Traditionally, an expatriate will accept a short-term or long-term assignment, and upon assignment completion, they’ll either return to their home country or onwards to a new destination. But sometimes, an assignment can turn into a permanent position in the host country, and the company will decide to shift the employee from their assignment package to local pay, terms, conditions, and benefits. In mobility-speak, we refer to this as “localizing”, and there are a couple of different strategies to make this transition, depending upon the employer’s goals (or, in some cases, the employee’s).
While many companies lack a formal policy or guideline to handle localization, we expect to see this trend shift as localizations rise – whether employee or employer-initiated. After all, mobility leaders prioritizing cost-containment in 2022 amid the soaring costs of relocation, and remote work preferences are forcing organizations to embrace flexible working models. Localization can help meet these objectives, and more!
So here is your crash course on “going local”: the most common localization strategies and best practices for overcoming the challenges typically associated with transitioning employees to a local model.
Formal Localization Approaches
Many factors will impact the structure and timing of a localization package, such as the destination location, the nature of the assignment itself, family circumstances, the position of the employee, and whether the decision to localize was employee or company initiated. But most generally, companies approach localization by removing the employee’s assignment benefits immediately or phasing out allowances/benefits over time (typically after 2 or 3 years, with a scale back starting from 100% of the allowance amount in year 3, and decreasing to 66% in year 4, 33% in year 5, and no allowance by year 6). It’s worth noting that most companies carrying out an immediate localization may provide the employee with a buy-out payment.
Local Plus
Local Plus is a great strategy if the assignment’s intent is more permanent (suggesting that localization is part of the endgame). In a Local Plus program, the assignment starts with a local salary and benefits, plus allowances to gradually ease the adjustment to the new location. This allowance will typically help cover benefits such as housing, education assistance, home leave, or spousal assistance. The “Plus” component is offered for a fixed period, then may be gradually phased out. In our experience, a Local Plus package tends to work well when the two locations are comparable, and the standard of living is similar. This is why they are frequently offered for assignments – or as a recruitment tool – within the APAC region.
Expat-Lite
Gaining popularity as a cost-containment solution, many companies are exploring “Expat-Lite” models, which work by trimming traditional expatriate benefits, but remaining on a home-based model. For employees on an expat-lite package, the intent is to integrate them into the local (host-country) market structure for the duration of their assignment. Expat-Lite is an easy-to-administer, low-cost relocation solution, but employers beware, they’re not suitable for everyone. Due to the “lite” support in terms of benefits and allowances, this strategy would be risky (and the support may be insufficient) for a high-earning executive or a family with unique needs. For this reason, companies tend to provide Expat-Lite packages to employees on developmental assignments (generally younger, single talent), often with the intent to localize the employee after 2-3 years as an assignee.
Localization Challenges & Best Practices
The challenges associated with localization range from quality-of-life issues to adequate medical care to tax and pension programs. Furthermore, with so many companies handling provisions on a case-by-case basis, consistency and compliance are ongoing challenges.
Best practices need to reflect the organization’s culture and specific assignment objectives. Still, all companies would be wise to keep the following in mind when developing a Localization or Local Plus policy:
- Overcome resistance to relocation due to family issues by ensuring your policy is generous enough and provides the necessary services to support a successful localization.
- Ensure immigration and visa requirements are in place to support localization.
- Consider the impact on pension and other benefits and ensure they are comparable while easing the administrative burden associated with reporting.
- Evaluate the cost-of-living differences between home/host and consider how long the assignee has been or will be on assignment.
- Offer tax counseling and preparation services for at least the transition and post-transition years.
- Consider providing educational allowances on a phased-out basis if the host location does not offer comparable public schooling.
- Use lump sums (conservatively and wisely) to increase policy flexibility, and empower assignees to cover additional expenses without administrative burden but carefully evaluate the tax ramifications.
Ready to learn more about how to structure a localization strategy that fits your company culture and mobility goals? Talk to us!
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