What happens at the end of an international assignment? If the goals of the assignment have been achieved the employee may be repatriated to their home country or perhaps move on to a new assignment in a different country. Alternatively, it may be necessary to extend the assignment if certain projects or initiatives are still to be completed.
Continuing to provide full assignment allowances and benefits, however, is an expensive option that cost-conscious companies may be looking to avoid. While extension may be a simple and pragmatic choice where the employee needs to stay on in the host country for a few more months, localisation may be more suitable when the assignee has been or will be in the host location for a long time. Localisation is the process of transitioning an employee on international assignment terms and conditions to local terms of employment, with no ties to the home country.
When to consider localisation
There are several situations in which companies should consider localising their employees:
- When the maximum length of assignment has been reached (typically five years) and the employer requires the assignee to remain in the host location long term.
- When there is no suitable role for the employee in the home country, so staying in the host country might be the only way of avoiding redundancy.
- When the employee requests permission to remain in the host country because:
- there are better career opportunities available
- they have formed personal relationships there
- they simply prefer the host country lifestyle to which they have become accustomed
If the employee has personal reasons for wanting to stay in the host country beyond the term of the assignment, companies will inevitably find it easier to persuade the assignee to accept local terms and conditions than if the company is driving the transition. Other personal and role-based factors can also influence the ease of transition, as the graphic below shows:
Localising the compensation package
The compensation package paid to the assignee before they localise will also have an impact on the ease of transition. If the assignee is already paid according to the host country pay scale, this will facilitate the process. If, however, they currently receive a home-based assignment salary and benefits, which amount to more than the peer-level host salary, it will be harder to transfer them to a local salary. Below are some of the approaches which can be considered to ease the transition from an expatriate package to a local one:
Moving directly from an expatriate salary to a local salary may result in a steep drop in compensation and while the cost savings will be beneficial to the company, it may be difficult to incentivise the employee to accept a lower salary. To combat this, some companies pay a transition allowance to make up the difference. This is typically paid as a one-off allowance at the point of localisation or phased out over two to three years while the employee adjusts to their new salary.
However, in situations where the local salary is significantly lower, a transition allowance may not be enough to bridge the gap. A gradual reduction of assignment related allowances could eventually reduce the gap so that the transition is more realistic. This is known as partial localisation.
Reduction in assignment benefits
Even if at first glance the local salary appears suitable, moving from an expatriate salary package that includes free housing and education to a local salary out of which the assignee will have to pay for these costs themselves will significantly impact their financial situation. It is therefore unsurprising that a recent ECA survey found that only a third of companies with a localisation policy immediately eliminate the employer’s contribution to the cost of housing and education. By gradually phasing out the value of certain benefits, the assignee can make the necessary adjustments to their change in lifestyle.
Another key consideration is the level of benefits provided under the host social security and/or pension scheme. Your assignee, if they haven’t already, may now need to enrol in the host country scheme and retirement benefits might not be covered to the same extent as under the home or international scheme they were in previously. This may meet with resistance, particularly if the assignee intends to return home in the future. The company will therefore need to consider, if possible, maintaining the existing pension or social security plan even though the assignee is being transferred onto a local salary package.
Technical and legal considerations
While the terms and conditions for localisation may have been agreed by all parties, in practice it may not be feasible in certain countries. If a transition allowance is to be paid, for example, employment law may prevent the employer from paying a locally-employed foreign worker more than a local national. On the other hand, even if the assignee was willing to accept a lower salary, it is in fact illegal in some countries, such as Brazil, to reduce the salary. Furthermore, terminating or changing the contract terms and conditions may lead to severance pay being required in some countries even if the assignee continues to work.
Immigration law may also prohibit your assignees from being localised. If your assignee required a work permit for their international assignment, it may not be possible to extend it or transfer to a longer-term/permanent category. For example, a condition of issuing the original permit may have been to train up a local national to take over the job once the assignment has finished, meaning that your assignee may not be able to be localised at all.
As we can see, there is a lot to consider when trying to localise assignees. In doing so there may be advantages for the assignee in terms of career prospects and lifestyle and the company will benefit from reduced costs and improved morale by creating parity between expatriates and local staff. However, if the local salary package is not attractive enough there is a risk of losing talent and, more importantly, employment and immigration law may mean that localisation cannot be achieved. Companies therefore need to be pragmatic and accept that in some cases full localisation is not possible and a compromise must be reached.
Localisation is also easier to achieve if it is mentioned as a possibility from the start of the assignment and included as such in the assignment contract. It is also useful to have a back-up plan in case localisation is rejected by the assignee or is simply not possible.
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