Managing mobility in the face of tariffs and economic uncertainty

As businesses grapple with the impact of recent tariffs and the current state of economic uncertainty, leaders are examining where costs can be managed or reduced to offset the impact.  Many businesses have already undertaken steps to reduce operating costs, including by reducing headcount. So as tariffs create a difficult economic climate, affected businesses will need to identify where costs can be reduced without impairing strategy and day-to-day operations.  In considering where to reduce employee costs, global mobility programs have faced cost-cutting measures during previous periods of economic difficulty. In those times, companies shifted towards mobility programs that operated on a leaner basis with more limited benefits provided to employees and adjustments to policies, so assignments and relocations were financially equitable to employees rather than providing a financial windfall.

With many mobility programs having retained their lean structure from these previous measures, where HR and mobility leaders are tasked with finding ways to manage and further reduce costs again can be challenging in response to financial pressures brought on from the economic impact of tariffs and economic uncertainty. For mobility, HR and finance executives, the following approaches can support cost reductions and mitigate spend, while continuing to facilitate employee mobility in support of business objectives.

Managing tax planning

Whether relocating for international assignments or permanently transferring an employee to another country, tax costs to an employer are commonly one of or the highest single expenses associated with a move. As companies plan new employee moves, the destination country itself may present opportunities to mitigate tax costs for the company. Countries including France, Ireland, Italy, the Netherlands and Spain have long-established tax regimes focused on attracting expatriate talent through reduced income tax rates or favorable tax regimes.

While some, such as the Netherlands “28% ruling” (previously the so called “30% ruling”) have had the overall value of the tax benefit reduced, the scheme remains popular with businesses and has seen replication in other countries, like Belgium, as a means of reducing tax for expat employees in otherwise high tax locations. Adjusting an employee’s role or having them work from other company locations can, if effectively structured to manage corporate tax exposure, allow for tax costs to be mitigated. 

Companies may similarly look to relocate employees to low-income tax countries such as Singapore, or countries without individual income tax, such as the United Arab Emirates. Companies can essentially give more for less, providing remuneration packages that do not require significant changes to accommodate taxes in the country where an employee relocates. Alternatively, for companies transferring employees, moving them to countries that have lower employer social security costs will mitigate overall employee overhead cost.

Critical, too, are the risk management processes and policies in place around mobile employee populations. Re-reviewing compliance with income tax, payroll, social security and posted worker obligations globally can identify potential gaps to be addressed to mitigate penalty and financial exposure to the business. As country tax authorities will likely pursue opportunities to find additional tax revenue streams by examining non-compliance, areas such as cross-border incentive income, business travel compliance and permanent establishment exposure should all be considered as higher risk areas.

Restructuring mobility 

Companies with established mobility programs could review their existing mobility program to identify where relocations could be paused or ended.  Deferring new relocations or repatriating employees could defer or bring an end to certain costs. Both approaches may reduce short-term cost. However, repatriations require sensitive management and proper review of the tax impact. Individuals who are working overseas and are temporarily non-resident in their home U.S. state could become resident for the duration of the assignment if they repatriate early, which could result in increased tax costs. Where these options are not viable, employees could be localized to phase off international benefits, though this, too, would need close review. Higher social security costs in many European countries relative to the U.S., for example, could result in a tax cost to the company that could exceed the cost saving of ending expatriate benefits and terms.

For companies that are increasing their global presence or are in the early stages of using employee mobility, pausing mobility may not be an option. As such, putting in place policies that provide the parameters for how relocations are designed and structured, what benefits are provided and how taxes are managed will, in turn, impact how the total cost of relocations are managed.

Expat benefits

In addition to taxes, expatriate benefits and cash allowances comprise the bulk of the cost of international relocations and assignments. Managing the cost of benefits can be challenging when considering the variables that can change the value, as well as depending on the employee. Shipping costs are impacted by fuel costs, the amount of shipping needed based on family size, and the preferences on what benefits an employee receives, from pet shipping to language lessons to accommodation searches. Moving to a flat lump-sum approach allows employers to effectively cap spending. This can also take into consideration the taxability of benefits – those that are taxable and those where the employer would typically bear the tax cost can have a total gross cost offset against the lump sum.