EnterAsia Information Services

Expat Employment Contract Guide

Introduction

When expatriates are offered international employment in Asia there are challenged to research conditions of international employment contracts and packages. The process, more often than not, is of a highly private nature and this eliminates advice from colleagues and other people close to the company who should not know of your international employment in advance. Additional pressure results from a tight time frame, as decisions often have to be made quickly.

 

Remuneration and benefits of international employment vary considerably from home packages and need to be carefully studied. We strongly recommend to consult an expert before you sign any overseas employment contract as this website can only assist you to make yourself familiar with the basics.

 

This section provides you with a checklist and an overview of the terms usually used in an overseas assignment.

 

 

Contract Checklist

We have has compiled a list of terms used in negotiations between the expatriate and his/her employer. This is not an “add to the contract list” but rather a “cafeteria style menu” to check what may be most important for you while you negotiate your employment contract for working as an expatriate/foreign talent in Asia.

 

Search your soul if you are willing to go abroad not just for the money but also for the challenges in your professional and private life. The answer will imply a route to follow and, more importantly, the decision which sacrifices you are willing to make.

 

You should try to gauge your value to the company in the first place and find out about in-house competitors for the job abroad. Chances are high that there is another colleague keen to take up the position. Especially in international companies and institutions you are expected to work with a global perspective rather than traditionally in a national or purely domestic environment. In other words: the boss expects you to take up the assignment – or would not have suggested you!

 

Your remuneration package may include several of the following terms and conditions:

 

1. Base Pay

Base pay depends on the pay location, which can be either the home country or host country and is often predetermined by the company’s compensation system used for expatriate assignments.

 

Host Country Based

You will get the same salary as the equivalent employee in the host country with additional benefits to be negotiated. Popular with lower management level employees.

 

Home Country Based

Your position abroad is seen as if performed in your home country. You maintain your salary structure. Adjustments are made for additional duties and your reentry status is verified if duties change once you repatriate. Popular with transfers of managers of up to 5 years. Generally, double income with contracts in each country are becoming less popular due to national tax implications and complicated administration procedures.

 

Performance Based Salary

Bonus payments are usually tied to goals set in your target agreement. Keep in mind that objectives initially set may change during your assignment due to unforeseen circumstances. Generally it is advisable to have a “mentor” at headquarters that will revise targets from time to time and keep track of your development.

As a result of globalization, multinational corporations have started to offer the same long-term incentive stock option plans in foreign countries than at home.

 

Discretionary Payments

Discretionary payments may be made at home as to enable you to meet your obligations towards social security, mortgage, financial savings, student’s allowances, etc. in your own currency rather than having to exchange and transfer money from your host country.

 

Tax Reimbursements

As taxes have to be either paid in the home or host countries or even both, this may be a heavy burden to take on by the employee, the employer, or both. It is very important to be clear who is taking which share of this burden.

It is advisable to consult tax consultants at home and at the foreign location rather than enter into a laissez-faire policy. Responsibilities should be shared.

Combinations of the following three methods are possible using different choices on company, personal, federal and state income.

 

One-Time Tax Adjustment

The employee is given an annual lump sum and taxes are his/her own responsibility.
Tax Protection

Your position abroad is seen as if performed in your home country. You maintain your salary structure. Adjustments are made for additional duties and your reentry status is verified if duties change once you repatriate. Popular with transfers of managers of up to 5 years. Generally, double income with contracts in each country are becoming less popular due to national tax implications and complicated administration procedures.

 

Tax Equalization

The employee contributes an amount equal to the home taxes and will neither gain nor loose in tax costs.

 

2. Incentive Allowances

 

There are many ways to persuade a prospective expatriate and his family to leave the everyday security and comfort of home and part with close relatives and friends in exchange for a life in a country they do not know. Basically incentive allowances comprise:

 

- Hardship and danger allowances
- Mobility and foreign service premiums
- Relocation allowances.

 

Hardship, Danger (Area Allowance)

Are based on a system determined e.g. by the US Department of State with consideration of seven hardship conditions: isolation, education, community, facilities, food, importation, altitude, climate, housing, recreation, natural hazards, sanitation and disease, crime and harassment, medical and hospital facilities and political violence.

 

By US regulations, it can be anything between 15% and 25 % of your base pay. Some companies use the term area allowance to represent both allowances combined.

 

Increasingly, in Asian countries, the quality of life is as good and as safe as at home, so hardship and danger allowances are not applicable.

 

Foreign Service or Mobility Premiums

Foreign service premiums will not be paid for employees on training or short-term assignments. They may be paid on a periodic basis for the whole length of the assignment and may be replaced by a mobility premium to those who are frequently posted around the world.

