Mobility Basics - The host-based approach
In our latest Mobility Basics post we examine the host-based approach to paying expatriate salaries, looking at when and why it should be used.
Although companies have evolved many different remuneration methods to determine the salaries they offer to employees who are being sent on long-term international assignments, most expatriate salary systems can broadly be defined as host-based, home-based or some combination of the two.
In this post we look at the host-based approach.
What is the host-based approach?
The host-based approach uses the market rate of the host country to determine the salary on offer. This could be the salary which local employees receive or, particularly in countries with large expatriate populations, it could be based on the salary received by other expatriates in that country. If the company has a local subsidiary, the host country HR is usually responsible for determining the salary based on the local pay structures they use.
The salary paid to the employee is usually quoted gross and the assignee pays the tax and social security contributions required in the host country. Most companies will also quote and deliver the salary in host country currency, but many continue to use home currency or implement split pay.
What is “local-plus”?
In reality, over 70% of companies who use the host-based approach do not pay just a local salary but add in some additional benefits or allowances; some typical add-ons are shown below. This is known as a local-plus system. The ‘plus’ element is the additional benefits provided, usually to make up for the additional costs that an expatriate employee has to bear compared to a local, e.g. ongoing home country housing costs and international schooling costs for children. If the local salaries in the host country are significantly higher than in the home country, this may not be necessary, but local conditions also need to be taken into consideration, such as the availability and suitability of local housing and schooling for foreigners. Read more...