How do you establish and revise the goods and services differential?
A goods and services differential can play a key role in an international relocation. Global Compensation Analyst Allen Cole examines why in this Relo Tip Tuesday.
Complete transcript: “Hi, my name is Allen Cole. I’m a global compensation analyst at Plus. I’m going to explain how to establish and revise a goods and services differential. The goods and services differential, also know as a cost of living adjustment or COLA, is the difference in the cost of goods and services in an employee’s home location versus the host location.
The purpose of the goods and services differential is to provide the employee with the same level of purchasing power in the host location as they had in their home location. Companies such as Mercer, AIRINC, and ECA are used to calculate goods and services amounts. These companies go through a variety of steps to create data tables that are used to determine a goods and services differential.
To get the goods and services differential you will need the employee’s salary and family size in addition to the home country, host country, and host city. In some cases, the costs of goods and services in the employee’s home country can be more expensive than that in the host country, meaning the employee will not receive an allowance. After the goods and services differential has been established it will fall into a regular review cycle which is typically quarterly or at a minimum twice per year.
Factors that can cause the goods and services differential to fluctuate include exchange rate and change in price of goods in the employee’s home country and host country, with exchange rate being the most common reason for adjustments. Once a goods and services differential has been revised, it will go to the global mobility manager for approval. Next, communication will be sent to the employee prior to payment being made to help alleviate any questions they may have regarding a change in their benefits.
If you follow these steps, establishing and revising a goods and services differential should be a breeze. Thanks for watching.”