Improving the mobility of labour in China

07/03/2001
Business Weekly: Annella Heytens

If employers were to abide by the strict regulations set out by the government regarding the location of employment, then labour mobility would not exist.

The hukou, or residence status, of employees makes it virtually impossible for employees to move from one location to another without a high cost to the employer.

But the benefits of relocating employees are numerous: lower hiring and training costs to hire internally, opportunities for promotion, professional development, financial rewards and son on.

Unfortunately, many local employees are reluctant to relocate for several reasons.

Foremost on the list of reasons is their children's education, particularly if the move is only temporary.

The education system varies from location to location in terms of quality and thus, employees with children in a city with an excellent education system are unwilling to uproot them to another city.

There is a concern that upon return to their home city, their children may be behind their classmates who remained in the same school.

The education situation sometimes makes it necessary for the employee to maintain two households - one in the host city and the other in the existing home city.

For the employee to consider such an arrangement, the reward has to be substantially more lucrative to afford this situation.

In the United States, the most difficult issue is how to deal with selling an existing home.

In China, it is less common for employees to sell their existing home in favour of a new one in the new location. It is highly likely that their existing home will not be sold even when the employee moves location.

Other reasons employees are not interested in relocating are: the high cost of moving to another location; the lack of commitment to continue working for the same company for a prolonged period of time; finding employment for an accompanying spouse; housing or mortgage concerns; poor career growth; leaving family ties and so on.

This means companies will have to boost their relocation package or provide creative solutions to some of these concerns.

A relocation policy should be formulated for both temporary and permanent relocation assignments to be internally equitable and consistent. Prior to creating the policy, it is best to find out what packages are being offered by other companies to ensure external competitiveness.

With China's large geographic territory and potential for expansion, having a clear and consistent policy will make administration and implementation easy and manageable in the future.

There are both compensation and non-compensation components included in a relocation policy in addition to the employee's existing remuneration package.

Additional compensation for relocation is made up of a cost of living adjustment (COLA), allowances (relocation, housing, hardship, education and so on) and a mobility premium.

These are given either as a lump sum at the beginning of the assignment or as a percentage of the salary. These are set with reference to published information from third party firms or in-house research conducted by the company. The disadvantage of providing any form of cash in the form of lump sum payments is the employee's individual income tax.

If the lump sum payment is large enough to place the employee in a higher tax bracket, then the company should consider paying this out over the course of the year or gross up the amounts to cover a portion of the tax payments.

Shipment and storage of household goods, pre-assignment visits, home leave, tax consultation, real estate services, spouse employment services, are some non-compensation items provided for relocating employees. Some companies are extremely generous in their packages, offering more than what is necessary in order to lure employees to sites less desirable than their current location.

After formulating the relocation policy and before paying any relocation expenses, companies should protect themselves from employees who jump ship by implementing a payback agreement.

The agreement should outline all costs that are to be reimbursed or pro-rated, depending on how long the employee stays with the company after the relocation. These agreements should be in effect for a minimum of one to three years.

These agreements, however, may not deter employees from leaving particularly if they pass the cost on to the new employer as part of their recruiting cost.

One of the reasons it is difficult to move staff is the lack of portability in the social insurance system. In order to get around this issue for short-term assignments, it is better to pay the social insurance in the employee's home city and charge this back to the host city as it is likely the employee will return anyway.

For permanent assignments, the employer will have to look into how much benefit will the employee lose if he or she moves to a new city. Thereafter, the decision will need to be made where to make the contributions assuming that an employee's working permit may be secured.

Companies should continue to find ways to relocate employees, either temporarily or permanently, with high talent to work in start-up, difficult or expanding operations. The cost of relocating an employee should never be a barrier to hiring the best talent for a job.