At AIRINC, we are “numbers people” - some would (lovingly!) call us geeks! But not everyone is a numbers person; some people are more visual. So, we thought it would be fun to visually breakdown an assignment to showcase what contributes most to the cost of an assignment.
Long-Term Assignment
We ran a
cost projection from Frankfurt to Toronto for an employee with a partner and one child for a 3-year assignment.
The total cost to the company comes in at almost
EUR 1,000,000 for a 3-year assignment. And who gets the biggest payday from this assignment?
- The tax man gets more than half!
- The landlord gets the next biggest share.
- And the international school comes in third.
Local Plus Assignment
This got us thinking: what can we do to reduce that huge tax burden, (especially given that the top marginal tax rate in Ontario is over 53%)?
So, we ran a Local Plus assignment – surely it would help if the company does not tax equalize, right? Well…somewhat. The assignment costs come down to just over EUR 800,000 for a 3-year assignment; the tax is still driving most of the cost, although it takes up a bit less real estate on the chart! Not taking a hypothetical tax deduction increases costs, and the gross-up on benefits is still a sizeable portion of the cost.
Short-Term Assignment
To reduce the tax burden, we found that a short-term assignment does the trick! The costs plummet to EUR 70,000 for a 5-month assignment (this equates to EUR 14,000 each month vs. EUR 27,700 for the home based and EUR 22,200 for the host plus assignment), and taxes get bumped to second fiddle. There are tax treaties between Germany and Canada that allow for tax relief. Taxes come way down, but so do relocation and on-assignment allowances. In fact, if we were to visualize the chart, it should appear as 7% the size of the first chart since the costs are so much lower.
Aside from being a fun visualization exercise, this information showcases the power of information. To help with the spectrum of activity in Global Mobility, being armed with information helps quicken decisions making, and with facts to do so.
Mobility can advise the business from a position of strength when armed with good cost information. Are you leveraging information to help advise the business?
Contact us to find out how you can get started!
Coming soon... Assignment Planning - A Deminar of AIRINC's Assignment Cost Estimator
Session 1: April 25 - 10:00 AM Boston / 3:00 PM London
Session 2: April 30 - 11:00 AM San Francisco / 2:00 PM Boston
Session 3: May 8 - 10:00 AM Hong Kong