Show me the money!

ContractMoney makes the world go round, so I thought I’d talk about some of the items normally found in expat employment contracts.  But I would start by saying that very few expats work overseas just for money.  Diplomats, those in the military, people who work for charities and NGO’s certainly don’t, people looking for adventure or work experience don’t, and even those whose work is the driving factor generally have many other reasons other than money for accepting an expat position. 

First, some terminology:

Working as an employee is what most people understand it to be.  You become a permanent employee of the company and are usually entitled to a range of benefits, such as health or life insurance, savings or pension plans etc.  It implies a long term, permanent position although these days most companies won’t hesitate to lay off staff as soon as they’re no longer required, so pay particular attention to termination clauses.

Working as a contractor, means you are a self-employed individual.  Many contractors have their own registered companies (even if they’re the only employee) for tax or liability reasons.  Contractors are usually paid on a daily or monthly rate which will generally be all inclusive.  In other words, as a contractor it will be up to you to pay for accommodation, health insurance, airfares, mobilization costs as well as any expenses incurred by your family (visas, school fees, etc) if you choose to bring them along.  Typically contractors can be terminated at very short notice (eg 24 hours) and the term of the contract is always stated, although it may be extended by mutual consent.  Because they receive so little company support, contractors usually get paid higher rates than employees.

Looking at the contract itself it’s important to determine who will pay for what.  Some are very complex, with the employer providing many items, allowances and “uplifts” to reflect a high cost or living or hardship location, for example, and perhaps even deductions such as hypothetical tax, to bring the base salary into line with the home country.  Others are much more basic, offering lump sum packages which the employee can spend at his or her discretion.  Either way the main things to look at are:-

Accommodation.  If it’s provided by the employer, there are three broad options:

  1. Provided by the employer.  You need to determine if it will meet your needs in terms of size, quality and location.  While this can be the simplest solution, as you’ll just walk in as soon as you arrive (and, perhaps more importantly, just walk out when you leave) you have no choice about where you live. 
  2. An accommodation budget ie a maximum amount which you can spend.  It’s then up to you to find suitable accommodation within the budget and the employer will rent it for you on your behalf. 
  3. An accommodation allowance ie a fixed sum of money which may, or may not, be enough to cover the cost of accommodation.  This can work in your favour if the allowance is generous as you can pocket the difference if you find a place which costs less than the allowance.  By the same token, you may find you have to add money to the allowance to secure something to your taste.  It’s therefore important to research the local housing market to determine whether the allowance being offered is adequate and if there are any additional fees for agents, deposits, taxes, etc.  Similarly find out what are the normal lease terms – must large amounts be paid in advance and what happens if you need to leave on short notice?

Also remember to consider the cost of utilities, if they’re not covered by your employer.  Generally apartments are much cheaper to run than houses, where heating, air conditioning and even water for the garden can be very costly.

Schooling is another major expense, particularly if you have more than one child.  Somewhat like accommodation, some companies will either offer to pay the fees for a particular school, or offer an allowance which you can use towards the school of your choice.  Again you’ll need to research the schools available and their fees to see if what’s being offered is adequate.  Very few companies pay for nursery or pre-school, some will cover boarding school in your home country.  Remember to look out for extra charges for after school activities, transport, uniforms, etc.  If you need to trim costs you might want to look at home-schooling.  I understand there are now many excellent distance learning programs, often including tutoring over the internet.

Insurance.  I’ve already discussed the importance of health insurance.  The best scenario is to be covered under a company group policy.  If you do need to purchase this on your own, you may want to use a broker who can help you compare the huge range of options.  Many company policies will also provide life insurance and sometimes disability insurance.

Transport.  Is a vehicle provided, or an allowance?  If you are moving as a family, how will the children get to school and how will the stay-at-home spouse get around?  Running a second car can really eat into your budget.  We’ve always managed to avoid it, either by living within walking distance of good local facilities and/or using taxis, but you need to research and plan carefully when choosing accommodation.

