another country, the compensation arrangement usually depends on the individual's particular career pattern. TCNs who occupy positions that involve regular transfers or reassignments are most likely to be compensated on the same basis as any one of their U.S. counterparts who are also subject to frequent transfers. This approach, however, may require that these employees be paid based on U.S. salary ranges that are adjusted to support differences in locations each time a transfer occurs.

Global benefits for expatriates can be complicated for HR professionals to navigate, given the myriad national health care and pension systems and the laws governing foreign residents. See Do we have to offer the same benefits to our employees who work in other countries as to the employees working in the United States?

Health care plans

Health care coverage can pose significant challenges for expatriate employees because not all U.S. health care plans provide coverage for employees residing abroad. For this reason, the practice of providing health care benefits varies greatly among multinational companies. Multinational companies can provide coverage to employees in one of the following ways:

• Include the assignee in an international health care plan.
• Continue coverage under the U.S. health care plan.
• Provide coverage for the employee through a host country health care plan.

Retirement plans

Regardless of the compensation approach a multinational company chooses to adopt, most companies commonly provide assignees with the same level of Social Security and pension plan benefit coverage, without any interruption in service, as enjoyed by other employees in the home country location.

Some countries require expatriate employees to participate in their social security or other government welfare benefit schemes. In this case, many companies provide for reimbursement of any payments made to the host country's government scheme.

Spousal/partner assistance

Since approximately half of all U.S. marriages are dual-earner partnerships, dealing with international assignments can pose significant challenges for the trailing spouse or partner, the expatriate employee and the sponsoring organization.

Trailing spouses face many challenges to finding suitable employment in the host country, including language and legal barriers as well as differences in educational, professional or licensing requirements.

Assistance with job searches, visas or work permits, career and educational counseling, and resume writing are just a few examples of the types of assistance a multinational employer can provide spouses or partners of transferring employees. A less common approach is to offer a financial sum to spouses of expatriate employees for any loss of income resulting from the relocation.

Other add-ons that are less commonly offered but can significantly ease expatriate package negotiations include cultural competence training, language training and repatriation assistance.

Cross-cultural training

The purpose of these programs is to enhance the knowledge and awareness about the employee's new location and the cultural differences affecting communication, behaviors and viewpoints. Training programs typically last a few days; however, for assignments to more remote or difficult locations, programs may also include security training that lasts for a longer period of time. The length and type of training should be directly related to the perceived level of assignment difficulty or differences in the assignment country.

Employers may conduct training either as an individual program for a single transferring employee and his or her family or as a group program when a number of employees are transferring to the same location within the same general time frame. However, it is advisable when conducting group training to also provide individuals with one-on-one time with the trainer to discuss any specific issues related to the employee's job responsibilities or to address any other more personal concerns or issues. See Helping Expatriate Employees Deal with Culture Shock .

Language training

The inability to communicate can create a sense of vulnerability and loss of control. A basic knowledge of the language empowers expatriate employees to build critical relationships with host country nationals. Some jurisdictions require that employee communications be in the local language.  

Most companies provide some form of language training for expatriate employees assigned to countries where they are nonnative speakers. Training program options include the following:

• Intensive total immersion courses.
• Cross-cultural training with integrated language instruction.
• Private tutoring or coaching.
• Group language classes.
• Use of language software or audiovisual applications.

Repatriation/reassignment

Expatriate pay considerations do not end when the assignment ends. Pay can be a significant factor in making it difficult for a person to repatriate. Often employees returning home realize they made considerably more money with a lower cost of living in the host country; returning to the home country means a cut in pay and standard of living. If the foreign compensation package is disproportionate, an expatriate can suffer financial issues upon repatriation or reassignment to the home or other foreign country. Expatriate families and employees benefit from repatriation training to help readjust to living in the home country and returning to the original work environment. The length of the training often depends on the length of the assignment and the ages of the employees' children. See Managing International Assignments .

Similarly, if the leading motivator of the expatriate employee is the long-term career aspect, the company needs to provide a challenging assignment upon return to the home office or shortly thereafter. If this is not feasible, communication about future plans for such an assignment and the timing should come from a mentor or a member of the senior management team. Otherwise, the company may risk losing its entire investment to turnover of returning expatriate employees.

Tax Compliance

United States citizens and resident aliens are taxed on their worldwide income, whether the person lives inside or outside the United States. Multinational companies take one of four approaches to ensure tax compliance:

• Employees are responsible for their own taxes.
• The employer determines tax reimbursement on a case-by-case basis.
• The employer pays the difference between taxes paid in the United States and the host country.
• The employer withholds U.S. taxes and pays foreign taxes.

See How do we handle income taxes for expatriates?

Qualifying U.S. citizens and resident aliens who live and work abroad may be able to exclude from their income all or part of their foreign salary or wages, or amounts received as compensation for their personal services. In addition, they may also qualify to exclude or deduct certain foreign housing costs.

