Compensation systems always fulfill a variety of tasks in companies. With the assignment of employees abroad, this range of tasks increases once again, or rather their importance and complexity increases significantly. Therefore, it is important to adjust the remuneration of the assignment to the respective requirements in order to create the best possible basis for the assignment abroad on the part of the company as well as on the part of the employee.
Paying for the work performed by an assigned employee is much more than just a monthly transfer of money. Behind it there are many, sometimes complex considerations but also enormous potential for design. The reason: nowadays, employees want to be able to identify with their salary package, and companies have long since also been living out their philosophy in the area of remuneration and benefits. Of course, this also and even more so when employees are assigned abroad. Therefore it is important to create a salary package that meets all requirements. With all the individual design options available to companies, there are four building blocks that are essential for an optimized compensation program.
When an employee is deployed abroad, his or her previous salary is usually supplemented by additional components. No matter whether these serve to cover costs caused by the assignment or as a simple incentive or compensation for additional expenses, each salary component should be carefully planned and worked out in terms of amount in order to meet the employees’ requirements on the one hand and to avoid unequal treatment on the other and not to lose sight of the cost structure.
Various compensation concepts can be applied in the context of foreign assignments. However, regardless of whether it is a net wage agreement, direct tax assumption or allowance model – all concepts must be in line with tax law and not only in Germany, but also in the respective host country. And even salary components that are not related to the assignment (e.g. stock options) can be influenced by the employee’s place of residence or place of payment. All these factors must be taken into account in advance to protect employers and employees from unpleasant surprises later on.
Assignments often pose great challenges for the employees in a company’s payroll department. For example, it must be checked whether salary components paid for the assignment are actually part of the salary, whether they are tax-free or taxable and to what extent any existing double taxation agreements have an influence on the employer’s obligation to withhold income tax. However, various tax calculations, such as the determination of the gross wage in the case of a concluded net wage agreement, must also be carried out professionally. Finally, the German wage accounting must also be coordinated with that of the foreign host company in order to prevent double taxation. All this requires careful planning and the necessary know-how.
Employees who go abroad on behalf of their employer expect to continue to be socially protected. For the employer this expectation means an enormous obligation and possibly high liability risks, should errors occur. How the employee is positioned in terms of social security law depends primarily on the duration of his or her foreign assignment and the country of assignment. The contractual design and further necessary steps are also based on this. In which social security system is the employee to be insured? Is an A1 certificate to be applied for? Is there a social security agreement in place and what are the consequences? All these considerations and checks must be carried out at an early stage to be on the safe side.
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.