What is one reason an HR manager should seek to adjust the income for an American working abroad?
To help you gain insights into why incomes are adjusted for professionals abroad, we asked HR managers this question for their best insights. From the cost of living to tax policies, there are several reasons why an HR manager should seek to adjust the income for an American working abroad.
Here are 4 reasons HR managers adjust incomes for Americans working abroad:
- The Cost of Living Varies Greatly
- It’s the Equitable Thing to Do
- Exchange Rates and Cost of Living
- There Are Tax Policies to Consider
The Cost of Living Varies Greatly
There have been a lot of American remote workers relocating to places with a much lower cost of living such as central America or Thailand while keeping their US income. This makes perfect sense for someone looking to save and have some adventure at the same time. However, this also gives companies power to negotiate a lower salary to coincide with the cheap cost of living, and it is a legitimate argument. If a remote worker chooses to not try and hide a relocation, HR managers will look to adjust their income to coincide with the wages in their new home.
Eric Florence, Security Tech
It’s the Equitable Thing to Do
Covid has caused a lot of chaos for employees; however, it’s also created opportunities for others – such as living and working overseas. And while this might seem like a nice perk, it’s also greatly skewed pay equity among employees. For example, if you have two software developers each making $150K, but one lives in California while the other lives in Poland, you’re going to have a massive difference in net pay. The cost of living in Poland is a fraction of the cost of living in California. Thus, to make things fair among team members, pay scales should reflect an employee’s geographic location. And while I get the argument that the California employee has the ability to move to Poland and apprise themselves of the same low cost of living, we all know that’s not true. Many employees are tied down to high-cost states due to familial, religious, cultural, and economic reasons. So given the practical realities, I think it’s more than fair to match compensation to location.
John Ross, Test Prep Insight
Exchange Rates and Cost of Living
Even within the country we live in, the cost of living can vary greatly from one location to the next. Therefore, imagine from one country to another!
Adjusting the source income can often be needed to ensure that your employees working abroad are making a fair wage. Also, don’t forget to take the exchange rates into consideration, and to check them regularly.
Lauren Kleinman, The Quality Edit
There Are Tax Policies to Consider
American citizens who live abroad are still required to pay U.S. taxes. If you’re filing a federal tax return, then it doesn’t matter where you’re living or staying when you earn money from an American company. If you spend any time working abroad, you may also run the risk of getting doubly taxed. Even if you’re only working in a foreign country for a few weeks or a month, that host country may still tax the employee and require a visa. Those personal tax and immigration issues should be covered by the employer, so an income adjustment would probably be necessary in that situation.
Scott MacDonell, Bambee
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