All You Need to Know About Relocation Packages

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All You Need to Know About Relocation Packages

The international lifestyle, adventure and low taxes made Hong Kong a very desirable location for ex-patriate employees, which successfully attracted talent from around the world with ease.

Even Hong Kong’s notoriously small apartments and expensive real estate were not enough to dampen the allure of Hong Kong to the international business community.

However, recently many business sectors in Hong Kong – especially the financial services sector – have expressed difficulty in hiring top talent for posts in Hong Kong or persuading global staff to take up secondments.

We are seeing that potential expat employees are using their increased bargaining position to negotiate very favourable packages as a condition for them to relocate themselves and their families to Hong Kong.

What should I consider before relocating?

Relocating for a job is an ideal opportunity to try to increase your renumeration while also making improvements to your life and that of your family.

Since every family’s situation is unique, when negotiating a relocation package, you must try to address your specific needs and what is important to you and your family.

Financial needs

Money tends to be at the forefront of all relocation negotiations.

To the uninitiated, Hong Kong’s real estate and rental prices will come as an enormous shock.  Even those that already know that apartments are small, and rents are high, often find themselves shocked by just how small and how high.  The shock tends to be multiplied when room for children is factored into the mix.

Therefore, the second consideration after a pay rise, is housing allowance – although in practice both tend to get paid in the same way and sometimes it can be difficult to see the practical distinction between salary and housing allowance.  This is especially true when employers allow a portion of salary to be attributed for rent reimbursement for tax efficiency purposes.

For employees on secondment or expats who have not ‘localised’, some multinationals will offer an allowance for the higher cost of living.  Cost of living allowance or COLA, however, tend to have an expiry deadline after a few years when employees are required to localise.

Moving job and moving house are extremely stressful life events.  Relocating to Hong Kong might involve doing both together, perhaps to the other side of the world.

Employees will, therefore, often look for further increased financial certainty perhaps in the form of a sign-on bonus and or a guaranteed first, and perhaps even second year, minimum bonus.

Additional benefits

There are numerous additional benefits that expats may wish to secure before relocating to Hong Kong.

Health insurance tends to be at the top of the list of essential benefits.

Expats with children will often look for assistance in finding a good international school, securing a place and the reimbursement of school fees.

Housing for at least the first few months – usually in a serviced apartment rented by the employer – is a typically requested along with orientation and cultural training.  Although I don’t think many continue with Cantonese lessons after the first set of sessions expires.

Shipping allowance for furniture and personal possessions, outbound and annual home return flights  for all the family (hopefully in business class) – and not forgetting the transport of pets – is a common request.

The mandatory pension contributions that are required under the Hong Kong MPF system tend to be significantly lower than those offered or required in many other jurisdictions.  Top-up, enhanced or home pension contributions may be provided.

More bespoke terms offered to senior executives might include a car – with the essential parking space – or perhaps also a driver.

Employees may wish to be reimbursed for storage costs for property that remains in their home jurisdiction or insurance costs for the home that has been left behind.

Taxes

Expatriate packages can get very complicated and while the Hong Kong taxation system remains refreshingly straightforward when Hong Kong taxation, home jurisdiction taxation and the potential for double taxation come into play expert advice is essential.

Tax advice and filing assistance for both Hong Kong and home taxes, especially during the first and, perhaps even more importantly, the final year of employment is an essential benefit.

Termination

At the time when relocation packages are being negotiated, the focus is on upfront benefits and living costs.  Often employees don’t pay much attention to what happens at the end of the secondment or if their employment is terminated.

There are, however, a number of things that need to be considered.

The most obvious and standard benefit is home return flights and repatriation allowance for furniture and possessions.  The issue that often arises with this benefit is how soon the relocation allowance must be used after the end of the employment before it becomes void.

Employees who are aware of the minimal employment protections in Hong Kong and the derisory payments that are paid in the event of termination would be well advised to try to secure a guaranteed enhanced severance payment if they find themselves being terminated through no fault or choice of their own.

Some consideration will also need to be paid to any clawbacks that an employer may seek to impose.

Generally, clawbacks will apply to sign-on bonuses and relocation expenses and while it is not unreasonable for an employer to require a certain minimum period of service from a relocated employee, sometimes clawbacks will kick in if the employer decides to terminate the contract through no fault of the employees.  In the most brutal of scenarios, we have seen this happen within months of the employee landing in Hong Kong with their family.

Conclusions

Relocating for work usually comes with a lot of emotion, fear, challenge, and excitement. Since relocating for jobs is a difficult task, it is important that employees get what they deserve out of a relocation package to ensure that they are properly compensated, and the risk is reduced as much as possible.

 

This video is for informational purposes only. Its contents do not constitute legal or professional advice.