The high cost of education and accommodation has pushed up the overall value of assignee packages in HK, but expat C&B packages remain highest in Japan.
Expat salaries
Expatriates in Hong Kong receive the fourth-highest compensation packages in Asia, according to the latest ECA International MyExpatriate Market Pay Survey. The Survey, which looks at pay levels for expatriates around the world, including: benefits, allowances, salary calculation methods and tax treatment, showed the overall package for expatriate middle managers averages just over USD 230,000 per year.
A total package usually comprises three elements: cash salary, benefits and tax. A net-to-net comparison of basic salaries provides an overview of the cash sums received in different markets. It is not, however, until the benefits element of the package is taken into account that both HR and the assignee get a fuller picture of how competitive or attractive the package is. Expatriate salaries are calculated in a number of ways, but most packages will include some sort of benefits package to cover costs such as accommodation, children’s education, utilities and cars and these can have a significant impact on the entire package.
In many cases, along with traditional market forces, an expatriate salary will also be affected by factors that typically have no impact on local market rates. These include allowances that compensate for changes in cost of living and for the adjustment that international assignees have to make in living and working in a new location. Lee Quane, Regional Director, ECA—Asia commented, “Hong Kong is a good example of how the different elements of assignee packages must be taken into account in order to draw accurate comparisons. Accommodation and international school costs here are driving up the value of the benefits typically awarded to international assignees, to the extent that the benefits element is often greater than the assignee’s net take-home pay.”
Japan is home to Asia’s highest expatriate packages. The average total package for an expatriate middle manager in Japan is USD 374,000. Cities in Japan have some of the world’s highest costs of living, and expatriate salaries there are high because, to attract the right talent, employers need to ensure that an assignee’s purchasing power is maintained.
HK vs China
The Survey shows that cash salary components of total packages both in Hong Kong and mainland China are among the lowest in the region. However, unlike Hong Kong, the benefits component in mainland China is also typically relatively low, even in China’s more costly tier-one cities. Quane added, “In China, compensation for international assignees tends not to vary much between tier-one and tier-two cities. The cash salary of an employee based in Beijing will often be similar to an expatriate performing the same role in Chendgu.” Of the 17 Asian locations analysed, China ranks 14th in terms of total package.
Indian assignee cash salaries see biggest hike
Leaving benefits out of the equation, cash salaries for assignees increased by around 2% in Hong Kong in the past year—the lowest rate of increase in Asia. At the other end of the spectrum, India saw the greatest salary hikes, with average increases of 18%. This was partly the result of the Indian Rupee weakening considerably against the US dollar and other major currencies. India was followed by Vietnam and Indonesia.
Fewer incentives are generally required to send an employee to the SAR than a number of other locations in the region. Quane explained, “Local salary levels [in Hong Kong] tend to be very similar to expatriate salaries. As a result, more companies here will use a pay system based on local market levels to which they add benefits, rather than the more common approach of using an employee’s home salary as a starting point and then adjusting for cost of living, tax and other allowances. In contrast, in locations such as Vietnam, Indonesia and India, incentives and high rates of expatriate salary increases reflect companies’ growing need to attract talent into these emerging markets.”
Tax and social security
Tax and social welfare requirements such as the MPF form the third major component of the assignee package that companies need to consider in evaluating assignee costs and packages. This component also affects Hong Kong’s ranking against other markets in terms of overall packages within Asia. Considering the value of the cash salary and benefits alone, Hong Kong ranks second within Asia, but
when the gross package including tax is considered—it drops to fourth place.
Quane suggested this was due to its comparatively low tax model. He added, “In contrast, in India, where salary and benefits costs are low compared to Hong Kong, the high rate of tax means that the total cost to the company ends up being higher in India. In terms of overall package costs India comes second highest within Asia after Japan.” In view of this, many companies apply a tax-equalisation approach to help ensure that employees on assignment pay the same amount of tax as they would have in their home country.
Quane cautioned, “Companies also need to be aware of the tax implications of the benefits they provide, and the ways they provide them, since these can affect their tax liability considerably.”
Paul Arkwright
Publisher
