Housing is one of the components of the compensation balance sheet that many companies utilize to compensate their international assignees. The home country housing norm is the amount that a typical family pays for housing and utilities in their home country.
Why is a housing norm collected?
When a company utilizes the balance sheet approach to compensate international assignees, the company typically agrees to pay the increased cost of housing in the host location. Note - Some companies using the balance sheet approach pay 100% of the cost of host location housing and do not have the employee contribute anything to housing. For purposes of this discussion, we have assumed that the employer will only pay the excess housing cost in the host location over the home location.
The assistance with increased housing costs in the host location can be delivered in alternative ways. One is to pay a cash allowance to the employee for excess housing costs and the employee then leases his host country housing. Another alternative is for the company to lease the housing in the host location and collect a home country housing norm from the employee.
In some countries, the delivery of leased housing can be a very important tax planning technique resulting in significant host country tax savings. Be sure to discuss this issue with your tax service provider.
Having the employee continue to pay his portion of the housing also facilitates his financial transition at repatriation. If the employee receives "free" housing during his international assignment, he may adjust his life style and spend the housing contribution on other items. At the conclusion of the assignment when he is again responsible for his own housing costs, he may incur a decreased standard of living.
How is the home country housing contribution/norm computed?
The amount of home country housing norm collected from the assignee is usually determined by tables purchased from a third party international compensation consultant such as ORC or AirInc. These consultants regularly research, review and update the tables based on survey data. The data considers income and family size as well as the location from which the individual assignee is departing. The international compensation consultants consider the following items in their survey process:
Be careful to ensure that the assignee does not suffer a loss in cash flow as a result of collecting a housing contribution. Your company´s program administrator needs to work closely with the assignee in this area. An assignee´s personal fact pattern could create a need to modify the housing contribution amount computed by the international compensation consultants. A modification may be necessary if the family transfers to the host location at a later date than the employee, or the home country residence cannot be rented immediately after the move date. Remember to review the assignee´s housing contribution when the family arrives in the host location, or when the home country residence is rented.
Other approaches utilized by some companies for determining housing contributions are a fixed percentage of salary, or the actual mortgage payment the employee is currently paying. Third party compensation consultants typically do not recommend these approaches as the company may need to increase their administrative time commitment to the international assignment program, obtain additional personal information from the employee, or apply an inequitable treatment to employees at different salary levels.