Commuter assignments are one solution to getting your talent to where it’s needed, when it’s needed. But does it come at a price? Barry Rodin, Chief Economist at ECA International, reports on findings from ECA’s recent commuter assignment survey.
Recruiting and retaining employees who can adapt successfully to living and working abroad in addition to having the right technical skills has always been a challenge for international business. Using different international assignment types alongside the traditional long-term approach can give companies greater freedom to match the needs of the business with that of the individual. One of these is the international commuter assignment about which ECA recently conducted a survey: International Commuter Assignments and Business Trips. Below we look at highlights from the survey findings.
A minority practice growing in popularity
Almost half the companies ECA surveyed anticipate commuter assignments increasing at a faster rate than their total assignee workforce over the next three years. This figure is significantly higher among industries, including engineering, construction and mining, where increased project work in high-growth emerging markets is anticipated.
A quick response that can remove barriers...
Fulfilling temporary needs such as projects or mergers is by far the biggest reason for companies to send employees on temporary commuter assignments with 84% citing this. While this was the third most common reason for a permanent commuter assignment (31%), providing a solution to barriers to mobility is the principal reason behind this assignment type: just under half said they used permanent commuter assignments because they facilitate international mobility given employees’ personal circumstances. Nearly 40% of employers report that such assignments are initiated by employees preferring this arrangement to relocating the whole family.
For companies the biggest advantage of using commuter assignments is that they are more likely to be accepted compared with offers of traditional expatriate assignments. A further advantage is that strong links with the assignee’s home country company can be maintained which can help to mitigate post-assignment career concerns.
...but compliancy is a major challenge
Taxation and other compliance issues such as immigration and visas, complexity of administration and time lost through commuting are cited as the top three challenges for both types of commuter assignment. Clearly the advantages that come with being able to get an employee into a location quickly need to be balanced against administrative concerns. To ensure acceptable return on investment, not to mention staying the right side of legal, these need
to be addressed effectively. However, a common theme emerging was that responsibility for the process of managing commuter assignments was often devolved throughout the organisation – only serving to make compliancy even more challenging.
Feedback from participants confirms that compliance and taxation challenges can be overcome a) if the assignment length is managed taking into account job responsibilities and tax laws in the host and home countries and b) if procedures are in place to track assignees while on assignment, including allocating responsibilities to HR teams for specific tasks.
Overcoming challenges: managing length
Nearly three quarters of participants managing temporary commuter assignments were able to give information on the typical minimum and maximum length of their commuter assignments. 50% vary the assignment length according to home/host country tax regulations – a clear demonstration of the importance of the taxation issue. But what happens should that predefined period be extended?
Nearly 60% report that they have a specified policy if the assignment is extended beyond the normal maximum length. Of these over a quarter would convert to normal expatriate terms and conditions. Where this results in a change of assignment status (e.g. from unaccompanied to accompanied) normal practice is to review the provision of benefits and calculation of specific allowances including cost of living.
Discretion is applied by a quarter of companies who will review business or personal circumstances (e.g. taxation, project progress, employee’s agreement) when determining whether to extend the assignment. Any impact on costs, including any change in home or host country tax liability will also be taken into account.
Overcoming challenges: Tracking
90% of companies track their assignees citing the need to assess taxing liability and assisting with corporate compliance as the main reasons for doing so. Determining responsibility for tracking is integral to the success of this already difficult activity but for both commuter assignments it is almost as likely for one function to be involved as another, reflecting their ad hoc nature. Tracking methods vary and include using a centralised travel booking system, software to record days or assignee travel diaries.
Financial and emotional costs
Although expenses typically associated with relocating a family abroad are reduced or eliminated through the use of commuter assignments there are a number of costs that can offset these savings. These include higher travel costs due to frequent trips home; subsistence expenses (which cover local living costs in full, whereas cost of living adjustments included in expatriate packages compensate for the difference in living costs between the assignee’s home and host country); the relatively high cost of short-term rental agreements such as for serviced apartments. This is not to mention the less cost-effective situations that could result from a temporary assignment being extended if this is not managed properly: per diem rates for example may be a more practical arrangement for shorter term commuter assignments but after six months may no longer be appropriate. Additionally, there is the impact that activities related to these assignments, such as tracking, have on time and resources.
The chart opposite compares temporary commuter and expatriate assignment costs for Hong Kong to Shanghai. The annual cost of a temporary commuter assignment for a single person is comparable to that for a traditional expatriate assignment over the same period of time for a couple with two children. In this example it is clear that any savings made by not having to provide education are outweighed by subsistence and flight costs.
Results from the survey suggest an awareness of the cost traps of such assignments. Just 14% cited that commuter assignments reduce costs compared with traditional assignments. Company culture and business needs no doubt play a role in weighing up the advantage of flexibility against potentially higher costs.
And the emotional costs? While commuter assignments may alleviate disruptions to partner careers, children's education and other family commitments, considerable pressure can be put on the family nevertheless. Stress on assignees’ personal relationships is a concern for a quarter of employers managing both types of commuter assignments and the most commonly cited employee challenges among employers managing temporary commuter assignments are time lost through frequent travelling (42%) and stress and fatigue (40%).
Consistent and cost-effective outcomes?
Commuter assignments offer a means of providing pragmatic, practical and flexible support to international business. However, this can come at a cost particularly since their very ad hoc nature leads them exposed to the pitfalls that come with a lack of centralised coordination. If these assignments are to deliver consistent and cost-effective outcomes that comply with fiscal and immigration regulations, rigorous management and co-ordination between HR and line managers responsible is essential.