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BUS 681 Ashford University Online Expatriate Pay Discussion

BUS 681 Ashford University Online Expatriate Pay Discussion

Question Description

I’m working on a writing discussion question and need an explanation to help me study.

I’m in need of 100 word responses to these four discussion post. 

Discussion 1 

Determining expatriate pay is very important for any business operating internationally. There are three things that they must consider when creating a plan of attack for these compensation packages. The first is home country-based pay. For example, is this employee’s home country the United States but they will be working in Japan for a year? According to our text, “The home country-based pay method compensates expatriates the amount they would receive if they were performing similar work in the United States. Job evaluation procedures enable employers to determine whether jobs at home are equivalent to comparable jobs in foreign locations based on compensable factors. How does location create differences in jobs that are otherwise considered equal? One example may be that foreign-language skills are probably essential outside English-speaking countries. Adjustments to expatriates’ pay should reflect additional skills” (Martocchio, 2017). The home-based approach has an easier reintegration as far as finances are concerned when they return to their home country. It is fair because it keeps up with the normal pay, taxes, and compensation as though they are home, so they have no surprises when they return. Likewise, because it offers easy reintegration, it also promotes mobility because the likelihood of hassle is minimal. Some disadvantages to this option are that there are no ties to the local national salary structure. If the person happens to be working somewhere with better pay or compensation than what they are getting at home, they will not get to partake in those bumps. It also creates segregation of employees on a pay level. One person doing a job will not be paid equal to someone else which could cause some discomfort at the basest level. There is also the disadvantage that with the more countries involved, ten employees in ten different locations, for example, the more complicated the plan becomes. According to ECA International, this plan works best for “fixed-term assignments, between two countries, to achieve equity with home country pers and when the assignment specifically calls for this compensation step” (Breninkmeijer, 2020).

The second option a company must consider is the host country’s compensation and pay status for similar performance. According to our text, “The host country-based method compensates expatriates based on the host countries’ pay scales. Companies use various standards for determining base pay, including market pricing, job evaluation techniques, and jobholders’ past relevant work experience. Other countries use different standards. For instance, the Japanese emphasize seniority. Expatriates’ base pay will be competitive with other employees’ base pay in the host countries, and companies may be seen as more legitimate employers by following local norms” (Martocchio, 2017). The pros for this option are that it’s consistent when treating the assignees from multiple countries working in the same international location, simple to administer for people coming in and out from multiple locations, has some cost-saving options that other approaches may not have. The disadvantages are it’s harder to bring them home because they are not connected to the home-based process, they may not be getting the same standards of living that they were getting in their home location, has polarizing results where people either love or hate the approach. According to ECA International, “Using the host-based approach tends to promote moves into countries with higher, or at least similar, salaries compared to the home country as employees are more likely to accept a pay rise than a pay cut. A company that operates in a broad range of countries may therefore find itself with “good” and “bad” postings if using the host-based approach. This system can also inhibit repatriation as employees may be reluctant to return to a lower-salary home country” (Harrison, 2020).
The third alternative that businesses must consider is the headquarters location. Back to the original example of an employee working from the United States in Japan. Consider now, that the assignment in Japan will be followed up by one in South Korea and then on to Ireland, England, France, and then Germany. Creating individualized plans for this situation would be taxing, to say the least. So, to avoid having to create so many alternatives, a country may just consider following the Headquarters Based Compensation Approach. According to our text, “The headquarters-based method compensates all employees according to the pay scales used at the headquarters. Neither the location of the international work assignment nor the home country influences base pay. This method makes the most sense for expatriates who move from one foreign assignment to another and rarely if ever, work in their home countries. This system is administratively simple because it applies the pay standard of one country to all employees regardless of the location of their foreign assignment or their country of citizenship” (Martocchio, 2017). One of the pros of this option is that no matter what country they are located in, their pay and benefits stay the same. They have a standard to work with and this allows consistency. These are easier to reintegrate back into their home country because nothing has changed from one place to another. The cons are that nothing changes. While this is a pro, it can be a con. Since these types of employees are likely moving to multiple locations, there are going to be times that they are in locations that have better benefits than the headquarter packages, but they will not have access to. Likewise, they’ll be in locations where the living expenses may be higher and therefore, they are not going to be able to spend as much because their wages did not change. Furthermore, they may have to pay higher taxes than those around them because they are working in a country with lower pay rates than what they are making, therefore they are coming across in a higher tax bracket than those around them.
The Human Resources team is responsible for determining what the overall policy strategy for the treatment of expatriate tax matters will be. This includes the consideration of tax equalization, tax protection, laissez-faire situation, and on-demand needs. They create hypothetical tax situations to ensure the proper taxes are being withheld in compliance with both the home and host country regulations. The result of this is that the expatriate will neither gain a windfall nor will they suffer undue taxes as a result of their assignment. According to Mercer, “Hypothetical tax, which is subtracted from base salary and retained by the employer, approximates the amount that would be paid by home-country peers at a comparable salary level and family size. For practical purposes, making a hypothetical deduction is easier than calculating the assignee’s actual tax liability, which requires details of the family’s financial circumstances. The employer uses hypothetical tax to pay home- and host-country taxes. If foreign authorities prohibit an employer from paying assignees’ foreign taxes directly, assignees are then responsible for payment (with reimbursement by the employer). The expatriate may also be responsible for home-country tax payments on non-company-source income (such as investments)” (2021). Things that are considered for this hypothetical tax are income, family size, allowable deductions subtracted from income, allowable exemptions also subtracted from income, gross tax rate, applicable surcharges, and possible tax credits that may apply. 

