Is spilt pay the perfect solution for expatriates?

Singapore – With the US dollar-based salary in Asia coming under pressure from the credit crunch, the onus is on HR to work out the ideal solution which will benefit both company and expatriate.

Depending on the type of currency companies are paying their expatriates, exchange rates have an impact on expatriates, who either win or lose whenever the rate fluctuates. However, the current chink in the US economy is putting expatriates who are being paid in US dollars (USD), especially those based in Asia, on the losing end. While some companies may choose to stay with USD as their industry pays in USD and others choosing to pay in the host country’s currency, there is another approach.

According to Ian Ridgwell, managing director of ECA International, the single currency wage payment is no longer feasible. Instead, he recommends HR use the split pay approach, which takes into account the currency fluctuations and inflation for expatriates. Ridgwell suggests paying the expatriate 60% of the pay in the host country’s dollars and 40% in the home currency to avoid any impact from the exchange rates.

“It is living costs that expatriates worry about so whatever that is left at home is not at risk from the [currency] movements,” Ridgwell explains. “Companies should pay as much as they can in the currency where the expatriate works in because that’s where the bulk of the pay is going to be spent.”

However, the split pay methodology creates a lot of administration work for HR, admits Ridgwell. “Obviously for whichever of those policies you adopt, at some stage you have to do the [paper] work.”

HR practitioners who are considering the possibility of outsourcing this administrative work should think twice. Unlike the payroll process which can be easily outsourced, expatriates’ wage packages require more attention and more of a personal touch. Ridgwell believes companies that put a third party between them and the expatriate run the risk of alienating the employee. “They would rather talk to their company rather than someone from PwC or Ernst & Young if they are not happy with the impact from the exchange rates.”

For Ridgwell, expatriates are meant to be handled with care, from pay to every aspect of their lives. Hence, he says, “Outsourcing international HR is not possible.”