Vacations.  Four or five weeks are fairly typical as a minimum for expat assignments.  If it’s a hardship location though I would press for more, as you’ll find a lot of your holiday time will be spent taking care of health and dental checkups, shopping for things you cannot buy locally, etc.  It’s usual for the company to pay for your flights, but check if they provide you with a ticket to you home country or an allowance to spend as you wish.  Obviously the latter option is preferable, as you may prefer to use the time to explore even more of the world!

Mobilization/Demobilization.  Some companies will pay actual costs or provide an allowance for you to spend as you wish.  This can range from a full service package which includes pre-mobilization counselling, shipping household goods and the services of a relocation consultant when you arrive.  Or it may be just enough to ship a few extra suitcases.  In any event you should consider what you will actually need and whether you or the company will pay for it.  And as already stated – don’t forget the costs associated with the end of the assignment.  If an allowance is provided do check to see if it has to be repaid if you terminate the assignment early. 

Visas.  The company should organise and pay for the work visa for the employee, but you should determine if they will also assist and pay for the visas for accompanying family members. 

Terms of Service.  Under this heading you need to establish:

  1. Working hours.
  2. Sick leave.
  3. Equipment to be provided.  Are you expected to provide your own laptop, mobile phone, etc?
  4. Duration of the contract and how termination (by either side) can occur.
  5. Confidentiality or non-competition clauses.
  6. Pensions plans and/or gratuity.

Tax.  I’ve put this as a separate heading because it’s a big issue and one for which I would strongly urge you to seek professional advice.  Some expat packages are quoted as “after tax” – in other words the employer will pay any tax owing in the country of the assignment on your behalf.  If this is not the case you need to find out how much tax you will have to pay.  This survey, just released by KPMG provides some rough guidelines.  You then need to determine if you’ll also have to pay tax in your home country.  If you can become non-resident for tax purposes, then also consider the consequences if you return earlier than planned as tax-free status often requires a minimum period outside the country.

Cost-of-Living.  If no allowance is given for the difference in cost-of-living between your home country and your expat destination then you need to do some independent research.  These days, thanks to the Internet, there’s no shortage of information.   One which I came across just this week is the UBS Prices and Earnings Study, which compares the cost of living in 73 international cities, but many similar surveys are conducted by other companies.  Scour the forums of the various expat websites (see my resources page for some suggestions) as they can be a valuable source of first-hand information from fellow expats.

Remuneration.  All the items I’ve mentioned so far need to be analysed before deciding whether or not the salary offered is fair. If you’re being recruited specifically for an overseas assignment it’s likely that when it’s over you may face a period of unemployment. You’re also going to be living far from friends, relatives and your usual support networks, so it’s reasonable to expect to make more money than you would at home.

Lifestyle/personal goals is last on my list, as this cannot be quantified in money and won’t be mentioned in any contract, but it’s an important part of the decision to take on an international assignment.  It’s also very personal, but here in no particular order are some headings to think about.  You may have a few more of your own to add:

  1. Climate
  2. Language
  3. Local culture
  4. Security
  5. Recreation
  6. Shopping
  7. Healthcare
  8. Social Groups
  9. Travel  (local travel opportunities and also the distance from your home country)
  10. Career advancement (for working expats)
  11. Continuing education (for non-working expats)

If you’re in the lucky situation of having more than one job offer on the table at the same time, making a decision can be quite a process, involving calculators, spreadsheets and much pencil sharpening.  We were once in the situation of having jobs offered in three different countries at the same time and, although it was nice to have a choice, it was difficult to make a decision.  In the end, because our son was entering the imortant high school years, the quality of schooling was the deciding factor.  So while I entitled this post “Show me the Money” in fact money may not be the deciding factor!

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Health Insurance

Sick in bedI’m following the current debate on US health care reform with interest.  Having grown up in the UK with it’s NHS system and then emigrated to Canada where there is something similar, I only encountered paying for visits to the doctor when I first became an expat.  I’ve been fortunate to have had excellent health insurance, but it’s still been a shock to see how it all adds up.  The year I had a back problem the cost of specialist visits, scans, physiotherapy, etc was truly alarming even though my injury wasn’t anything major.

Medical expenses can literally take you out financially.  Even though she was insured, a good friend found that the 20% co-pay for a life threatening illness she suffered while overseas was more than the value of her house back home.  She and her husband had to delay retirement as a result.