The foreign earned income exclusion allows an expatriate's annual employment earnings income (up to a cap that is adjusted each year for inflation) to be exempt from U.S. gross. The foreign housing exclusion provides for the amount of housing expenses in excess of U.S. norms to be excluded from taxable income. A foreign tax credit of the amount of foreign tax imposed on overseas earnings can be used to offset the amount of U.S. tax otherwise due by the U.S. citizen or resident.

A common misconception that contributes to the international tax gap is that this potentially excludable foreign earned income is exempt income not reportable on a U.S. tax return. In fact, only a qualifying individual with qualifying income may elect to exclude foreign-earned income, and this exclusion applies only if a tax return is filed and the income is reported. 

U.S. income tax is calculated on foreign-source income and translated to U.S. dollars at the time of receipt. Blocked currency, which is foreign income that is not readily convertible into U.S. dollars, does not constitute taxable income and may generally be deferred until the currency is convertible into U.S. dollars or is used for nondeductible personal expenses. Withholding of U.S. income tax is not required if the employer is required to withhold the host country's income tax.

The U.S. Social Security tax is mandatory if services are performed by a U.S. citizen or resident, and if the employment is for a U.S. employer or for an affiliate of a U.S. company with a 3121(l) agreement. An entity is an affiliate if the U.S. company owns at least a 10 percent interest in the voting stock or profits of the entity. However, employees performing services for an international organization are exempt from FICA, FUTA and federal income tax withholding because services rendered for international organizations do not constitute employment, and remuneration for services rendered to international organizations does not constitute taxable income. Organizations that qualify as international organizations are those that have been designated as such by the president of the United States. The exemption applies to citizens and residents of the United States as well as to nonresident aliens. 

Although foreign tax rules vary significantly by location, local taxing authorities also reserve the right to impose taxes on any income earned by the expatriate employee in the host country.

Equalization, reduction and totalization agreements

To prevent an expatriate employee from suffering excess taxation of income by both the U.S. and host countries, many multinational companies implement either a tax equalization or a tax reduction policy for employees on international assignments.

A tax equalization policy is an agreement between the employer and the employee to reduce the employee's wages, for which the employer agrees to assume the obligation for the worldwide tax liabilities of the employee. Equalization is accomplished by the use of a hypothetical tax. The hypothetical tax is calculated as if the employee had never left the United States, and it represents the employee's normal or expected tax liability for U.S. income.

Tax equalization is implemented by the use of advances to the employee; proceeds of the advance go to the tax authorities on the employee's behalf. These advances are settled at year end. The result is deferred compensation to the employee, which the host country does not tax.

Under a tax reduction policy, expatriates gain from the differences in income taxes in the United States and the foreign country to which they are assigned, or the compensation of expatriates is adjusted so they experience no loss in income as a result of the net effect of income taxes, both foreign and U.S.

Additionally, the United States government has Totalization Agreements in effect with several countries. These agreements eliminate dual coverage of employees by both the home and host countries. U.S. International Social Security Agreements coordinate with comparable programs in other countries. These agreements assign coverage according to objective rules, provide for no individual coverage elections and require that the employee remains covered by the home country and is exempt in the host country. The expatriate assignment must be for a period of five years or less, and the employee must remain an active employee of the sending employer.

All agreements exempt expatriates from the host country's version of the U.S. Old Age, Survivors, Disability and Health Insurance (OASDHI) program. Some agreements also exempt them from other foreign benefits, such as health insurance, unemployment insurance, workers' compensation, family allowances, cash sickness benefits and maternity benefits.  

Tax treaties

The United States has income tax treaties with a number of foreign countries. Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate or are exempt from U.S. income taxes on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and specific items of income. Treaty provisions generally are reciprocal in that they apply to both treaty countries. Therefore, a U.S. citizen or resident who receives income from a treaty country and who is subject to taxes imposed by foreign countries may be entitled to certain credits, deductions, exemptions and reductions in the rate of taxes of those foreign countries. Treaty benefits generally are available to residents of the United States. They generally are not available to U.S. citizens who reside outside the United States. However, certain treaty benefits and safeguards, such as nondiscrimination provisions, are available to U.S. citizens residing in the treaty countries. See Tax Guide for U.S. Citizens and Resident Aliens Abroad .

State taxes

Many states impose taxes on the foreign income of expatriate employees who maintain a home in that state. In addition, states also may impose unemployment insurance taxes on employers that have employees with homes in that state. The reasoning is that, like other resident citizens, the employee derives certain benefits from the state, and the state where the employee resides is the most plausible place for an unemployed worker to seek unemployment compensation.

Templates and Tools

International Assignment Management: Expatriate Policy and Procedure

Can employers pay employees in other countries on the corporate home-country payroll?

Global Compensation Companies and Vendors

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