Resources
Brenninkmeijer, C. (2020 Sep 9). Mobility Basics – The Home-Based Approach. Retrieved from ECA International. https://www.eca-

Discussion 2 

Home Country Based Pay 

The home country based pay method encompasses several things.  It basically compensates international employee’s for completing the same type of work in the United States.  The assignments are usually shorter in term and their compensation is based on the comparisons of their home country standards and the country’s local cultural norms may play a significant role in judging the fairness of the compensation and pay.  For example, at my organization we have global job assignments across Japan, Europe, Canada etc.  The international employee’s that come to work in the U.S. for their short term assignments as EA’s and analyst, receive the same compensation and pay benefits as a domestic EA or analyst with the exception of the EA’s that work for our Japanese leaders.  They usually speak fluent English and Japanese which grants them a smaller increase in compensation.

Headquarters Based Pay

The headquarters-based method provides equal compensation to all employee’s working at a headquarters location utilizing their compensation practices and pay scales.  This pay method is easy to administer and does not consider differences such as cultural influences including speaking the language.  For example, the international employee’s that can move through several different global assignments at Toyota’s Japan headquarters, Canadian headquarters, European headquarters, they would all receive the base pay of that specific headquarters location.

Purchasing Power

The purchasing power method has the capability to lead to a lower cost of living for the international employees.  “Diminished purchasing power undermines the strategic value of expatriates’ compensation because top-notch employees are probably not willing to settle for lower standards of living while stationed at foreign posts.” ( Martocchio, 2017, sec. 13.4)  Since the employees are moving from place to place, they may settle for less that quality living conditions due to them and their assignments being more short term. being their shorter term.

Host Country Based pay

The host country-based method provides pay based on the host countries pay scales.  While companies like Toyota utilize market rates and pay ranges for compensation, other companies may utilize other varying factors such as job skills, work experience or education as a basis to determine pay.  This type of method is more significant with longer term global assignments. (Martocchio,2017, sec. 13.4)

Taxes for international assignments can be very complex.  The employee is responsible for paying taxes in the host country and if they are a US citizen, they also have responsibility to pay taxes in the U.S.  The internal revenue service has specific provisions for these taxes that could potentially make the impact less costly.  These provisions are surrounding the employee being able to receive a tax credit on whichever tax is the highest to pay or an exclusion to be made depending on if the employee hits the maximum targeted amount they can earn by the IRS standards. (SHRM, 2016)  In addition, state taxes can also have an implication especially due to residency requirements by each state.