 

Cost Of Living Allowance (COLA)

This payment reflects the difference in costs of goods and services between the home and host country and varies according to family size and base salary.

 

The goods and services compared are: food, tobacco, alcohol, personal care, furnishings, clothing, household operations, medical care, recreation, car insurance, car maintenance and gasoline, public transportation, household help and meals away from home.

 

COLA may be also named Goods and Services Allowance and is calculated by either the US State Department or other sources and independent international consultants.

 

There are three different types of indices provided by ECA (Employment Condition Abroad LTD) to reflect the situation:

 

The Standard Home-Based Index assumes that the expatriate shops less cost-effectively abroad than at home when purchasing goods of comparable quality to those bought in the home country.

 

The Cost-effective Home-Based Index assumes that the expatriate shops as cost effective in the host country as at home without any reduction in the quality of goods selected.

 

The Cost-effective International Index gives place-to-place comparison based on an international lifestyle.

 

ECA have their data collected by both expatriates and local nationals and their own network of professionals. Many companies rely on data passed on by locals or their own independent consultants and assessments.

 

 

3. Relocation Cost During Transition

“Look and See” Trip Expenses

It may pay for the company to get you a business flight, as you could accomplish more in a shorter time if you could relax more during your flight. Childcare expenses at home are sometimes offered by the employer to keep you in a responsive mood for the assignment! You might not need it with friends or relatives taking over. The daily allowance for food and transport is usually based on the one paid for business trips.

 

Documentation Expenses

There are a number of documents to be translated and certified in connection with immigration and your employment pass. You and you family may need new passports and photographs. Expenses are usually paid by the employer.

 

Temporary Living Cost

These cover all expenses in connection with you not being able to live in your permanent residence either in your home country or the foreign country. Includes accommodation, food per diem and transportation on receipt, or lump sum approach for all. Check if your telephone and Internet costs (which can be quite high) and baby-sitter costs will be covered when you go house hunting!

 

The period of time granted for temporary living varies:

- Pre-departure home country: up to 14 days
- Upon arrival: up to 60 days
- Pre-departure host country: up to 14 days
- On return: up to 60 days

 

Home Leaving Cost

 

The expenses involved depend on your status in connection with your current home.

 

Renting a Home
Lease termination penalty and loss of security deposit.

 

Home Owner Selling Home
Many companies do not like to reimburse expenses as mentioned below to avoid having to help with purchase cost on return.

- Home sale assistance and taxation advice
- Home sale marketing costs
- Loss on sale assistance
Home Owner Renting Home

- Tenant search assistance
- Estate agent’s fees
- Property management fees
- Loss of rent (up to six months, can be insured)
- Home renovating cost on return

 

Home remains vacant

- Duplicate housing assistance
- Increased insurance
- Maintenance
- Custody

 

Cars Left at Home

Companies may reimburse cost of up to two cars for a married couple. Storage is not advisable as car value decreases considerably. It may not be advisable to import cars as many Asian countries impose high import duties on cars. Also countries vary in lefts or right hand drive.

 

Pet Transfer Cost

Companies are very reluctant to pay for the transfer of your pet. Expenses can be quite high depending on the length of the transfer and the quarantine, which can be anything from 4 weeks to 4 months. Pet freights are the second highest freight cost with airlines and you need to find out how much a transfer will cost before you start negotiating. Ask an experienced pet relocation expert at for advise.

 

Inquire about:

- Cost of sending pet as air freight on a nonstop flight.
- Cost of sending a pet as air freight on a stopover flight.
- Cost of sending the pet as excessive baggage.
- Cost of quarantine per day and related costs.
- Duration of quarantine required.
- Cost of kennel with air-conditioning or fan or normal
- Cost of a good kennel per day (in case you need to stay in your temporary home for longer than anticipated)
- Cost of immigration procedure, including paperwork.
- Cost of required inoculations.
- Cost of cage suitable for your pet.
- Cost of dog/cat waterer (a special water feeder).

 

Shipping and Storage

The expenses, including insurance, may be paid by the company in full but there may be a limit towards the size of your container (cubic meter/feet) and the size of your storage and a list of restricted items with your move (pianos, boats, pool tables etc.).

 

Some companies offer a lump sum and leave the organization up to you.Some companies do not accept paying home storage and its insurance. If stop rage is paid, it is advisable to set a time frame for resolving your interim storage on repatriating. For single households and shorter assignments, air freight may come cheaper.

 

Extra luggage on your transit flight to Asia may be reimbursed if you have not found a home there yet or have to wait a couple of weeks for your container to arrive.

 

 

Transfer

With a business class flight for the whole family you will profit from the higher luggage allowance you may need, if your household is still on the way and you have to live in temporary housing. This is usually cheaper than paying for excess baggage.

