What You Need To Know About International Benefit Solutions
by: Rosemary Peros
Globalization is defined as growth on a global or worldwide scale. This can include expansion of operations outside of Canada or employees working outside of Canada. Either way, this scenario is becoming much more commonplace. Canadian companies are expanding beyond our borders like never before and sending their Canadian based employees to the far reaches of the globe. Along with this expansion, however, come challenges that employers have never faced before which some are finding difficult to understand and to overcome.
Providing benefits and compensation strategies for a wide range of employee types and their families can be daunting. Canadian employees typically enjoy benefits that are second-to-none. This can pose challenges for employers who are trying to implement comparable benefits when sending these employees elsewhere in the world. Employers generally want to ensure that all their employees, wherever located, are being compensated fairly. The challenge is to ensure that the benefits provided are reflective of the local market and culture. This may mean that an employer may be providing a wide range of benefit types and variable richness of plans, depending on where the employees are located.
Before attempting to implement international benefit solutions, one must ensure they are knowledgeable or seek out the expertise of others who are well versed in this complicated area. Employers must first start by knowing what ‘type’ of employee they are seeking to provide benefits for. Employees are categorized differently so that the right type of benefit can be provided.
Employees can be:
- Expatriates who are working abroad on short or long-term assignment Expatriates are defined as those employees who are temporarily working outside of their country of origin and whose intent it is to return once the assignment is complete. It is relatively easy to obtain comparable benefits for this type of employee. Of course, this will depend on what country they are posted to. Often, for short-term postings, employees may simply remain on their existing Canadian plan. For longer-term assignments, typically up to three years, employers may seek to place these benefits with another specialized carrier who has knowledge in that particular country.
- Local nationals are employees who work for a Canadian plan sponsor in their own country of origin Consider, for example, a French employee that is working for a Canadian company in Paris. It can be more difficult to obtain benefits for this type of employee. Local national employees typically cannot be covered for benefits under the Canadian plan. Employers must obtain benefits in the country of residence and must adhere to local laws and regulations. It is recommended that employers seek the expertise of specialized providers who can implement local benefits.
- Third-country nationals are employees who work for a Canadian plan sponsor in a country other than their own country of origin This may be, for example, a German employee that is working for a Canadian company in Italy. These types of employees also cannot typically be placed under a Canadian benefit plan. As with local nationals, it is recommended that a local carrier provide these benefits.
Who Will Provide Them?
What types of benefits are available and who will provide them? Due to the increased need to provide benefits for internationally based employees, a number of carriers with specialization in international benefits have emerged that have expertise in all corners of the world. Providers with specialized knowledge can include insurance companies, consulting firms, and benefits networks that engage the services of associate or local insurers. Similar to what is available in Canada, employers can obtain a variety of benefits such as extended healthcare and dental, life insurance, and disability. The challenge for employers is providing benefits that are comparable to those available to their Canadian-based employees. Employers should be aware that in many cases, benefits will not be comparable and this is largely due to lack of availability and less flexibility of benefit plan designs. Most important is that benefits provided should be in line with local standards. Is there a way for multi-national companies to spread risk? International pooling may be the solution.
International or multi-national pooling is a financial vehicle that is used by benefits managers worldwide in order to manage the escalating costs of insurance and to co-ordinate employee benefits plans within their organizations.
The concept of pooling allows multinational companies to possibly lower their employee benefit costs by ‘spreading’ the insurance risk over the company’s entire worldwide employee group.
With pooling arrangements, the local country benefit programs are still underwritten and managed according to the local laws and practices. Nothing changes at the local country level. It is at the international level that contracts are combined and accounting is adjusted to take into account surpluses in one country and deficits in another.
If a surplus or dividend exists, parent companies may choose to distribute it among all of their subsidiaries or they may choose to keep the dividend at head office. Employers should be aware that pooling arrangements might not be appropriate for their particular situation. In many cases, a dividend may not be realized for many years, if ever at all. It is recommended that, before proceeding with a pooling arrangement, an expert be consulted so that each case may be assessed individually.
One Country Or 50 Separate Ones?
Benefits in the United States is another issue. Is this one country or 50 separate ones? And while Canada and the United States may indeed be neighbours, in many respects, including employee benefits, they can be miles apart. A separate discussion relating to benefits in the United States is required due to the complexity and diversity of benefit plan designs, providers, and state rules, regulations, and legislation.
Obtaining benefits for U.S. citizens working for Canadian plan sponsors in the United States may be one of the most frustrating and complicated exercises ever to be experienced by companies expanding into the United States. Employers must be aware that each state has its own requirements that often pre-empt a provider’s requirements. One should be aware of things like residency and eligibility laws, employee life minimums, concentration of risk restrictions, situs laws, and a host of other potential barriers that may make it difficult to obtain comparable benefits to those of their Canadian counterparts or to even obtain benefits at all.
Another potential barrier is the fact that many U.S. providers do not operate in all states equally. This is particularly true for medical coverage. In fact, they may choose to not provide benefits in certain states due to the complexity of operating in that state making it financially impractical to do so. This presents difficulties for employers who have employees working in multiple state locations. What makes it even more cumbersome for Canadian employers is that the ‘difficult’ states tend to be those that border Canada as many employers choose to operate there due to the proximity to the border.
For Canadian employers operating in Canada, they can typically go to one insurer, provider, or source in order to obtain a wide variety and range of benefit products. The same cannot be said of the United States. Depending on the state location and number of employees being insured, an employer may need to engage several providers to fully cover each employee for all benefits. This entails different plan designs, separate contracts, and multiple billing arrangements. In some cases, there may be Canadian insurers who operate subsidiaries in the United States making it easier to obtain benefits.
It’s best to remember when expanding beyond Canada’s borders, and particularly into the United States, that seeking expert advice is often the easiest way to go. Many organizations are now very knowledgeable about benefits in the United States and you will want to consult with them in order to lessen the potential headaches and delays in obtaining benefits.
Preparing For Expatriate Assignments
An important piece that is often overlooked when an employer is considering offering an expatriate assignment to an employee is the preparation of that employee and their family for an international posting. International posting can be a very traumatic event for many employees and their families. It can often be a culture shock. To ensure that an employee is considered ‘ready’ for an international assignment and that they are prepared fully, a number of organizations now offer expatriate assessment and preparation services. These organizations will assist employers in:
- Selecting appropriate candidates and their families for international placement
- Preparing the candidates and their families for the specific country to which they will be locating
- The repatriation of the employee and their family back to their home country
Their experience and expertise will allow organizations to increase the success of their international placements by reducing the number of inappropriate placements and increasing the preparedness of the selected employee so that adjustment to the new location is enhanced. What you really need to remember is:
- Become very knowledgeable or seek out the expertise of those who know local benefits and local labour laws.
- The rest of the world is not like Canada. Benefits around the world can vary greatly and can be valued differently. What works for your employees in Canada, may not work for your foreign employees.
- Your ultimate goal may be to provide comparable benefits for all your employees, no matter where they are located. Be aware that this may not be possible.
- U.S. rules, regulations, and laws may make it very difficult to obtain benefits. Expand into the U.S. with your eyes wide open
The good news is that Canadian companies will continue to expand beyond our borders. With this expansion will come challenges relating to the provision of benefits in an international environment. As exciting as expansion can be, employers need to be aware of the unique situations and obstacles they may face. Armed with the right knowledge and partnered with the right provider, international expansions and placements will become even more successful and possibly the norm in the future.
Rosemary Peros is product manager, international benefits, at Manulife Financial Group Benefits.
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