International expansion opens up several new markets for companies, expands the customer base, and brings growth opportunities. As companies expand globally, a diverse and international workforce is also required. While hiring international talent across different markets, you must do more than simply roll out the same international benefits or salaries as in your company's home country. Thus, with access to a broader and talented global pool also comes the responsibility of managing international compensation and benefits.
You must fairly compensate them based on their location and keep them motivated. Devising an international compensation and benefits package strategy is also essential from a compliance perspective. A fair policy in this aspect is one of the most critical challenges companies face to retain their international workforce. This guide will help you understand everything you need about compensation packages and benefits for your international employees.
What is International Compensation and Benefits?
International compensation and benefits account for direct components, such as competitive salary and bonus, as well as indirect components, such as international health insurance plans and stock options. With a globally distributed workforce, you must cater to your employees' direct and indirect compensation based on location.
You may wonder how different pay and benefit structures ensure fairness. There are several factors based on which you need to decide these variables based on different locations.
You must consider the cost of living, inflation, exchange rates, tax laws, and labor regulations, among many factors. Since these can vary vastly from country to country, offering the same salary or benefits to all employees in different companies is not viable. It may also add to the costs of the company in certain instances. Thus, paying your employees accurately ensures maximum benefits and satisfaction. A fair international compensation structure also helps with employee retention and turnover and protects from compliance issues.
Also Read: Employee Perks and Benefits to Retain and Attract Talent
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Step-by-Step Guide to Creating an International Compensation and Benefits Plan
Before hiring overseas, having a well-planned international benefits and compensation package structure is better. It should cover all employees based on local and foreign provisions. But how can you create a fair and equitable international compensation and benefits plan? Here is a detailed step-by-step guide to help you with it.
Step 1: Gather Employee Data
Begin by assessing the number of employees you will have in your organization. Determine the positions you require them to fill in. Gather any other necessary information to calculate the budget for their pay and benefits packages.
Step 2: Prepare an Organizational Chart
Outline an organizational hierarchy to draft a fair compensation and rewards plan. This chart will also be helpful while recruiting employees as you will know where they fall in the designed hierarchy.
Step 3: Train HR Department
Ensure your human resources/recruitment department has the right skills, tools, and technology to carry out the hiring process. They must be able to manage and implement the international compensation plan. Some companies outsource these roles to global HR platforms to reduce their administrative workload and benefit from experts.
Step 4: Determine Salary Ranges and Benefits Structure
Depending on the type of employee, skills, quality, experience, and the positions you will hire individuals for, draft salary ranges and benefits structure. Set guidelines on how they will be paid.
Step 5: Determine the Compensation for Every Position
Plan and allocate a suitable compensation package for your international employees, depending on the positions they will fill. You will need to consider factors such as local laws, market data, budget, etc. You can also gain insights from competitors' methods of determining compensation for similar positions.
Step 6: Identify Key Performance Indicators (KPIs)
Your business must have some objectives and goals. The people you hire must be able to meet some defined KPIs in adherence to those objectives. Based on this, you can align your international compensation structure, allowances, bonuses, pay increases, etc.
Step 7: Develop Disbursement Timelines
Depending on reviews, KPIs, local laws, etc., you must set a timeline for issuing increments and bonuses and adjusting the compensation package.
Step 8: Stay Updated On Current Regulations
Ensure you stay updated and compliant with all the current employment laws and regulations of the particular country. You should also prepare your team for any upcoming changes in such laws.
Step 9: Conduct Timely Compensation Analysis Reviews
It is necessary to take regular feedback from your international employees and have open communication regarding the international compensation and benefits structure. This helps monitor employees' motivation and satisfaction levels and understand possible gaps.
Step 10: Make Necessary Changes
If you find any gaps in the pay structure depending on the analysis and reviews, take timely action to plan and make the required changes.
Factors that Impact International Compensation and Benefits
If you want to create a well-planned international compensation structure for your employees, you must consider several factors. These are critical to making informed decisions related to worker compensation and benefits.
1. Country of Hiring
Before expanding into foreign countries, you must thoroughly research and understand the employer's obligations in the local land. This will help you identify the differences between the compensation structure in your home country and international markets.
