The “Classic” Relocation Alternatives

The familiar relocation method may have quite a few drawbacks, such as the high cost of sending an employee for the company, the employee’s family difficulties and career damage. Recent developments in the global relocation business provide effective alternatives that address tax considerations, salary considerations, length of mission and migration issues.

When a company is considering sending a worker for a period of relocation, it usually refers to a common and familiar mission format: sending the employee and his family to a destination for a period of two to five years. This type of relocation is inherently limited due to business or family constraints, and involves quite a few problems in various areas:

•  High cost: the cost of the mission is usually very high, since it includes the family’s moving expenses, loss of income of spouse, education expenditures for international schools, housing expenses and other specialized areas..

•  Family difficulties: family relocation creates many family problems such as damage to the career of a spouse, separation from the extended family, damage to the continuity of the schooling of children and more.
  

•  Too long: the underlying business need for which the relocation is executed, such as knowledge transfer or locus of control transfer, mobility of workers, etc., is much shorter than the classic mission.

•  Career damage: a long period of disconnection from the “home base” of the employee might damage his/her career in the company (” Out of sight – out of mind”)

•  Forcing an employee’s return to Israel: in many cases the interest of the company and employee is to continue the mission beyond the maximum period of a classical mission, but the high cost discourages the company from doing so.

The inherent problems of the classical mission have spurred many companies to examine the global market and use new types of relocation. International surveys in recent years indicate that many companies are cutting back on the number of classical missions and developing alternative types of missions.

This trend is still not evident in the Israeli market, mostly due to the excessive emphasis placed on the issue of tax exposure: in most cases, there is a preference to go on a mission of over two years to avoid paying income tax in Israel (by severing the center of life). In our experience, this comprehensive approach often causes a loss: the companies somewhat reduces the tax exposure but find themselves bearing the expenditure of hundreds of thousands of dollars. Bear in mind that a reasonable cost of relocation for a mid-level manager, married with two children, to a non English-speaking country for a period of three years – is about half a million to a million dollars. In many cases the company gets itself into this tremendous expense just to minimize potential tax exposure of tens of thousands of dollars (a “penny wise- pound foolish” situation).

Here are other possible types of relocation that are on the rise recently in the global market:

Extended business trip: a 3 to 6 month business trip makes it possible, in many cases, to cover the business need (knowledge transfer, the transfer of locus of control, coping with a defined business situation) without resorting to full relocation. The company’s practice is to give employees a special bonus for this trip beyond the per diem payment. In most cases, there is no need to issue a work permit for such a trip, and there is also no tax liability in the host country. However, one must distinguish between a business trip and traveling for work – in order to avoid exposure in relation to the immigration authorities in the host country.

Short-Term Relocation:     This type of mission is for a period of 3 to 18 months. In most cases, the employee goes on a mission without his family and visits his/her homeland frequently. The company preserves the employee’s salary in the country of origin, and gives him a daily allowance (per-diem) and in some cases a special relocation grant.

This type of mission lowers costs drastically, reduces the damage to the spouse’s/partner’s career and the need to disconnect the whole family from their daily routine. The significant cost saving affords the company a great deal of flexibility in compensating the employee for the long separation from his/her family. This mission usually requires an appropriate work permit and tax reporting in the host country (in addition to tax reporting in the home country).

Global Continual Assignment: – In this type of mission, the employee and his family don’t return to the country of origin at the end of the mission, but continue to a relocation mission in a new destination. In many cases, this type of mission is more efficient and cheaper than ending one mission and starting a mission of another employee. An employee who ended a relocation period in one destination gained professional and managerial skills that will enable him/her to function more effectively on next mission.

Also, the employee’s family learned to deal with the challenges of acclimating in a new environment. Problems associated with this type of mission are related to the sense of alienation often created between the employee and the sending company and the need to develop programs that can maintain the continuity of social insurance (health, pension, life and disability) of the worker and his/her family.

Turning an expatriate into a local employee (Localization): More and more companies impose an upper limit for the relocation mission (usually five years). If the employee and the company in the host country wish to continue the contract at the end of this period, the employee goes from expatriate status to local worker status. This transition involves a great loss of relocation benefits, and therefore a transitional period of up to one year is usually required.

Mission initiated by the employee: In many cases there is no critical need for relocation, and the initiative comes from the employee. Such a mission could have some advantages for the company (employee retention, knowledge transfer, improved communication between the different sites of the company) but they do not justify the high cost of relocation. The common solution in such cases is to move the employee with a salary package corresponding to that of a local worker in the host country, while the company funds only the work permit costs and gives the employee a limited transfer budget.

All of the proposed alternatives to the classical relocation mission have their advantages and disadvantages, and no single alternative is comprehensively better than anther. Proper management of relocation policies should take into account a number of alternatives to offer the optimal solution for specific business need, taking into account the personal and family aspects of potential candidates, as well as the issues of cost, tax and immigration laws.