CONVINUS Global Mobility Alert - Week 20.2024

BEST PRACTICE PART 2:

BEST PRACTICE PART 2: "NET-NET APPROACH" (BALANCE SHEET) REMUNERATION APPROACHES FOR SECONDMENTS FRIEDERIKE V. RUCH, CONVINUS Part 2: "Net-net approach" (balance sheet) In our series on the remuneration approaches for secondment, we present the various approaches used in practice. After presenting the so-called "home country approach" in the first part, we will now look at the socalled "net-net approach" in the second part. The "net-net approach" is intended to protect the posted worker from cost differences in the country of assignment. This approach is considered an extension of the "home country approach" and is the most popular alternative as a remuneration model for posted workers. This approach is based on the employee's remuneration in the home country and compares this with the necessary remuneration in the country of assignment, whereby the standard of living remains unchanged. With the help of the so-called "balance sheet calculation", the costs in the home country and in the host country are calculated individually and the cost of living adjustment (COLA) is determined in this way. If, for example, rental costs in the host country are significantly lower, this can reduce the employee's remuneration to a certain extent. The target figure for a typical "net-net approach" is therefore the income that would have been available if the employee had remained in their home country after deducting costs that cannot be influenced. This is the disposable income and is calculated by deducting from the gross annual salary the costs such as taxes, social security contributions and rent that would have been incurred if the employee had remained in their home country. When calculating these deductions, companies either use lump sums or take into account the employee's specific individual situation. The proportion of disposable income that is usually used for consumption purposes is generally around 80 per cent of disposable income and is adjusted by the cost of living index. Until a few years ago, companies generally only made this adjustment if the cost of living in the country of assignment was higher than in the home country. In practice, the number of companies that also apply a negative cost of living index has now increased significantly in some cases (depending on the country and sector). 6 convinus.com

BEST PRACTICE The posted employee will receive this calculated net salary during their posting, so that the posted employee always knows exactly what financial resources are available to them. However, the calculated net salary must be adjusted taking into account the host country-specific requirements for a specific remuneration structure (taxes, social security, etc.) in the country of assignment, i.e. extrapolated to a gross salary in the currency of the country of assignment. Example Peter Müller is a Swiss citizen and is to be seconded from Zurich (CH) to London (UK). His gross annual salary in Switzerland is CHF 100,000 and he would like to know how much he would earn during his assignment in London. The HR department uses the "net-net calculation" to determine the net salary in Switzerland (CHF 65,000) and adjusts this for the cost of living, which is higher in London than in Zurich, resulting in the new net salary. According to the calculation, the HR department informs Mr Müller that his net salary during the assignment in London is CHF 68,000. 7 convinus.com