Gather knowledge about the local talent pool, the country's political and economic landscape, culture, laws, worker readiness, hiring strategies, etc. You must focus particularly on equal employment, collective bargaining, taxes, discrimination protection, and similar aspects. Due diligence can save you from drafting wrong strategies that may lead to financial or legal implications.
2. Choose Between Consultants or an In-House Team
Preparing an international benefits and compensation plan by yourself can be tricky. Consider the time, resources, training, research, and expertise it will take. You can undertake this process with an in-house HR team or outsource it to global recruitment consultants or agencies. Not to mention, even when taking help from specialists, you will have to be involved in the process to ensure the structure is per your company's objectives. However, they can make the process much more manageable and foolproof due to their expertise.
3. Competitor Analysis
Conducting competitor analysis is a great tactic when expanding internationally. This analysis is limited to domestic organizations in your base country and those that operate in the country of your expansion focus. Study the pay scale and benefits they offer international employees in different countries. Understand the challenges your competitors face in your target country and devise strategies to resolve them.
4. Budget and Compensation Requirements
Running your business in another territory requires drafting a budget that can cover the salary and perks you offer to your international workforce. Include factors such as the number of employees you need to hire, cost of living in the target country, compensation system, currency conversion rate, typical workload, etc.
5. Employee Classification
You must correctly classify the employees based on employee classification definitions and the country's labor law. You may have to compensate the independent contractors differently from part-time or full-time employees. The benefits package may also differ drastically in some instances. Depending on this classification, you will also need to have different types of agreements or contracts with your team members. Consider this factor before determining the compensation and benefits plan to avoid compliance issues.
6. Benefits and Compensation Terminology
The terminology of benefit and compensation can be interpreted differently depending on the countries you wish to expand to. Clearly define in your plan the meaning of terms such as wage, stipend, employee, part-time, bonus, etc. You should aim to avoid any confusion and eliminate the risk of legal action or penalties.
Ensuring Compliance with International Compensation and Benefits Provision
Companies looking to provide a just and equitable international compensation and benefits structure for their global workforce need to adhere to compliance regulations of the country in focus. These regulations protect the rights of the employees on parameters such as minimum wage, safety standards, working hours, anti-discrimination, and many more.
Employers who fail to meet these statutory laws may face the following repercussions:
- Depending on how severe and frequent the violations are, employers may face considerable penalties in terms of fines or criminal charges.
- Employees may challenge your compensation structure if it does not adhere to the local employment laws. They may file lawsuits or demand financial settlements through overtime compensation, back pay, benefits, etc.
- Failure to comply with labor laws can cause reputational damage. This, in turn, can make it difficult for you to hire local talent and establish your company successfully in a new market.
- Due to non-compliance, your business may face various operational or expansion restrictions. You may find obtaining licenses, permits, authorizations, etc., challenging, which can hinder your company's growth.
Ensure you research the country-specific labor and employment laws. Create well-defined contracts with all the terms and conditions of employment. You must also maintain accurate records of timesheets, leaves, payroll, taxes, and any other necessary documentation. Another essential thing to note is that employment laws may change. So, you need to stay updated to ensure compliance.
Manage Your Global Team With Skuad
Working with a globally distributed workforce brings diverse talent, cultures, and work ethics to the table. Despite thorough research and considering all necessary factors, ensuring regulatory compliance in countries you hire can take time and effort. To avoid non-compliance risks while building and managing distributed teams, partner with Skuad as your trusted Employer of Record.
Skuad can help you hire and onboard new employees in more than 160 countries without setting up a local entity. The platform enables you to manage global payroll, benefits, timesheets, etc., complying with country-specific laws. So, consult our experts and streamline your international compensation management.
1. What is the global compensation benefit?
Global compensation refers to the direct and indirect compensation employers pay their international employees according to country-specific employment laws. It includes salary or wages, bonus, travel allowance, health insurance, etc.
2. What is the international compensation strategy?
The international compensation strategy involves planning the salary and other benefits for foreign employees according to their country's labor laws. Employers need to consider factors such as country of hiring, budget, and employee classification, among many others, to draft a fair and equitable international compensation structure.
3. What is the biggest challenge with global compensation?
One of the critical challenges in creating an international compensation structure is aligning it with the local market conditions and employment laws. Companies need to consider the exchange rates, cost of living, social security, tax laws, and many other factors to ensure a fair global compensation policy.