It’s therefore surprising how many expats don’t seem to take health insurance all that seriously, shopping for it primarily on the basis of cost, rather than coverage or relying on holiday travel insurance policies from home when they’re resident abroad.  Even if you’re from a country like the UK where health care is “free” in the event of an accident or serious illness you may not be fit to fly home for days or even weeks, and when you do, you may not be immediately eligible for coverage. 

So what’ s important when shopping for health insurance?

  1. What’s covered, what’s not.   Hospital care usually is, but what about normal visits to the doctor, tests the doctor may order and prescription drugs?  What about physiotherapy, eye care, dental and annual checkups, mammograms, vaccinations, etc?
  2. Medi-vac (medical evacuation).  This is important if you’re living in a country where medical facilities are not that great.  I once knew someone who had to be flown out to have a broken leg set, as local x-ray facilities were not considered safe.
  3. Pre-existing conditions and other exemptions.  This can be a real killer.  Most policies for individuals will not cover pre-existing conditions although some may do after a year or two, providing they haven’t re-occurred.  If you suffer from a chronic condition like diabetes it can have major implications.  I just read a story about American expats who are stranded overseas because of they can’t get coverage back home for conditions they’ve developed as expats.  Usually the only way around it is a company or group policy, as they generally do cover pre-existing conditions immediately.
  4. Is the coverage 100%?  Many plans require a co-pay, in other words covering less than 100% of the cost.  This may or may not have an annual limit, after which everything is 100% covered.  Accepting a co-pay may be a good way to reduce the premium if you’re paying for the plan yourself, but it may turn round and bite you on the bum as it did to the friend I mentioned earlier.

Finally remember that although some plans will pay the health care facility directly, generally you will have to pay and claim it back later.  This can often take a few weeks, so remember to keep some funds or a credit line available to cover such unforeseen expenses.

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Plan B

SavingWhen moving overseas you always need to have a Plan B.  What will you do if it all comes to a screeching halt?  What if you just don’t like the job or the location?  Your new boss is intolerable?  The schooling for your kids isn’t working out?  Heaven forbid one of you gets seriously ill and needs to return for medical treatment.  There are many reasons why you may return home before your planned date (assuming you had a planned date to start with), so better be prepared with an exit strategy.  It doesn’t matter if you’re a permanent employee or a contract hire, read the small print and you’ll probably find you can be asked to leave on a month’s notice (or two if you’re lucky).  Check the terms for termination closely.  For example, will you have to repay relocation expenses or housing/school fee loans if you leave in the first year? 

A place to live.  If your original home is sold or rented out, what will it cost to rent a place? Is staying with relatives or friends an option you want to consider?  Furnished short-term rentals can be pricey.  And yes, it will have to be furnished as it could take your shipment of household goods 6-8 weeks to arrive.   As an aside, if you do own a home, think long and hard before selling up before leaving.  For some (Canadians in particular) it may make senses for tax purposes, but being out of the housing market for a few years can put you in a situation where you can’t replace the home you used to have when you return.

Your shipment.  Check the customs regulations for your home country if you plan to bring household goods back with you.  Canada, for example, requires everything to be at least 6 months old in order to be exempt from duty, and you can only bring a car back if the exact same model was sold as a new vehicle in the Canadian market.

Health insurance.  If you have a government plan, will you be immediately eligible?  If not, add insurance to your budget.

Schooling.  If you return mid-year, can the children go straight back into your local school? 

Tax implications.  Many countries require you to be away for a fixed number of days in order to avoid paying tax.  I’ve known expats wander the globe, staying with friends or even backpacking in Asia because they can’t afford to go home before the end of the tax year.  If you did end up in this situation, how would you handle it?

An income.  There might be a period of unemployment, particularly if you were hired specifically for an overseas assignment.  A long time ago a recruiter told my husband that for every $10,000 of annual salary it can take a month to find a similar job. 

A rainy day fund.  If it’s all starting to sound a bit expensive, then you’re right.  These days many employers won’t pay much more than a cheap airfare to repatriate employees.  Shipping treasured possessions, or even just a few extra suitcases, can be expensive.  So the first thing you should do when you get your first big fat expat paycheck is open a savings account!

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