Giving mobile employees appropriate salaries as they move from country to country rarely poses a problem for an employer.
The provision of benefits - especially those such as pensions - can be far more difficult. Local laws often make it impossible for the employee to remain in the home country” pension scheme. Some employees who would like to transfer their pension entitlements from one country to another cannot do so.
European regulations dating back over a quarter of a century dictate the social security system to which an employee must belong. The application of these regulations may lead to a situation which the employee finds un-welcome. Cross-border tax complications compound the difficulties even further.
What can be done to en-courage employee mobility without such movement adding a disproportionate amount to the payroll?
Flexible benefits may sweet-en the pill for employees who cannot have their preferred choice of arrangements, as they are given the chance to “tailor” the remuneration package to meet their particular needs. Apart from helping to ensure that they have a better understanding of the total value, it may enable the employer to pass on part of the cost of providing a particular benefit where this varies markedly from one country to another.
Changes in currency, fluctuations in exchange rates, differing tax regimes and the local cost of living can ob-scure the true worth of overall remuneration. Use of a “menu” approach can help to overcome this and also en-sures that benefits which are commonly provided in any country can be matched by the employer without too much distortion of pay scales.
In a fully flexible arrangement, the employee is free to take the money on offer as he wishes - all salary and no benefits, or a completely free choice of benefits.
If this is done, one area which must not be overlooked is “notional” salary. Some benefits (such as life assurance, pensions and private health insurance) may be salary-related and (where possible) it is important to provide continuity as an em-ployee changes choices and/ or countries. It must also be borne in mind that salary re-views are normally linked to this notional salary, rather than the employee’s actual take-home pay.
Accurate, reliable administration becomes acutely im-portant in the case of notional salary. Failure to record the correct amount can lead to serious problems, which have included:
q pension contributions at the wrong level, which did not conform to the terms of the trust deed and breached local contribution limits;
q death in service benefits being insured for insufficient sums, leaving the employer to make good the shortfall;
q private health insurance being put in place at too high a level, wasting money on excessively high premiums.
Formal flexible plans are still relatively uncommon in most parts of Europe, but are gradually gaining in popularity. Such an approach may be worthy of serious consideration and may give an extra edge over competitors.