 

Home Search Cost

The expenses may include:

- Relocation company home-search assistance fees
- Estate agent fees
- Renovation cost if not borne by the landlord
- Home rental deposit
- Utility deposits
- Legal advice on contract

 

Settling In Cost

Lump sum or reimbursement on receipts for curtains, carpets, pots etc. electrical appliances (fridge, stove, washer, dryer) for purchase or rental. Some contracts state this as utility allowance.

 

Cultural and Language Adjustment

There is a proven advantage of cultural seminars for the success of an assignment and companies do consider offering:

- Cultural seminar for family members
- Cultural seminar for a new business environment
- Language courses for all

 

 4. General Living Cost in Asia

 

Servant’s Allowance

Your company may be willing to pay for a maid if you are expected to entertain, your wife is working as well, or her health is seriously affected due to the climate. Gardeners are usually not paid unless the company wants you to live in a company owned property with a huge garden. A nanny is sometimes offered if the acceptance of the assignment depends on a partner who would like to keep working in the host country.

Housing Allowance

The housing allowance is highest on the list of trouble and disagreement between employer and employee negotiating the contract. Traditionally, the amount is based on the correlation of leased-housing costs to salary increments. It can also be based on the position-level correlated to the size of the family (number of bedrooms required), which guarantees safeguarding the expatriate’s quality of life.

In general, housing is paid in full often including utility costs like electricity, gas, water, etc. but excluding gardening services, phone, insurance and servants coming with the house. A possible house deductible (a partial sum paid by yourself) may be fixed for the duration of the assignment. Sometimes utility costs are totally up to the employee.

Car and Driver Allowance

Company cars with drivers, which can be used privately, have not been unusual for senior managers and directors in Asia in the past as they are considered as an expression of their status, importance and influence in the company.

In recent times, even top executives have had to accept the wind of change as companies need to save cost. Drivers now have many other responsibilities within the office structure. The privilege has changed to the permission of private use of a company car and many expatriate managers are responsible for their private transport.

As public transportation also is often not appropriate and reliable for foreigners you may opt for leasing a car to avoid high purchase costs. Some expatriates opt for cash rather than a company car.

However, in some countries it is advisable that expatriates don’t drive by themselves due to security and safety considerations or because they are not able to read the strange looking road signs in the native language. A company car usually comes with reimbursement of maintenance, petrol, insurance, taxes and road tolls.

Security Expenses

Make sure you talk to your company about all aspects of security in the host country before you leave.

Besides an often very expensive household insurance (higher natural disaster risks, higher crime rates, theft endorsement) expenses for guards, watch dogs, alarm systems, body guards etc. may come up sooner or later due to a change in the political situation in a country or due to a sudden rise in the crime rate.

Even if this does sound scary for the moment: discuss the company’s policy in case of a kidnapping and politically motivated detention and the costs involved such as lawyers’ advice and help.

Club Memberships

Club memberships are negotiable if there is a business advantage for the company involved and granted according to local status. It is generally accepted that a lot of business is generated when playing golf with a customer in Asia, and companies do grant golf club memberships.

Combined business/leisure clubs are acceptable in view of business perspectives. Pure leisure clubs are excluded unless you are in a hardship country and socializing is difficult.

Education Expenses

In many cases, expatriates see the reimbursement of expenses of an international school for their children as a major advantage of being posted abroad. There are indeed a lot of very good schools in Asia and many are very experienced in dealing with expatriate children and their specific problems.

As public schools at home usually come free, companies accept their responsibility of ensuring a reasonable education and easy repatriation of your children and therefore take on the expenses. The following costs occur for overseas private schools:

Transport (busing is often very expensive!)
Books or library fees
Computer fees
School Uniforms
Tutors (if syllabus is different)

 

You will usually not be reimbursed for the school uniform, optional or compulsory school trips, insurance and meals. Tuition fees for ESL (English as a Second Language) and others for a smooth transition both ways may occur.

If you have to leave a child in boarding school or need to support a student you have to fill in your Balance Sheet appropriately with the full boarding fees/living costs plus visiting round trips each year for family reunions.

Spouse/Double Career Payments

The loss of spousal/accompanying partner income can be compensated in various ways especially if there is no chance for her/him to be granted a work permit in the host country. Compensation options or double career payments may include a lump sum in connection with job search or career consultancy, or a lump sum for career enhancing language and other vocational education. Some companies opt for offering a job within the company. A dual career couple should never reject an assignment out of financial or partner’s loss of benefit concerns . See the table below for possible options to solve the problems.

