Comment: The challenges multinationals face when setting up employee benefits

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Employee benefits. The title says it all. These are meant to be services and contracts put in place for the benefit of the employee. Sadly, this is not always the case, as Annette Balcombe explains.

Benefit programs have traditionally been built for employees working in the country where they were born, where the domicile and residency does not change. However, as the global workforce becomes increasingly mobile, these country-specific programs are often found unfit for purpose, and in some cases are not offered at all.

The challenges that international corporations face are numerous, and encompass everything from local regulations and legislation, to currency, flexibility and portability. Maintaining a fair and equitable benefits package for those who become globally mobile provides unique challenges.

The challenges that international corporations face are numerous, and encompass everything from local regulations and legislation, to currency, flexibility and portability."

Historically, expatriate workers were given increased pay to compensate for, in most cases, losing the benefits packages offered to head office employees. Offering benefits packages that mirror those of head office, for mobile workers, is a challenge for employers due to the adherence to local regulations of potentially numerous jurisdictions. This complexity meant that it was a challenge to offer a vast range of employee benefits to mobile employees, leaving the onus on them to source their own benefits plans, in accordance with the local regulations of their working jurisdiction.

In today's climate where HR departments have grown, alongside the rise of the mobile workforce, and there is now considerable pressure placed upon employers to set up benefit structures that are not only available to all, but are broadly equivalent.

The interconnecting complexities of legislation, tax, currency and regulation when operating in multiple locations, create a need to have a global jurisdictional approach when looking at establishing benefit structures. The time taken to set up individual plans in specific jurisdictions is increasingly inefficient for multinational businesses, particularly with the rise of mobile workforces.

Many companies often underestimate the sheer time and resource needed to individually set up plans for each jurisdiction in which they operate. The trend is towards a multi-jurisdiction approach, for ease, and to reduce complexity for employers, while ensuring that employees, wherever they work, have access to savings and pension plans.

For example, setting up an international pension plan, mirroring the head office's plan, for global migrating employees may not only be impractical, but also undesirable. The NGO and ‘not for profit' sectors, who have traditionally paid a cash alternative to a benefits plan for international staff, are increasingly looking at benefits in a ‘gratuity' based system, similar to that offered in the Gulf, for example.

That is not to say that a properly constituted international pension plan wouldn't be preferable, and with the right jurisdiction, desirable. Looking at double tax treaties can resolve double-taxation issues when considering retirement planning, even for US employees working outside of the USA.

Keeping up with new regulations and legislation when operating across multiple jurisdictions is a challenge that all multinationals face, and the same is true when setting up employee benefits. 

End of service gratuities (EOSG) are changing in the UAE. The Dubai International Finance Centre (DIFC) is the first jurisdiction to implement a mandatory savings scheme, known as DEWS (DIFC Employee Workplace Savings) in place of ongoing EOSG accrual. There will be a centrally controlled offering, which will begin on 1 January 2020, and replaces the normally unfunded gratuity, with a funded defined contribution plan, with a minimum level of employer contribution fixed in law, depending upon length of service. There will be an opportunity for employers to opt-out to a suitably qualifying alternative arrangement.

One unexpected benefit to members of these arrangements will be the full disclosure of fees and charges so often obscured in the international savings market. This should give employees comfort when looking to make additional voluntary contributions.

It is believed that the introduction of DEWS will be the beginning of a revolution in workplace savings throughout the Gulf region, ensuring a stable financial future for employees.

We have also seen the creation of new innovative savings vehicles such as the Jersey International Savings Plan. Savings plans are offered the world over, but Jersey could be an ideal jurisdiction for international employers setting up international savings plans with their robust regulatory framework and political and economic stability. Jersey's international savings plan product is approved by the Jersey tax authorities, and is an example of the island's sophisticated legal framework.

Finally, there is the issue of technology. Long gone are the days of an annual pension statement sent out in the post. Today's employees expect to be able to log on and view their benefits with  a swipe of their finger. They expect to upload documents, change investments and request information.

A benefits package that is fit for all employees, especially those that are mobile, therefore has to not only be creative, but jurisdictionally sensitive and available on a suitable platform driven by the latest technology.

Annette Balcombe is a global technical specialist for employee benefits at TMF Group