Remuneration approaches for secondments

Author: Friederike Ruch , CONVINUS global mobility solutions

For the German version, please read here>>

Part 1: Home country approach

In our series on remuneration approaches, we examine the various existing approaches. In Part 1, we look at the home country approach.

Many companies have focussed on maintaining the same remuneration structures for seconded employees and only making changes in the area of allowances. The most common approach is the so-called "home country approach" combined with a balance sheet calculation.

Put simply, this means: This approach is based on the gross base salary that the employee receives before the assignment and deducts social security and tax costs from this. The net remuneration received is adjusted with the cost of living index to obtain the net remuneration for the country of assignment. This net remuneration is then extrapolated with the tax and social security costs incurred for the assignment. This gives the new gross base salary for the country of assignment. The variable remuneration and the corresponding secondment allowances are then added to this.

With this approach, seconded employees generally receive a much higher remuneration package than those who are usually employed locally. Due to the fact that, for a variety of reasons, consideration is repeatedly given to the remuneration of seconded employees and the cost aspect is not an insignificant factor for the company, there are companies that are increasingly opting for a "local plus" approach, among other things.

Example

The following example is intended to graphically illustrate the different remuneration approaches.

This is a team leader who is to be seconded from Poland to Switzerland. The following figures represent the base salary in CHF:

According to the chart, the team leader in Poland receives a base salary of CHF 2,214, which is used as the basis for the home country approach. With the net-net approach or balance sheet approach, the employee would receive a gross base salary of CHF 8,210. If the host country approach is to be used, he would only receive CHF 7,508. The host country approach looks at the comparable salary for this position in the company in the host country or country of assignment. The international approach (often also called the global approach) assumes that the company has evaluated all positions in the company and determined an international salary for the individual positions. In our example, this would be CHF 6,900.

Regardless of the approach used, the statutory minimum salary must also be taken into account when determining the base salary.

What is the aim of the home country approach?

The aim of the home country approach is to maintain purchasing power in the home country so that the expatriate is no better, but also no worse off during his assignment abroad than if he had stayed at home.

Why is the home country approach used?

There are a number of reasons for this. One of these reasons is that it should be easier to reintegrate the assignee at the end of the assignment. This is because the starting point for calculating the remuneration is the original base salary. The approach can also be described as fair, as the employee receives a similar amount during the assignment as if they had stayed at home. This also promotes the attractiveness of secondments.

In which cases should the home country approach be used?

In principle, it can be used in all posting cases. However, you must be aware that if a person is posted from a low-wage country to a high-wage country, the original base salary will not be sufficient and must be increased accordingly.

What are the advantages and disadvantages of this approach?

Advantages:

• One of the advantages from the company's point of view is that the transferee remains in the original remuneration concept of the home country, making reintegration much easier.
• In addition, all posted workers from one country are always treated equally.
• Promotes mobility within a company, as an expatriate retains his or her purchasing power.

Disadvantages:

• No reference to the salary structure in the country of assignment.
• Employees in the same position in the country of assignment earn differently.
• Administration is not always easy.

The following parts of this series are:

Part 2: Remuneration approaches for secondments: Net-net approach (balance sheet)

Part 3: Remuneration approaches for secondments: Host country approach

Part 4: Remuneration approaches for secondments: International approach