Martocchio, J.J. (2017). Strategic compensation: A human resource management approach (9th ed.). Pearson.

Discussion 3 

I chose japan as my country of choice to discuss.  The compensation and benefit practices have some significant differences.  

Compensation:

In Japan,  the compensation that employer’s pay will vary between the country’s regions.  The wages offer may begin on the lower side of the pay scale for compensation, however they do offer attractive opportunities for employee’s to promote into other positions to not only increase pay but to also be rewarded for their hard work.  The employees are also paid monthly instead of weekly or biweekly. (n.d.)

There are several payroll taxes that are withheld each payroll.  Taxes such as social security, resident taxes, and a labor insurance are all withheld.  The labor insurance helps to protect the employee in case of an accident. ( JMC, n.d.)  the employee’s receive paid vacation time, however it is based on seniority which is similar to some organizations in the U.S. Especially organizations who employee union workers.  For example, Toyota has union workers in the manufacturing plants across the U.S. and their pay, shifts and vacation times is based on seniority.

Benefits:

The benefits coverage are under Japan’s social security system.  What this means is that employee’s receive a social security benefit card and they are able to visit any medical facility and pay a minimal amount.  For this reason, many Japanese employer’s do not offer any additional medical benefits.  In japan, it is a mandated law that employers provide the necessary physicals and routine checkups for the employee’s.  They even have a required stress check that is mandated.  This type of benefit keeps employee’s healthy but also keeps them from worrying about extreme cost for medical benefits.  In the U.S. most companies offer some type of medical benefits at a reduced cost.  There are many healthcare providers to choose from and depending on your location, the company may have several plans that are offered.  For example, my organization offer several different medical plans because there are different carriers across the state.  The benefits are offered at a reduced rate as the company takes on most of the cost.  Within those benefit packages there are many additional benefits that are offered.  For example, with mine specialized visits to oncologist, diabetic specialist are provided at a limited cost.  The health plans in the U.S. may be a little more robust than in other countries.

Globalpedia. (n.d.) Globalization Partners. Retrieved from. https://www.globalization-partners.com/globalpedia…

Discussion 4 

China’s Pay & Benefits  

Martocchio (2017) describes China as a place where a company in the United States could open up business there and have a lower labor cost than in the U.S. Continuing to describe how businesses would stay competitive with lower prices for the consumer; they would pay lower labor and production cost to the China workforce, also giving the company more profit even at a lower competitive price. However, the Chinese government has been making adjustments to what the China workforce gets paid to close the gap created by other countries paying such a low labor and production cost to the people. The Chinese Government has been working to steadily increasing minimum wage rates (Martocchio, 2017). By doing this, other business entities doing business in China are having to raise their pay scale to workers. However, even with the pay increases in China, there still is a labor shortage. Since the country is continuously growing, there is a large need for new jobs but not enough people to fill the positions.

United States Pay and Benefits

In the United States, employees receive wages for the job they are hired to perform, and benefits are usually given aside from the hourly or salary the employee is getting. Benefits such as bonuses or life insurance and medical insurance, to name a few. Verlinden (n.d.) enlightens readers by describing that it is important to know the most important benefit for your country. In the United States, health insurance is important, but it could be something different in other countries. The important thing to remember is to make sure the business is offering competitive pay and benefits packages to continue to be competitive (Verlinden, n.d.).

Similarities and Differences

Unlike in the United States, mandatory benefits given to employees are paid for by the state. These mandatory benefits are retirement, medical care, workers’ compensation, and maternity benefits (Ximco, 2021). Ximco (2021) explains that these mandatory benefits are based on the State Social Insurance system that is managed and controlled by the government. In China, these benefits are not purchased from the private market like in the United States but are given as a social welfare system. The Welfare system in the United States is given to help unemployed persons live and feed their families. The biggest similarity that China and the United States have is that both China and the United States have been continuous, in small portions, increasing the minimum wage pay.

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