First, get the answers to these four questions
Some employees want to work abroad because they love the idea of living the life of an expatriate. Others look at an overseas assignment as golden for their résumés.
But working outside of the U.S. isn’t necessarily good for everyone’s pocketbook.
With many countries embroiled in economic crises, things are getting more complicated for some would-be transferees. Currency fluctuations, in particular, are a worry, especially for those considering a move to the euro zone.
“The decline in the value of the euro versus the U.S. dollar means that expats are finding their overseas earnings buy less back in the States, which is a real problem for those who still have U.S. dollar-based obligations,” says Jeff Born, professor and faculty director of the executive M.B.A. program at Northeastern University in Boston. “For those who do not have U.S. dollar liabilities, the decline in the value of the euro means that imported goods from the U.S. probably cost more now in Europe than before.”
Job security can also be an issue, especially if the employee’s job is tied to what’s happening in the country to which he or she is transferring.
And those aren’t the only concerns for would-be transferees.
So for those planning to take an overseas assignment, here are some things to consider to reduce the odds of an unwelcome financial surprise:
1. How will I be paid?
How currency fluctuations affect you will depend greatly on how your company pays you and whether you plan on returning to the U.S.
For short-term assignments of up to three or five years, employees are often paid in their home currency, says Ed Hannibal, partner and head of the Global Mobility Practice for North America at Mercer LLC, a global human-resource consulting firm based in New York. There also is a good chance that the employer will assist with the cost of an apartment.
Employees with this setup have less to worry about. They simply transfer funds at the current exchange rate into local currency to pay expenses.
Some relocation packages, however, require that the employee be paid in the local currency. That’s when things can get trickier, especially for those who have U.S.-based obligations or who plan on moving back to the U.S.
If that is your situation, convert the local currency you earn into U.S. dollars periodically to protect funds you won’t be using until you get back home, says Matthew P. Pascual, senior vice president for assignment management solutions at Weichert Relocation Resources Inc., a Morris Plains, N.J.-based firm. That will help ensure that you capture the best exchange rates at various points in time.
Some employees have split-pay arrangement, in which they are paid in both the home and local currency, Mr. Pascual says. “You can decide how much you will leave in the host-country versus the home-country currency,” he says. “As long as you’re getting paid enough in the host country to pay your living expenses…you’ve created a natural hedge.”
Most companies provide a cost-of-living differential to bridge the gap between the cost of living at home and abroad, also taking into account foreign exchange-rate volatility, Mr. Hannibal says. Companies generally review and update those periodically.
And there are some benefits to currency fluctuations: If you plan to buy real estate in a euro-zone country, for instance, your U.S. dollars will stretch further.
2. How will I manage my money?
Whatever way you’re getting paid, it is important to set up an international bank account, most likely in the host country, that will allow you to exchange funds at competitive rates, Mr. Pascual says. Forget about going to a foreign automated teller machine and withdrawing funds from your U.S. account on a regular basis—that will add up to loads of costly fees, he says.
Also curb purchases on credit cards denominated in your home currency, since those transactions often come with high fees. While it is often hard to qualify for a credit card in the local currency, getting a debit card is easier because you likely won’t have to go through as detailed a credit check, Mr. Pascual says.
3. What if I need help?
Hire a financial professional in the U.S. before you go abroad to assist with complex issues such as taxes and how to manage money in two locations at once, says Lauren Herring, chief executive of Impact Group, a global career-management firm based in St. Louis. Issues such as Social Security and retirement savings also should be discussed, she says. Sometimes, employers will offer tax services through a corporate provider, Ms. Herring says.
If you own a home in the U.S., find out what help—if any—you may receive from your company if you need to sell it. Company assistance, including buying the house, helping to sell it or even replacing some of the value lost for underwater homeowners, is more common in domestic relocations and typically benefit senior executives, says Ms. Herring. For an international relocation, the company might assist in maintaining the property while you’re gone or helping you rent it, she says.
4. Will my spouse be able to work?
If you’re relocating with a spouse who isn’t being dispatched from a U.S. firm, he or she will need to get permission to work in the country on their own. In some places that is a manageable task, but in other places it is nearly impossible, says Andreas von Strachwitz, vice president of business development for Europe, the Middle East and Africa at Weichert.
He recommends making a trip to the country before committing to the transfer. Sometimes an employer will pick up the tab for a three- or five-day predecision trip to look at housing, schools, communities and potential jobs for spouses.