The financial gamble of working abroad

By Alina Dizik|

In January last year, Rebecca Self found her salary had dropped by almost 30% pretty much overnight.

It wasn’t from a demotion, cost-cutting or a corporate restructure – Self’s pay packet was slashed by a shift in currency markets, an issue that affects many expats working around the world.

Self is a leadership consultant based in Zurich, Switzerland. An American expat, she gets paid from different countries in different currencies – she’s paid in dollars through a firm in Qatar in the Middle East, and also in euro through a firm she works for in Sweden. She then converts her earnings into Swiss francs.

Because Self works on a fixed contract, which is negotiated in advance, her earnings can take a hit if one of those currencies suddenly weakens or strengthens.

And so, last year, she saw the value of the Swiss franc suddenly jump as it uncapped from the euro ceiling. If she had simply been working in Switzerland only, this would have worked in her favour — her money going further abroad. But being paid in euro meant she was making almost 30% less a month once her pay packet was converted in to Swiss francs. “Your [compensation] rates are locked down and there’s no recourse,” she says.

Self is one of many expats living abroad who juggle multiple currencies in day-to-day life. Often expats are paid in one currency, keep savings in their home currency, and pay for their shopping and bills in another.

This discrepancy turns into a gamble if one currency weakens sharply during your time overseas as this can mean a change in your living standards, benefits or savings pretty much overnight. It happened in June after the pound dropped suddenly following the Brexit vote. Many expats who earn pounds sterling in the UK, but send money back to their home countries, found themselves 10% poorer overnight.

More expats are starting to query how currency fluctuations could impact their monthly salary before even considering a posting.

Brexit has thrown a spotlight on this, says Kate Fitzpatrick, a London-based senior global mobility consultant for HR consulting firm Mercer. Some firms choose to do interim salary updates to try to offset these currency fluctuations. Most large firms have “a recalibration policy in place, or look to reassess pay when currency drops (or increases) anywhere from 7% to 12%,” explains Fitzpatrick.

Come up with a strategy before you move

Those looking for their next assignment overseas are in the best position to negotiate. Rather than going for a so-called ‘host’ package, which means you’re paid in local currency at a similar level of compensation and benefits as your non-expat peers, (plus potential extras such as coverage of education or housing costs), Fitzpatrick suggests instead you consider negotiating a package that provides a balance sheet approach to compensation. The latter allows for pay to be split between the host and home country, which makes it easier to save while you’re abroad and pay bills back home.

Another perk is tax equalisation, this approach means you won’t need to pay higher taxes if moving overseas. “You get a series of balancing elements that protect your home standards of living,” she says.

Currently, about 68% of corporate expats are using the balance sheet approach, according to Mercer research, but many of the more junior expat employees aren’t so fortunate and have little choice but to accept the riskier host package when they move – often those in a more junior role don’t have the negotiating power or the experience to ask.

Expat entrepreneurs and those who are self-employed are coming up with processes to try to safeguard their earnings.

Website founder Stevie Benanty, 27, and her husband Dan Miller, 29, a property entrepreneur, will be moving to Lisbon in Portugal from France in the autumn. They use an online currency trader, Transferwise, to pay bills and temporary employees in different currencies, which allows them to use real-time currency conversion rates.

Both Americans, the couple receives cheques back home in New York. A virtual address service called Earth Class Mail opens their cheques and deposits the dollars in a US bank account. Miller now devotes more time to managing their finances from abroad, and researches currency fluctuations before setting project rates.

Research banking options

It’s important for expats to work out how and where they earn, then invest in order to minimise the disruption of transferring large chunks of their pay from one currency to another.

Self says that rather than looking for international clients, her peers are looking for more Swiss-based clients who pay in the local currency, to avoid instabilities.

Her own strategy is to keep savings both in Switzerland, which has a tax-deductible retirement savings account, along with her previously accumulated savings in the US until she figures out where to retire.

Some large banks offer wealth management advice geared specifically for expats. For example, this could mean using a multi-currency savings account or investing in a dual-currency deposit, a financial instrument that allows savings in two currencies to take advantage of market movements.

Even some top multinational companies are changing course. Traditionally, firms were wary of providing financial advice, says Fitzpatrick, but some are starting to think about what kind of investment advice to share with expats abroad. For example, some firms that employ staff using the balance sheet approach may advise them on the best ratio for splitting their earnings between two currencies, she says. “Historically, companies haven’t provided any kind of support or safety net for that kind of thing,” she says.

Ultimately, it’s important to assess your pay package on an individual level and understand how you plan to save and invest, says Genie Martens, a senior director at consulting Air Inc., who advises multinationals on global mobility programs. “Take a hard look at your expatriation policy and whether it’s going to result in the kind of mobility and the kind of objective that you’re going to want,” she says.


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