Expatriate Compensation Plan
Expatriation of employees is a complex exercise, especially when determining the appropriate compensation for the expatriates. Compensation is influenced by various factors which Fit4Life must consider when setting up the appropriate payment package (Curran, 2017). The factors impacting additional spending include the cost of living, taxes, and personal circumstances.
The balance sheet approach provides a framework for matching the home country’s compensation to the host country’s compensation. For instance, living in Japan as a salesperson requires higher expenses compared to the same position in Peru (Compensation and Rewards, n.d.). Therefore, the expatriates are given necessary reimbursements to enable them to sustain their usual standard of living.
The base salary constitutes the basic pay for the expatriate. The base pay for the organization is $ 5,500 per month. Individuals are required by law to pay income tax every year. It is recommended that the company should be aware of customs, employment and taxation law, environment, employment practices, and currency fluctuations to manage compensation successfully (Lowe et al., 2002). Tax rates are usually charged on the annual income. The base annual income for the ex-pats will be $ 5,500 * 12 = $ 66,000. The personal income tax rate in the US is 22 percent for an annual income of $ 39,476 – $ 84,200. In Italy, the tax rate for annual income between $ 40,000 and $ 80,000 is 33 percent (Richelle, 2020). Therefore, the tax charged in Florence will be $ 605 higher than in the US per month.
Housing allowance is a basic requirement for the expatriate to facilitate their stay in the host country. The expatriate will be living in a foreign land, and they will prefer to stay in a secure and safe environment. In Florence, the average monthly housing rent for a one-bedroom house is $ 810 (Stotz, 2020). The house is sufficient to accommodate the managers for the initial months of business operation. Moreover, the ex-pats will need to be facilitated when moving from their place of residence to work. Therefore, Fit4Life will have to provide transport allowance to cater for the movement. Stotz (2020) states that the average monthly transport cost by public means in Italy is $ 39. This will cater to the initial transport needs of the expatriate.
Fit4Life should provide appropriate allowances for the relocation of the ex-pats from the US to Florence, Italy. The assistance is expected to cover various expenses, including visa processing, residency permits, and flight expenses. According to Stotz (2020), the average cost of the expenses would be $ 1000. The amount will cover the spending needed by each manager to relocate to Florence, Italy. Overall, Fit4Life provides services that promote a healthy and physically fit life. However, the managers may fall sick due to unavoidable circumstances. According to Richelle (2020), the company needs to ensure the fitness of the managers by providing a health allowance of $ 300. The amount will be sufficient to cover the monthly premiums.
Table 1. Fit4Life balance sheet for US Managers working in Florence, Italy.
| ||22 % (0.22 * 5,500) = $ 1,210||33 % (0.22 * 5,500) = $1,815||$ 1,805 – $ 1,210 = $ 605 (Florence is more expensive than in the US)|
| ||$ 5,500||$ 5,500||$ 0 (Base salary provided is the same)|
| ||$ 1,098||$ 810||$ 810 – $ 1,098 = -$ 288 (Florence is cheaper that the US)|
| ||15%||(15%* 5,500) = $ 825|
| ||$ 59||$ 39||($ 39 – $ 59) = -$ 20|
| ||$ 1,000||$ 1,000 (one-off spending)|
| ||$ 500||$ 300||($ 300 – $ 500) = $ -200|
| ||($ 605 – $ 288 + $ 825 – $ 20 + 1,000 – $ 200) = $1,922|
| ||$ 8,367||($ 5,500 + $ 1,922) = $7,422|
Top three benefits that should be offered to the expatriate
Relocation entails the activities that will facilitate the safe movement of the expatriate from the home country to the host country. Such conditions as political, economic, and social can differ significantly (Lowe et al., 2002). The expat’s activities involve spending on various required items for comfortable living (Ntabeni-Bhebe, 2019). The primary expenses involve processing the visas, paying for the air tickets and transfer charges, and processing residency work permits in the host country.
Relocation benefits will encourage the expatriate to move, considering that their needs will be catered for. It acts as an inducement to the expatriate, especially if they know that the organization will bear the burden of paying for all costs of moving to the host country (Stotz, 2020). Some experts may not be able to afford the required sum to cater for visas, flights, and settling in the new destination.
Transportation allowance is a standard benefit provided by employers to employees to facilitate their movement from their residence place to work. It can be included in the overseas premium being a bonus for agreeing to within another country (Compensation and Rewards, n.d.). Even though the level of support may be different, this benefit reimburses the amount employees will be spending to move every day.
It is considered advantageous for a manager relocating to Italy from the US. First, the expatriate will feel motivated to go to work every day, knowing that the cost incurred in moving is catered for (Stotz, 2020). Second, according to Lowe et al. (2002), an employee can focus on advancing language and cultural skills instead of worrying about transportation costs. As a result, it makes him/her valuable in the long term. Thus, the organization will promote greater job satisfaction by facilitating the movement of the ex-pats.
Health insurance entails the benefits offered to the ex-pat for medical expenses they are likely to incur while attending to health matters that may arise (Ntabeni-Bhebe, 2019). It is crucial for employees, especially when a headquarters company relocates a worker to a country where the healthcare system is ineffective and medical services are not provided (Compensation and Rewards, n.d.). Therefore, the insurance cover will ensure the managers are fit to conduct their daily duties.
Health insurance offers the managers a safety net, knowing that should they contract sickness or be injured while conducting their work, their health will be catered for. Most states provide universal medical services offset by higher taxes; the health benefits of relocated employees would be covered while he/she will be working and paying taxes in the host country (Compensation and Rewards, n.d.). Additionally, health expenses can be costly for the majority of the population (DeZube, n.d). Therefore, the insurance takes away the burden of suffering financial distress to attend to their health needs.
Compensation and Rewards. (n.d.). Human Resource Management. Web.
Curran, M. (2017). The balance sheet approach to employee compensation. Forum-expat-management.com. Web.
DeZube, D. (n.d). What’s inside an international compensation package? Monster. Web.
Lowe, K. B., Milliman, J., De Cieri, H., & Dowling, P. J. (2002). International compensation practices: A ten‐country comparative analysis. Human Resource Management, 41(1), 45-66. Web.
Ntabeni-Bhebe, F. (2019). Global Human Resources Management. Society Publishing
Richelle, W. (2018). 10 Spending areas: The cost of living in Florence, Italy. Web.
Stotz, J. (2020). Cost of living in Florence, Italy. Checkinprice. Web.