Salary simulation for relocation – gross vs. net

סימולציית שכר ברוטו נטו ברילוקיישן

Salary simulation for relocation – gross vs. net

Recently, international companies have introduced opportunities for Israeli employees to work at one of their overseas branches of related companies. For example, employees of Google, Facebook, Microsoft, etc., who relocate for working purposes in the USA or other countries in Europe. In such cases, it is necessary to calculate the net salary of the employee in the destination country and compare it to the net salary received in Israel, as well as the gross salary that is fair for the employee to receive based on the employer’s costs in the current company. Employees who wish to examine the feasibility of the relocation find that the related calculations are actually quite complex and should take into account many factors that do not appear on the pay slip.

In any case, when the employee remains in the same company group, it is necessary to compare conditions in order to achieve one of the following goals:

  1. Comparing the living standard of the employee in Israel before the relocation, based on his income and the cost of living in the country to which he is relocating to;
  2. Comparing the net salary the employee will receive post-relocation, to the net salary received in Israel (ignoring the cost of living in the destination country);
  3. Comparing the employer cost paid by the company in Israel to the net salary the employee will receive in the company abroad.

You will need to choose only one of the above goals, and the result will vary with each chosen goal.

The question of which goal to choose depends on the reason of the relocation: If the employee himself asked the company to move (for example, an Israeli employee working in an international company and asking to move to a related company in another country), then the company has no interest in the employee moving and should not be harmed by it. In such cases, the company will likely offer the employee the same gross salary if the employer’s cost in the other country is lower, or if the standard of living according to expenses in the destination country is higher.

Sometimes there are offers that are not based on economic calculation, such as comparing the net salary the employee will receive in the destination country, relative to the gross salary received in Israel. In these situations, we will calculate the ‘real’ employer cost of the employee and hold a discussion with the company so that the same employer cost (and in some cases net, considering the local corporate tax) will apply to the company related to the employee’s employment.

If it is the company that is asking the employee to move to another country, then the employee has more room to negotiate, and in this framework, we will try to hold a discussion with the company after the calculations have also been made for the other alternatives. Calculating employer cost in Israel, calculating what is the ‘real’ employer cost applicable to the employer, taking into account the combination of the employee’s employment agreement, pay slip, and more.

Examples of the complexity in these types of calculations:

  1. An employee who did not use sick days – yet, these days are available to him and they are part of the ‘theoretical’ employer cost, so this cost should be taken into account.
  2. Costs related to ‘custom’ in the Israeli company, for example – gifts for holidays, bonuses, etc.
  3. Certain benefits that were not reflected in the pay slip but were charged by the company as excess expenses also actually generate a cost that is saved when the employee moves abroad, so they can be taken into account in the negotiations against the employer.
  4. Options for employees, share-based payment, RSU – in the case of employee options, the capital compensation is also part of the employment cost and should be taken into consideration (in addition to other decisions such as the advisability of exercising, etc.).

To determine the fair gross salary under the circumstances, it is necessary to calculate the employer cost and net salary in the destination country. Separate calculations should be made to examine the salary from both the company’s and the employee’s perspectives for each alternative. When decision making is in place, it is necessary to take into consideration all taxes and costs that will apply in the destination country and also include additional costs that are non-taxable abroad (for example – private health insurance vs. health tax in the country and more).

 Some companies already have plans to compare conditions, which also calculate the cost in the destination country (even within the USA, for example – there is no doubt that the cost of living in Texas differs from that in California).

Our office accompanies many employees who are examining relocation at all stages of the transition. In many cases, our office performs the calculations and negotiates the terms with the related company on behalf of the employee, helping employees maximize their rights in the context of the move.

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