[EXPERT POINT OF VIEW] Charles Pirat

Mobility programs - The necessary process of cost optimization

As the world prepares for a sustainable recovery from the Covid-19 pandemic, companies operating internationally are forecasting that they will achieve or even surpass their 2021 targets.

Not all sectors have been affected in the same way. Some have flourished. Others have had to reflect on ways to transform their organization to remain sustainable. Here we explore some means of optimizing procedures and costs, especially the hidden costs.

Program costs: Find the right way to support your staff

Set goals, analyze needs

To work on optimizing international mobility and the resulting costs, it is crucial to think about how the whole process is organized.

The main reasons that lead companies to rethink the organization of mobility are:

• the company’s financial development and cost optimization;
• talent attraction and retention;
• optimization of the global international mobility program.

While benchmarking or comparative analysis are important, they do not necessarily suffice as a guide to improving the organization of international mobility. Taking company culture into account results in an appropriate model, thereby avoiding disappointment at the implementation stage.

The analysis of international mobility management remains important to allow the company to make comparisons with its competitors and its industry. But are the changes intended to align the company with its competitors or to offer differentiation?
As such, we should not be asking where we are, but where we should be going and how we can initiate transformation.
 

Management of exceptions - compliance with applicable mobility policy

When exploring cost optimization, requests for coverage of expenses not included in the mobility policy need to be considered. They must be reduced, which requires the deployment of regular and appropriate support.

This could include reducing cases of local subsidiaries seeking to encourage additional allowances, or on the contrary to unreasonably influence a reduction of mobility allowances in order to save on budgets, which could affect expatriates’ performance assessments.

The handling of policy decisions is only effective if systematic monitoring and analysis apply, with management approval. This ensures that each request for an exception is reported to the mobility service, which then decides whether or not to cover it, and can also take stock of recurring requests in order to adapt mobility policy.

Properly managing and complying with policy allows companies to achieve significant results:

1. setting the right policy in correlation with the right business, and improving mobility;
2. ensuring that the costs of each investment are appropriate, coherent and transparent.

In the past, mobility policies were based on short- or long-term assignments. And while duration is important, the ability to differentiate between why, what and for whom allows mobility professionals to create value in their discussions with talents and to anticipate project planning with business lines. This then allows international mobility services to anticipate rather than to react.

Setting employees’ salaries and allowances is essential. Variations in salary and cost of living between the departure and host countries must be properly taken into account to avoid frustrations and to stop employees leaving to work for competitors.
A poor approach to compensation is an obstacle to talent retention and can therefore affect the global indirect costs of the assignment.

Establishing an optimal international mobility program
Take the whole chain into account

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Cost optimization examples: tax and social security

Among the areas to concentrate on for cost optimization, many should be carefully analyzed as they include hidden costs. This is notably the case for taxation regarding the type of employment contract, housing, pensions, social security, business trips and management of exceptions.

1. Impact of tax rates depending on the type of employment contract

An assignment’s setup can influence taxes and social security costs. There are several options: local, local plus, expatriate.
Examining the costs of these different approaches by planning taxation and fees can be useful.

A company is looking to transfer a talent to their headquarters in London. The employee will need local housing and will keep their main residence in the Netherlands.

If they arrive in London on a local contract, they will pay high taxes: the tax rate will increase to 87%.

However, if the project can be set up as an assignment, housing is not taxable.

Therefore, if housing costs GBP 5,000 per month for 20 months, the company will save GBP 87,000 in tax for 1 employee over this period.

The employment contract offers possible cost optimizations in terms of tax when it is carefully examined and adapted to the employee’s situation.
 

2. Tax equalization

Tax rules and exemptions apply to expatriates working abroad. They can be identified in advance and are a further route to savings.

The tax rate for transferring an employee earning EUR 150,000 net per year with tax equalization in the Netherlands is estimated at EUR 290,000 per year.

If the employee’s tax rate is correctly applied, this can reduce the amount to EUR 227,000. Tax planning can reduce costs by EUR 63,000 per year, amounting to savings of EUR 189,000 for a 3-year assignment.

Many countries use local tax systems to attract talents. Tax equalization is also beneficial for the employer.

Note, however, that you are advised to seek specialist support as both the duration of the employment contract and certain specific applications in the host country must be taken into account.

3. Social security

A local contract very often involves payment of social security charges in the host country; with the employee potentially subject to parallel payments in their home country. As social security costs vary from one country to another, the employee’s situation should guide you in your choice of healthcare system.

CONCLUSION

Companies should optimize their organization by working on process efficiency, allowing them to make savings at global level.
To do so, a structured and sustainable approach must be adopted. The changes that this requires demand both clearly defined goals and support from management, which will allow progress in potentially difficult situations.

Further, undertaking a full review of a mobility program requires total transparency from all subsidiaries. It is essential to train and involve all company stakeholders and managers in order to ensure engagement to make the operation effective. Financial resources and time will also be required to make the desired transformation.

These transformations are not applicable in all sectors, but it is important to bear in mind that all roles are interdependent; a broader analysis will allow greater optimization.

It is clear that in the future, mobility programs will be increasingly digitized, with systems and processes allowing talents and business leaders to apprehend the value of an assignment with full transparency.

Lastly, it is crucial to maintain focus on the long-term value of transformation, rather than on price alone, in order to assess final optimal costs. This makes it easier to identify hidden costs.
 

About Santa Fe Relocation:

Santa Fe Relocation supports companies in the management of their employees’ international assignments by offering tailored solutions and cost optimization programs. Santa Fe’s services are specially designed to assist employees and their families, in line with each company’s mobility policy. “In order to provide a full range of services, it has its own global mobility management departments in Relocation, Visa & Immigration and International Removals services.
“Quality and customer support will always be our main priorities.” This has made Santa Fe a key player in providing international mobility solutions. “Our global presence gives us the means to meet your needs in all countries. From any country in the world to any destination, Santa Fe Relocation chooses the most appropriate mobility solution for your needs.” www.santaferelo.com