Why Expat Assignment Costs Rarely Match the Approved Budget

1. Why Initial Assignment Budgets Are Often Incomplete

Visible Costs Are Only Part of the Picture

Most assignment budgets focus on direct and visible costs, such as:

• Salary and assignment allowances
• Housing and cost-of-living adjustments
• Relocation and travel expenses

Hidden Costs Are Often Excluded

Indirect, variable, or jurisdiction-dependent costs frequently appear after the assignment starts, creating a false sense of certainty at approval stage.

2. Common Hidden Cost Drivers in Expat Assignments

Tax and Social Security Recalibration

Actual tax exposure can diverge from initial assumptions due to:

• Changes in tax residency status
• Loss of treaty reliefs
• Host-country social security obligations triggered earlier than expected
• Employer social charges not budgeted for

Payroll Complexity and Corrections

Assignments involving split or shadow payrolls often generate:

• Retroactive payroll adjustments
• Currency conversion discrepancies
• Late or incorrect gross-ups
• Reconciliation costs across jurisdictions

Compliance and Audit Costs

Once an assignment triggers additional compliance obligations, employers may face:

• Local tax filings and registrations
• Payroll audits
• Retrospective reporting
• Advisory and remediation fees

Assignment Scope Creep

Assignments often evolve beyond their original remit:

• Extensions beyond the initial term
• Expanded responsibilities
• Additional travel or regional oversight
• Special unforeseen requests from the employee being accommodated

Insight: Hidden costs are rarely the result of a single technical error — they stem from process gaps and delayed assessments.

3. Case Study — When a “Controlled” Assignment Runs Over Budget

Scenario

A UK-headquartered group approved an 18-month assignment to support a regional integration project in Asia. The budget assumed:

• No host-country payroll (not required on the basis no compensation paid through a local entity)
• Tax equalisation based on UK residence
• Limited employer social charges

What Changed

• Shadow payroll obligations arose mid-assignment (because of issues later discovered with the originally agreed recharge of costs between the home and host entity)
• Social security exposure was identified retrospectively
• Payroll gross-ups required backdated corrections

Outcome

Total assignment cost exceeded the approved budget by over 25%, driven almost entirely by tax, payroll, and compliance costs that were not visible at approval stage. None of the issues were technically complex — they were simply not identified early enough.

4. Why These Cost Overruns Are Hard to Spot Early

Timing Mismatch

Cost overruns persist because consequences often arise months after assignment start, long after initial budgeting.

Fragmented Ownership

• HR owns the assignment
• Payroll owns reporting
• Tax is brought in late — if at all

Overreliance on Assumptions

• Assumptions that “short-term” or “low-cost” assignments carry minimal risk
• Assumed host entity would be fine with original assignment costs cross-charge arrangement put in place exclusively by the home entity
• Failure to reassess scope or changes early enough during the assignment

5. How Employers Can Reduce Cost Volatility

Practical Steps

1. 1. Stress-test assumptions before assignment approval
   2. Link budget models to tax and payroll realities
   3. Reassess costs when assignment scope changes
   4. Centralise ownership across HR, Tax, and Finance
   5. Run early-stage diagnostics, even for “low-risk” assignments
   6. Involve host entity from the outset in the assignment costs cross-charge discussions

External Authority – Transfer Pricing Perspective

This pattern mirrors broader guidance on intercompany allocations. As highlighted in OECD guidance on transfer pricing for cross-border intra-group transactions, costs recharged between entities — such as payroll, assignment allowances, or other expatriate-related expenses — must be properly documented, justified, and aligned with arm’s-length principles. In practice, failure to do so can trigger retrospective adjustments or disputes with tax authorities.

6. Why Early Assessment Matters

From Budgeting to Control

Early assessment allows organisations to:

• Identify cost drivers before they crystallise
• Adjust assignment structures proactively
• Avoid retroactive corrections
• Maintain credibility with assignees and internal stakeholders

Even where assignments proceed, knowing the true cost upfront allows for better governance and fewer surprises.

Hidden assignment costs are typically identified after year-end reviews, when remediation is expensive and disruptive. Earlier assessment helps avoid budget overruns and compliance surprises.

You can sense-check your exposure using our 2-minute assignment risk assessment, which generates a free personalised high-level risk report.