Policies, processes and best practices
Hiring foreign employees for permanent overseas assignments has long been part of how corporations do business. The reasons for hiring international foreign workers are varied; they include difficulty sourcing in-house or local talent, a drive to establish a more international workforce and cost-reduction.
The COVID-19 pandemic has accelerated this trend in recent months and changed the way some organizations operate. On the one hand, businesses have had to think differently about their workforces, finding innovative ways to access talent, which has led to rethinking global mobility. On the other, factors such as increased global mobility compliance requirements, cost-cutting measures and travel restrictions have forced changes in employee mobility programs.
These pressures have resulted in an increase in international local hires and the policies and processes involved in managing international foreign hires.
This guide outlines the various approaches to acquiring and retaining international talent and offers actionable recommendations on best practices based on our extensive experience and the latest market research.
What is an international foreign hire?
The definition of an international foreign hire can vary from business to business, including the following:
- A foreigner (a non-local employee) hired from outside the country of employment
- An external candidate recruited from another country to work permanently for an organization
- An external candidate recruited for a permanent role in a market that differs from the one in which the candidate is currently based
However, any international foreign hire will involve the permanent transfer of a locally hired foreigner on an international assignment.
Policy approaches and segmentation
Findings from Mercer's 2021 International Foreign Hires survey report suggest that establishing a formal policy framework for managing global foreign hires is a work in progress, reflecting the rising profile of this employee group.
Almost half of the 112 organizations surveyed (46%) have a policy or guidelines specifically written for international foreign hires, and a further 11% use their permanent transfer policies (which are often quite suitable for what is typically a similar cohort of employees). Of those companies without a policy in place, more than a quarter (26%) are planning to implement such a policy but have not yet introduced it, while less than one-fifth (18%) of companies have no policy at all.
A certain degree of flexibility in a company’s international foreign hire policy is crucial. Depending on circumstances, the policy may be applied, adapted or segmented in different ways. The criticality of the move is often a major factor. For instance, entitlements may be approached with greater flexibility when a strategic international leader is hired. Similarly, emphasis on certain benefits may be greater for more senior hires or for employer-initiated moves. Different business units within an organization may also have different approaches due to cost constraints, and policy decisions may differ according to the country or region hiring.
You should consider case-by-case flexibility depending on the circumstances. Nevertheless, international foreign hire policies should contain core mandatory entitlements, including compliance-related components, to ensure all policies meet a basic standard of provisions.
Policy and process clarification
Companies use various pay structures for international foreign hires. The Mercer spot survey shows almost half (46%) pay on the basis of the local market, but one-fifth of companies have adopted “local plus” compensation, and another fifth calculate it on a case-by-case basis. Only 7% pay in line with the employee’s previous or home country.
When considering compensation, organizations are often uncertain whether they should adopt a local or local-plus approach — one that incorporates additional benefits, such as housing and international schooling support. As mentioned above, we recommend that international foreign hire policies include a mandatory core level of package for consistency. However, for business-critical moves or positions above a certain job grade, a local-plus approach may offer greater flexibility to make the package attractive for the employee.
Should organizations perform cost estimates for their international foreign hires? If so, who should be responsible for carrying them out, and what should these cost estimates look like? Assuming cost control is crucial for the business sponsoring the move and cost projections are part of the international assignment process, logically, these should apply to permanent transfers as well.
If an organization uses a net-to-net compensation approach (in which costs need to be grossed up for taxes and social security in the hiring country), specific tools are available on the market for such calculations.
Given the numerous and complex compliance issues involved with international foreign hire cost planning (for example, defining the tax and social security positions), we believe it makes sense for the company’s global mobility function to be responsible for overseeing and managing cost projections.
Process and vendor management
When it comes to managing internal processes and any external providers related to international foreign hire policies — such as tax, immigration and relocation providers — there are important decisions to consider, especially if the organization has a decentralized structure. Does it make sense to continue using local country processes and service providers the organization may already have in place, or should the company engage a global vendor and move to a global approach?
Again, in terms of practicality and overall business consistency, we advise that organizations follow and implement the same processes for their international foreign hires as those already in place for international assignees. In some companies, local HR may oversee the deployment of foreign hires. In that case, HR should liaise with the global mobility function to leverage that team’s established global vendors, resources and specialist expertise.
Provision of benefits such as pensions, social security and health insurance can pose significant challenges when it comes to international foreign hires. Certain countries do not permit foreign employees to be covered under social security and pension schemes. In these cases, companies may need to consider alternative solutions. The use of an international pension plan is one possibility but may not be an ideal solution, as international plans can have certain disadvantages for the employee.
Healthcare, too, may pose challenges. To begin with, not all countries are able to offer the level of medical care foreign employees expect. At a more individual level, employees may be excluded from local private health insurance plans due to age or medical history. In such situations, the company may need to step in and provide international health insurance.
Given the importance of supporting and promoting employees’ health and well-being, consulting with the global mobility team on these issues is vital.
Allowances and entitlements
A number of entitlements and support services are typically included in international foreign hire policies.
The compliance-related elements of a package involve support with immigration and taxes and are provided by most organizations. These elements include work and residency permits for employees and their families and tax advice or support for what can be a complex process (especially in the first year, which is likely to be split between tax jurisdictions).
These cash or benefit-in-kind components help a family settle into the new location and may include relocation allowance, a pre-hire visit to the new location, shipment of household goods, temporary housing on arrival, language and cultural support, and spouse support.
Housing and schooling may be an ongoing part of a local-plus package or may be a fixed-term benefit or phased out over time.
These include alternative social security and pension schemes as well as private healthcare and other insurance coverage. As we have seen, provision of such benefits is likely to be shaped by the social security systems in the countries involved and the personal circumstances of the employee.
The Mercer International Foreign Hires survey found that 93% of organizations provide immigration assistance, with temporary housing support, relocation travel and shipment of household belongings offered by almost 80%. More than two-thirds make tax support services available, and over half provide settling-in services.
In summary - recommendations and takeaways
- If the organization has a global mobility program in place, don’t reinvent the wheel: Use the existing, tested processes for international transfers.
- If the global mobility function has service agreements already set up with specialist providers, use them. They are experts in international moves, and you may also benefit from renegotiated fees if they are dealing with greater volumes of business from the organization.
- Ensure international foreign hire policies are well balanced, in line and consistent with the organization’s other international hire packages
- Be prepared to be flexible: Managers and HR business partners know how difficult it may be to recruit the best talent.
- When assigning international foreign hire packages, be sure to consider any existing diversity and inclusion principles as well as the company’s employee value proposition.
- Establish a business case and cost-projection process to compare the benefits of alternative scenarios. This provides full transparency and demonstrates that the chosen route is the best solution for the circumstances.
- Understand the compliance and benefits landscapes of different countries and the possible risks specific to them.
- If you don’t have a suitable policy in place, establish a joint task force with all stakeholders, especially global mobility, to determine the most appropriate international hire approach for your company.
To learn more about managing international foreign hires, contact a Mercer consultant today.