I’ve recently received a number of questions from various corporate managers on the topic of host country housing. In this post, I’ve collected their questions and my answers.
Do companies typically give people their “housing ranges” based on salary level?
These days most of my clients are using “family size” as the number one criterion and the moderate tables for all assignments, with salary playing a secondary role.
When US-outbound assignees make the personal decision to sell their homes, even though we strongly encourage them NOT to sell, we do not feel that the company should provide assistance toward temporary living and/or meals and incidentals during a home leave. Would our stance be standard market practice?
Absolutely. If you indicate that you are not supporting home sale — which is the trending best practice — then it would be standard to say, “you’re on your own” for any home sale-related costs. These days there is a definite trend to taking a “laissez faire” approach to all home country housing concerns. In fact, less than 40% of companies are no longer taking a home housing deduction. The approach is that the company will take on full responsibility of the host housing, but that the assignee remains responsible for whatever he/she does with home country housing. When it comes to home leave, it is expected that the home is available for use. If the individual has chosen to rent the house, there may be an issue, but that would be treated as an exception. Most clients are recognizing that if the employee is collecting rent (read: financially benefiting) on the home country housing, then there’s no obligation to provide assistance with any expenses beyond transportation for home leave.
Is it best practice to reimburse for host country housing or better to provide a host housing allowance?
The most common approach is to provide a budget with a cap that’s based on family size. Some companies provide this budget in the form of a housing allowance in lieu of actual support and direct reimbursement. It follows the philosophy that some clients adopt as a hands off, flexible approach with minimal guidance in the form of lump sum allocations. That is, instead of providing one lump sum for everything, they provide allocations – lump sum for housing, lump sum for temp living, lump sum for household goods, etc.
The most common and supportive customer-oriented approach is to follow whatever practice achieves the greatest tax benefit. In other words, where it’s more beneficial for the company to pay directly to the landlord and/or reimburse actual rents (with documentation), that is certainly the best practice to follow. In places where it’s tax neutral, the company may just pay out an allowance if they are looking to give the assignee more flexibility in how the allowance is used. There are other considerations to factor in, such as the assignee’s ability as a newcomer to the host country to make appropriate, safe decisions about where to live and how to negotiate a lease.
According to research by Weichert, KPMG and Mercer, host country housing types are varied and dependent on a few factors. For European-headquartered companies, housing type is primarily based on family size. Asia-Pacific and US-headquartered companies look at both the family size and the seniority/position of the assignee. Nearly all companies look at tax advantages of allowance vs. reimbursement vs. direct payment to landlords and make their decisions based on the most advantageous scenario from a tax perspective.
We would like to reimburse a proportionate increase in rent corresponding to the percentage represented by the difference between an expatriate’s Housing Allowance versus his/her original monthly rent. What guidelines or circumstances would allow for this uplift would occur?
My experience is that companies use the prevailing data from cost of living data providers to determine whether an uplift or even downgrade is called for. Usually that is set at the onset of the assignment and is ONLY changed when there is a change to family size OR at the end of a lease period.
An uplift would apply if the data provider indicates that the rents for this geography have increased. The rent increase is based solely on what the company sponsoring the assignment determines to be the appropriate new allocation, not on the actual rent previously paid. Moreover, if the individual decided to go beyond the budgeted amount, that differential is not considered in the new budget. The amount should be recalculated based on current prevailing market conditions and prices only.