Mobility Basics: Delivery of pay

Delivering pay to local employees is a straightforward matter. Employees receive their pay packages in local currency and in their local bank account, as delivered by the company’s local payroll. When companies are dealing with mobile workers, however, how and where to deliver pay are not simple questions. The currency of payment and the payroll used depend on a range of factors, particularly the type of international move and the pay approach taken.

Currency of delivery and pay approach for long-term assignments

As other blog posts in the Mobility Basics series have shown, companies employ many different salary systems to calculate long-term assignment remuneration, and our latest Expatriate Salary Management Survey shows a strong connection between the system applied and delivery.

It is no surprise that, for companies who take a local-plus approach when calculating packages, the standard practice is to deliver pay in the host country currency. These packages are typically calculated based on the host country market rate for locals (or locally-employed expatriates), especially when the principle behind the choice of salary system is that there should be some degree of equity between the assignee and their host country peers. In which case, it would seem logical that the delivery of pay is kept consistent with host country peers too. The downside of delivering the full package in host country currency, however, is that assignees will typically need to convert a portion of their package into their home country currency to meet ongoing savings and housing commitments. If assignment allowances or location allowances have been awarded, the assignee is likely to want to add these to their home country savings too. If exchange rates shift, assignees could win or lose when converting this portion of their pay.

There is a lack of consensus between companies when it comes to delivering home-based packages. More than 40% of these packages are quoted entirely in the home currency. The advantage of this approach is that the currency used to quote and deliver pay will be the one with which the assignee is most familiar. They will be able to make an easy comparison to their previous home country pay, and this may reduce queries and promote a perception of transparency and simplicity. The currency of delivery will match that of the assignee’s home country commitments and the assignee can remain on the home country payroll. On the other hand, assignees will of course need to convert a portion of their pay over to the host currency to cover their living costs on assignment – and as discussed above, any conversion of pay into another currency exposes assignees to the potential of exchange rate fluctuation.

A majority of companies using the hybrid approach split delivery between the home and host currencies, as do many companies using the home-based approach. The home-based components of the packages are delivered in the home currency, and vice versa. An advantage of delivering each pay element in the appropriate currency is that this eliminates the need for the assignee to convert any elements into a different currency, and thereby protects them from any potential exchange rate volatility. It is typical for companies to treat the housing and savings elements as part of the home portion, and the spendable and COLA elements as part of the host portion. Other elements are more divisive – our survey showed that companies providing home-based packages are split on whether mobility and location allowances should be delivered in home currency or host currency. It is not common for companies paying local-plus packages to split pay between home and host currencies (only 21% do so). Since host-based pay by definition isn’t built up from home and host components like a home-based package, the split is generally determined according to each assignee’s preference. 

Paying the full package in a third country currency is rare across all of the most common remuneration approaches. 

Payroll

As we would expect, the payroll location and the currency in which the package is quoted are closely linked. Host country payroll is most commonly responsible for delivering local-plus packages, with 70% of companies taking this approach. The second most common approach is a split payroll, used by 11% of companies.

Meanwhile, around a third of companies paying home-based packages exclusively use the home payroll, a quarter use the host and another quarter split payment between the home and host payrolls.

Limiting factors affecting delivery

For 23% of companies, pay is not always delivered in accordance with the currency or currencies in which the package was quoted. Over three-quarters of these companies cited legal requirements in certain jurisdictions to deliver employee pay in the host country currency, or exchange control regulations, as factors in this. Other common reasons for companies varying the currency of delivery to the currency of quotation are employee preference and adverse economic conditions, such as currency volatility.

Delivery practice for other kinds of moves

The trends that we have seen for the delivery of long-term assignment packages broadly apply to short-term assignments and international commuters, as demonstrated by our recent surveys.

Given the brevity of the assignment type, employees on short-term assignments maintain strong links to the home country entity. It is little wonder that 70% of companies deliver their pay through the home payroll for short-term assignments lasting up to six months, and over half do so for STAs longer than six months and just over 80% pay the base salary in the home currency. Short-term assignees are not expected to contribute any of their home salary towards their living costs on a short-term assignment. Typically, daily expenses on assignment are covered by an essentials allowance; this is the component of pay most likely to be delivered in host currency, with a third of companies doing so. More than half of companies provide essentials allowances in the home currency (likely due to limited payroll capability) yet only two-fifths of companies provide some form of protection against exchange rate fluctuations for short-term assignees. This could mean assignees end up out of pocket where the host currency appreciates significantly against the home currency. Around two-thirds of companies pay location and/or mobility allowances in the home currency and less than a third in the host currency. Split pay and third currency pay delivery is rare for short-term assignments, perhaps due to such complexity not being warranted for relatively brief assignments. 

Market practice for international commuters likewise appears to be linked to duration, as there are differences between temporary and permanent commuter arrangements. The vast majority of companies (four in five) pay basic salary to temporary commuters in home country currency and through the home payroll. For permanent commuters, the link with the home country is not quite as strong, and accordingly companies are somewhat less likely to deliver basic pay in home currency and through the home payroll (with around 60% reporting doing so). For both permanent and temporary commuters, companies are likely to deliver additional components of pay – mobility allowances, location allowances and assignment completion bonuses – through the host country payroll and host country currency. 

Summary

When it comes to delivery methods, there is a clear relationship between the pay approach or move type in use, and the country to which pay is delivered. When delivery is split between two countries, it follows a logical division between the elements of pay which are naturally related to the assignee’s home country and those which are assignment related. Essentially, the delivery approach should be determined by what best aligns with both the assignee’s needs and the company’s objectives. 

However, for some organisations it may not be possible to have a globally consistent policy. It is important to adapt to internal limitations, such as a lack of payroll capabilities in the host location – particularly if your organisation is not yet an established presence there – as well as external factors, such as local regulations restricting currency of pay.

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