As business becomes increasingly global, many organizations will be faced with the need to send employees abroad. In turn, CFOs and their teams will be forced to navigate the financial complexities of these assignments.

Global BusinessExpatriate assignments are known to be an expensive endeavor for any company — sometimes costing more than three times a person’s total compensation for the year. The cost can be even higher if the assignment is not managed correctly and is deemed a failure, whether that’s due to performance issues, unmet goals, or individuals leaving the company after the assignment.

An imperative to mitigating the financial risk associated with sending employees abroad is proper management of every aspect of the assignment lifecycle: pre-assignment planning, assignment initiation, and ongoing assignment support. At every juncture, cross-function collaboration between HR, accounting, operations, and others should be a priority.

While determining who should be sent on an expatriate assignment may seem less of a financial issue, CFOs or a financial team representative should have a seat at the table for these early discussions, in order to bring perspective to how taxes and compensation can impact the cost to the company. Additionally, understanding the nuanced factors impacting the potential success rate of the assignee can help them better prepare for the costs that will be incurred.

Taking a more siloed approach may be rather shortsighted and can ultimately result in less-than-satisfactory growth and financial goals for the individual and the company. That’s especially true for companies that make international assignments mandatory for a person to become eligible for an upper-management role.

Keep in mind that planning is not over after the assignment has gone live, as companies can use data analytics to further reduce program expenses. Cost projections and annual accruals or forecasting can increase awareness of the actual, real-time costs incurred and can identify anomalies more quickly, in order to make necessary changes before there’s a significant cost overrun.

Successfully implementing data analytics requires payroll and expense-management counterparts to work closely together to provide timely total cost reporting that can be segmented by level, department, length of assignment, or however the company needs it sliced and diced to make it meaningful.

As taxes are among the largest expenses related to an assignment, companies should perform or outsource analysis around where tax is incurred and whether it can be reduced. This is true for such relatively simple — or seemingly innocuous — things as changing how a benefit is delivered (i.e., paying rent directly to the landlord rather than a cash allowance to an assignee), or it could be applied to remediate larger issues. For example, continued analysis of the specific structure of an assignment in terms of length and location can minimize the overall tax costs. Performing costing scenarios based on current assignment packages and comparing them to alternatives is also helpful. There are some key, fundamental cost questions to ask. For example: Does an increase in housing allowance and a corresponding reduction in a cost-of-living allowance reduce or increase the overall program cost?

Another aspect of post-assignment planning that is becoming more common is around unused foreign tax credits. Some companies look for opportunities for repatriated assignees with significant unused credits to work overseas throughout the rest of the year on business trips, so foreign tax can be recovered without incurring any new tax costs.

Companies that have the highest rate of failed assignments are those that do not have a defined post-assignment planning process. What better way to ensure future success than by learning from repatriated assignees? Often they relish the opportunity to share how great, or how bad, the experience was. When companies provide a constructive way for repatriated assignees to voice their concerns, they tend to be more engaged and willing to be part of the solution.

Let’s be honest, the “global economy” is no longer a forecasted trend that is spoken about in the conditional tense. At the same time, it’s certainly not a tired buzzword. Companies are immersed in both its opportunities and challenges, especially in regard to its impact on the workforce.

As members of the younger generation yearn for international experience early in their careers and current leaders continue to evolve and take on more global roles, expatriate assignments are going to arise with even greater frequency. As a result, global mobility teams comprised of cross-functional leaders should be strongly considered. Their partnership and an information-sharing mandate can help ensure the integration of the lifecycle process and mitigate the risk of assignment failures, thereby reducing the overall cost of the program.

Brad Veltkamp is a senior manager in BDO’s Expatriate Tax Services practice.

Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs.

Image: Pixabay, CC0 Public Domain

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5 responses to “How to Manage the Cost of Expatriate Assignments”

  1. International assignments are a major risk area for any company – a failed assignment is a major loss of investment, given the costs mentioned above. One way to reduce that risk is to take a wider approach to selection and assessment – involving global mobility and talent professionals. This may seem to adding an unnecessary level of complexity, however they have the tools to identify the competencies beyond the technical skills which can be the difference between a profitable, productive assignment and a messy, expensive failure.

    Communicaid has written a white paper which looks at this in more detail – available here http://hubs.ly/y0TtZQ0

  2. Global Assignment Management is becoming a discipline in its own right, where specialized services providers such as Santa Fe Relocations are able to support corporations in the design- and management of expatriations globally. Professional handling of global assignments is at the same time a cost management initiative and an initiative towards attracting and retaining top talent in today’s competitive market.

  3. Thanks Brad for inputting to this important debate. We are certainly seeing traction now from clients who want to do more than just prepare their assignees for their international assignment. Investment in selecting and developing the right expatriate candidates is now firmly on the table and we are working with several clients to show them how to do this. Equally, investing in repatriation training and coaching assignees before they return home is key if you don’t want to a) lose the employee and b) lose all that great knowledge they gave gained.

    Take a look at this white paper that is having a lot of resonance by Global Mobility and Talent Management professionals: http://hubs.ly/y0TtZQ0

    Best wishes

    Declan

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