Assignee housing often features in the top 3 most expensive assignments costs after salary. With so many organisations looking at reducing assignment costs is there a way some of the cost of accommodation can be offset in the host location?
Many Global Mobility professionals are aware of how hypothetical tax goes towards offsetting the assignment tax cost. The underlying tax equalisation policy is clear with the fundamental principle being that the assignee should be no better nor worse off than had they remained at home. A clear, objective, logical, rational explanation.
So why, in the very same assignment policy, do so many organisations not apply that principle to housing? Why is a hypothetical housing figure not withheld from the assignee, equal to what they would have paid had they remained at home? This could then be used to offset some of the accommodation cost in the host location. There are a few organisations that do include something in their policy and it’s often referred to as a home housing norm but why is this not common practice?
The very definition of a home housing norm is where the difficulty starts. It is an amount that is defined as a typical cost of home country housing based on salary / grade and family size. So, unlike hypothetical tax which is objective and based on the actual tax rates in the home location, a home housing norm can be viewed as subjective as it is based on a set of assumptions resulting in an average figure and is usually set using data from an external data provider.
So, if home housing norm is so subjective why can’t organisations just deduct the equivalent to what the assignee was paying in the home location. Most assignees would fall into 1 of 3 brackets:
- Those who own their own home and would have to rent it out
- Those who rent their home
- Those that live at home with Mum and Dad.
You can begin to see how, already, this is not as simple as it would first appear.
For those that own their own home it may not be that straight forward to rent it out and if the assignee is only going for a year is it worth all the administration to set it up? In addition, who should pick up the cost of the agency fees? Then there’s always the assignee that points out that their mortgage terms and conditions do not give them ‘consent to let’. Would an organisation then be willing to help them re-mortgage their home so they can rent it out whilst on assignment?
For those that rent prior to going on assignment – the issue is potentially easier. The home housing norm could be set at the rental figure they were paying prior to the start of assignment. However, what happens if there’s still 6 months left on the lease? Would the organisation pick up the cost of the outstanding rent? Or would they only start the home housing norm once the assignee had finished paying rent in their home location? Also, when the assignee returns, is there a responsibility for the organisation to assist the assignee in finding a new rental property?
For those that live at home with Mum and Dad then the home housing norm deduction could vary enormously. How could you ask them to prove, what is often, an informal arrangement?
This could mean there are times when the home housing norm would be waived. However, this puts Global Mobility in a very difficult position between doing what is right by the assignee and delivering a fair and consistent policy. All the while trying to ensure it does not become a large administrative burden.
In our Global Mobility Survey last year perhaps it’s not surprising to see that over 80% of those organisations surveyed did not deduct a housing norm.
I have worked for organisations that do both. Some that take a deduction equal to an average figure from data provided by an external provider, but most have not wanted to discuss home housing arrangements with the assignee and have left them to their own devices. When I worked for the organisation that did implement the home housing norm I found the long and detailed explanations to the assignee, the protracted negotiations over the figure, the administrative cost of putting through any exception, or dealing with any issues following the rental of the home country housing did not seem worth the administrative burden for the cost savings gained.
Having said that if you are putting together an assignment policy for the first time within your organisation it is worth at least considering it. However, be sure to establish a clear set of guidelines on how it is calculated and when it would apply. In addition, be equally clear on when it would not apply including:
- When there are older children remaining in the home location
- If an assignee needs to retain a home residence for immigration and/or tax reasons
- If it is not possible to rent out the home property due to the mortgage terms and conditions including what paperwork would be required to prove this.
If the decision is made to include it in the policy, it is worth tracking all the exceptions where the housing norm is waived to ensure the administrative cost is worth the financial gain.
Are you starting out on the Global Mobility route yourself or know of someone within your organisation that deals with expats and would like to have a greater understanding of assignment policies? Then why not join us at our next GloMo Training – Global Mobility Policies on 11th December 2017. Click HERE to book your place.