Sending employees abroad to work as expats is a great way to kickstart your international growth strategy, but it requires detailed planning and preparation.
While there are some drawbacks to relocating your employees to a new market, sending talent abroad can help maintain consistency and continuity for your business.
This guide defines what an expat is, why companies might send expatriates to new markets, and the pros and cons of relocating talent abroad as part of your global expansion strategy.
What is an expat?
An expat, or expatriate, is an individual living and working in a country other than their country of citizenship. For example, when you send an employee from your local headquarters to work for you in another country, they are considered an expat during the time they live and work there.
Similar to long-term relocation, sending talent abroad for short-term business assignments is also a form of global mobility—but that’s where the similarities end. While companies often send talent on international trips to explore business opportunities, an expatriate is different because they relocate their lives to the new country, often taking their families with them.
Expat vs. emigrant
An emigrant is someone who leaves their home country to pursue permanent residence in a new country. Meanwhile, an expat is someone who lives outside of their home country, often for work purposes. An expat doesn’t always intend to stay permanently in their new country, whereas an emigrant typically does.
Why do companies use expatriate employees?
Companies use expatriate employees as part of their global expansion strategy to reap benefits such as business consistency, expertise continuity, and overcoming talent shortages. We discuss the advantages of using expats below.
Consistency
Expatriates bring local office culture and processes to a new international location, helping ensure workplace consistency across markets.
Since expats are existing employees, they offer deeper business understanding—a crucial component when establishing a new office in a new country.
Expats also offer greater protection for intellectual property safekeeping; sharing business secrets with new international employees could compromise a business’s competitive edge.
An expat working in a foreign office also maintains communication that is consistent with other markets where the business is located. An open line of communication with an expat in a new market makes it easier for domestic teams to do business with their foreign operation.
Company-specific expertise
Employees chosen for international relocation often hold higher positions in the company, which means their company-specific expertise is valuable to the employer. Rather than spending time recruiting, onboarding, and training a new international hire for a critical role, employers often choose to relocate existing employees abroad to maintain continuity and hit the ground running.
Talent shortages
Expanding to new markets benefits businesses by allowing them to reach new customers, diversify their market, and explore more cost-efficient ways of doing business. However, finding top talent in new markets can sometimes prove challenging if that market has a talent shortage.
In fact, according to The Manpower Group, 77% of employers around the world report difficulty in filling roles. Rather than competing for qualified local talent in a market with a talent shortage, companies may send expats to expedite their launch in a new country.
Utilizing existing talent also helps companies ensure they have the right talent and skills they need in a new market.
Challenges of using expatriate employees
Transferring employees abroad also presents challenges to employers, such as enduring high costs, managing work permits and visas, and providing additional health and wellness support to relocated talent. We discuss these challenges in detail below.
High costs
Relocating talent or hiring expatriates as part of your global expansion strategy typically comes with higher costs than hiring local employees in a new country. The higher costs stem from the salary and benefits expectations of expatriate employees.
For example, while equivalent job salaries and cost of living in your target country may be lower than it is in your home country, expat employees could expect to receive the same pay as their fellow colleagues in your home country. As a result, relocating talent abroad or hiring expats versus hiring local talent leads to higher costs for your company.
Relocated employees also expect and should receive additional expat benefits to accommodate their relocation and acclimation to a new country. These benefits include:
- Relocation costs
- Housing benefits and allowances
- Family benefits, such as schooling and childcare
- Language classes
- Cultural training
Tax equalization
In addition to comparatively higher salaries and expat employee benefits, most companies use tax equalization to ensure that both their local and expat employees have the same tax burden.
When a company uses tax equalization, they calculate what the employee’s tax burden would be at home and deduct it from the employee’s paycheck at regular intervals. The company then pays the employee’s actual tax burden in the country where the employee resides.
In countries where the tax burden is lower than the home country, the company may save money. Tax equalization programs ensure that employees who are sent to work in foreign countries don’t experience significant tax-related disadvantages due to their international assignment.
While tax equalization programs can be beneficial for employees, they also pose compliance challenges for companies that expand abroad, including the following:
- Complex tax codes. Because countries have varying complex and ever-changing tax codes, tax equalization requires the company to understand and comply with the tax laws of both the home country and the host country. This is a daunting task, especially when dealing with multiple international locations.
- Record keeping. To ensure accurate tax equalization, companies must maintain detailed records of employees' compensation, benefits, and tax payments in both the home and host countries. Keeping track of these records is administratively burdensome and may require specialized software or services.
- Reporting and filing requirements. Compliance with tax laws often involves reporting and filing requirements in both the home and host countries. Failure to meet these requirements leads to penalties and fines. Companies expanding abroad keep up with these varying requirements and deadlines.
- Exchange rate fluctuations. Exchange rate fluctuations can impact the calculation of tax equalization. Companies may need to adjust their calculations to account for currency fluctuations, which can add complexity to the process.
- Changing regulations. Tax laws and regulations are subject to change, and international tax rules can be particularly fluid. Companies must stay informed about changes in tax laws and adjust their tax equalization programs accordingly.
- Cost considerations. Tax equalization programs can be expensive to administer, especially if they involve complex tax planning and compliance efforts. Companies must carefully manage the costs associated with these programs to ensure they do not outweigh the benefits.
Visas and permits administration
Like tax laws, immigration laws and work visa requirements vary from country to country. The process for obtaining the appropriate visas and permits for expats takes time and research, which can put a strain on legal and HR teams that don’t have the international expertise or bandwidth to take on these tasks.
Companies that want to relocate employees to new markets must account for additional administration tasks, like securing and renewing work visas and permits, to maintain compliance when relocating talent or hiring expats in another country.
Ongoing wellness support
Expatriate employees who relocate abroad face stressors they wouldn’t normally need to manage in their home country. From learning a new language to navigating new cultural norms, the relocation process is lengthy and challenging.
Companies that want to support and retain their expats often offer supplemental benefits to help their employees avoid stress, burnout, and dissatisfaction in their new location. Wellness benefits packages that include relocation assistance, flexible work hours, additional paid time off, and additional healthcare programs assist in relieving expats’ stress.
Simplify talent relocation and expat hiring with an EOR
Utilizing expats is a great way to expand into new markets. Expats carry over your current culture, knowledge, and processes, making it a smoother transition to expand overseas.
Still, relocating talent to new markets poses challenges and compliance risks for organizations unfamiliar with international employment, immigration, and tax laws.
Eliminate the risks and simplify employee relocation with Velocity Global.
As part of our Employer of Record (EOR) solution, we help your company navigate the entire relocation process, from consulting on your global mobility needs to securing the appropriate visas and ensuring full compliance with international employment and immigration laws.
We also handle payroll, benefits administration, and ongoing HR support on your behalf so you can rest assured that your talent is fully supported—no matter their new location.
Discover how we helped ConsenSys, a global blockchain technology company, rapidly transfer top talent from the U.K. to Switzerland in under three weeks.
Or contact Velocity Global today to learn how to simplify global expansion and quickly relocate talent to more than 185 countries.
