For most businesses and individuals, managing unbudgeted costs is a challenge. When a move is expected to cost X, only to realize it costs Y (and Y is usually higher), it can create financial strain. Even worse, unexpected costs that surface later on —such as untracked tax liabilities—can lead to unpleasant surprises.
In the past, traditional "Tax Equalisation" assignments, which included allowances and tax gross-ups, could cost anywhere between three to five times an employee’s base salary. With assignments historically lasting two to three years, and some costs arising long after an employee returned home, preparing a detailed cost estimate as part of the assignment approval process became standard practice.
In today's world, employee-driven moves are more common, often with few allowances. These employees are increasingly responsible for managing their own tax and social security, regardless of where those liabilities arise. Even for business-driven moves, tax equalisation and assignments are less frequently used.
So, are cost estimates still necessary? The answer is a clear yes. Here’s why they remain valuable for various stakeholders, including the business, the mobility team, and the employees themselves.
Whatever the type of move, it's going to represent an additional cost for the business. The mobility teams needs to ensure that the business is aware of this cost at the outset and (importantly) has agreed to it.
Even a high-level cost estimate provides crucial information for making informed decisions. If cost reduction is a priority, an estimate may prompt stakeholders to explore alternatives, helping the business avoid unwanted expenses.
Knowing the cost breakdown in advance allows for effective budgeting and planning, particularly if different parts of the business are picking up different costs.
Additionally, understanding if costs are recharged is vital to know if treaty relief can be claimed.
A cost estimate can be used to compare different scenarios. For instance, it can help evaluate the impact of local employment versus a secondment, or the difference between home and host salaries. It might also highlight ways to save on costs, such as paying certain compensation elements differently (e.g., a direct payment instead of a cash allowance).
By planning ahead, you can identify when local taxes are due, ensuring they are tracked and not forgotten by the time they become payable. This proactive approach helps avoid later complications.
For companies that need to factor in human resource costs to a project, a detailed cost projection is critical. Understanding the true cost of a move allows for more accurate margin calculations, which can make or break a project's profitability.
There are plenty of stories in global mobility where companies won what seemed like profitable contracts, only to see those profits eroded by unexpected employment costs, particularly from unbudgeted benefits and taxes. Cost estimates help avoid such pitfalls.
Tracking costs and understanding where they are incurred enables mobility teams to evaluate cost-saving opportunities and provide businesses with data to measure the return on investment (ROI) of their moves. For businesses, this information is valuable for strategic talent placement and long-term planning.
While tracking costs can be complex due to multiple payers and providers, it’s crucial to compare projected costs with actual expenditure. This comparison reveals whether additional spend resulted from poor cost control or was genuinely necessary, providing insights for future policy adjustments. For business-driven moves, understanding actual costs offers a clearer picture of the ROI.
Cost estimates remain a practical way to maintain control over the expenses involved in mobility.