The Balance Sheet Calculation ' Outdated Or Still A Useful Approach?

• Published date: 08 July 2021
• Subject Matter: Employment and HR, Tax, Employee Benefits & Compensation, Income Tax
• Law Firm: CONVINUS
• Author: Ms Mieke Czwalinna

Over the years, several different compensation methods have been developed to determine the salaries companies offer their employees who are being sent on long-term international assignments. In addition to the host country and the designated position, the compensation package is usually one of the essential aspects for employees. The defined compensation as well as any additional benefits play a decisive role for a potential expatriate whether to accept the proposed mission abroad. Consequently, every employer with the need of international assignments aims to apply an appropriate and attractive compensation method in order to strengthen talent mobility and employee retention.

Originating from an accounting term that describes a calculation where debits and credits must match, the Balance Sheet Calculation is a well-known and widely used way of calculating an expatriate compensation. Several surveys and benchmark reports published in the last years suggest that up to 80% of all global firms are using the Balance Sheet Calculation when sending employees on long-term assignments, which typically last between one and five years. However, due to an increasing need for more flexible assignment types as well as rising administrative and cost pressures, a steady decline of the classical long-term assignments can be observed. As a consequence, global mobility practices including compensation methods have to be adjusted in order to align with these changing business needs. With this development in mind, the following article intends to have a closer look at the current and future relevance of the Balance Sheet Calculation as a useful approach to determine expatriate compensation.

Principle, objectives and advantages of the Balance Sheet Calculation

The main idea of the Balance Sheet Calculation is to ensure that employees maintain the same purchasing power and thus standard of living in the host country that they had in the home country before the time abroad. As a result, the assignees neither suffer a financial loss nor benefit from a financial gain during the duration of the assignment. The approach allows employers to continue to pay employees their home salaries, keeping the link to home benefits and the local salary structure, whilst adding a series of allowances or deductions to balance differences regarding the costs of goods and services, housing, income taxes and social security contributions. These allowances are usually specifically adapted to home and...