Info
Financial Assistance
Non-Financial Assistance
Compensation for Loss of income/job
Position within the relocating partner’s company as telecommuter/consultant /part-timer/free-lancer/ etc.
Compensation for cost of work permits
Position at the relocating partner’s company in host country
Compensation for retraining, development, workshops, language courses etc., keeping up professional credentials
Guarantee on re-employment upon repatriation
Compensation for career counseling, job search expenses
Providing help to find employment in host country
Compensation of legal expenses to set-up own business Encourage self-employment by offering project work

 

5. Medical/Benefit Cost

 

Payment of medical and health insurance, emergency evacuation, critical illness and other related medical services have a huge impact on the employee’s assessment of a company’s commitment to their workforce. With your transfer to Asia you will be often responsible for regional business and asked to travel extensively. The health risks involved may be major and you are advised to be insured to the highest standards.

You need to check if your own home insurance policies provide total cover overseas for an international assignment. Sometimes they may only cover short term business trips and you have to find other solutions. There are often numerous exemptions! Companies often offer to reimburse all necessary vaccinations during your stay in Asia. Additionally, much-liked perks are accident and life insurance.

Emergency cover

To cover all these cases ideally you are covered for all expenses of a round-trip ticket for the patient and companion to the next hospital for evacuating a patient in case that medical treatment is not adequate. Many companies pay a round ticket in case a close relative is seriously ill or passed away. This normally includes grandparents, parents, children, brothers and sisters (in-law) and grandchildren. Ideally, the same should be applied if you or a family member is seriously ill and not transportable in the host country.

The death of an expatriate employee is generally treated like the end of an assignment with all repatriation expenses paid plus the costs of transporting the remains to the home country unless the working spouse decides to stay on.

Retirement Plans

Rule of experience: do not move without asking the experts! Try to stay in the home system and continue contributing according to your age. Benefits may change when you are out of the home country. Get financial advice before you leave, as there are a number of very attractive alternatives for expatriates living overseas.

Social Security Contributions

Contributions for social security benefits at home such as unemployment insurance or pension schemes may still be compulsory even if you work overseas. You need to keep track of your entitlement to benefits and check requirements of continuing contributions. If possible continue to contribute but also consider joining the local social security plan.

Website:
Social Security Programs Throughout the World http://www.ssa.gov/international/inter_intro.html

 

6. Other Considerations

 

Being just at the beginning of an exciting new career step many expatriates forget about other considerations of a contract, e.g. the end of the assignment. When abroad, it is very important to explicitly state the rules for every possible scenario as you are often no longer tied to your national social and legal security systems. If it comes to a breakup, both parties should be able to avoid lengthy and costly legal battles and part fairly.

Holidays and Working Hours

There is no such thing as the best of both worlds. Your holidays and working hours often follow the host country laws. Generally working hours are longer and expatriates have to compromise on unusual business hours due to world time differences and extensive traveling.

The Length of Your Assignment

The length of the assignment should be tied to the goals the company sets for you. The trend is to offer shorter assignments of 2-3 years often for training locals to take over the job. Make sure the contract says clearly when to negotiate your return (best is 9 months before expiry) and what happens on your return.

Retrenchment

You must check the laws on severance payment of the home and host country before you enter into negotiations. As visas are connected to your position you may need to find other ways to be able to stay in the host country once your employer terminates your contract. Some Asian countries offer a residence status after a year’s stay. Expatriates have learned to play it safe.

Ongoing cash payments and support of your stay for a number of months would assure that your children can terminate the school year in the host country and give you time to look for a new position. If the costs of repatriation to your home country or another country of your choice (following assignment with another company) are taken over by your old employer this will greatly increase your market value when looking for a new job back home.

Note: some visas will not allow children to finish schooling if the employment pass of their parents is canceled!

Dismissal

If the cause is criminal or a dishonest act you will not be covered.

Resignation

In case of your own resignation you have to check if the visa of the host country requires your employer to cover your costs of repatriation. Therefore, you may have to leave the host country within a specific time limit reducing the possibilities to look for a new job in the host country.

Returning to Your Home Career

Responsible companies consider your career path on repatriation and include a phrase in your contract dealing with this issue particularly as you risk loosing touch with developments back home.

Global companies start implementing to tie career steps to international assignments and make them in a way compulsory at least for their managers. Very helpful is a term of guaranteed return to headquarters as not to miss the next step on the career ladder and stay in contact via seminars and assessments.

Make sure “headquarters” are mentioned explicitly as global companies consider the world as their home. A specific position or income level however, will usually not be guaranteed in your return home clause.

Extending your Contract

International Assignment Programs often limit assignments to maximum 5 years in the same location. In many cases companies institute “localization” beyond this time. Inquire about the pros and cons especially with regard to taxes, social benefits and reentering headquarters.

Websites:
International Foundation of Employee Benefit Plans http://www.ifebp.org/glossary/compgloss.asp
Social agreements with other countries worldwide http://www.ssa.gov/international/