Do you know the cost of living in Thailand? What about the cost of living in Japan, or maybe even Mongolia? When dealt with the task of managing the moving process of employees, HR managers have a number of complex tasks to perform. One of the trickiest can be in determining what a company should pay staff as part of their cost of living allowance when relocated abroad.

It is not uncommon for employees who are relocated abroad to be offered additional living expenses while they are away, for the first few months at least. A cost of living expense allowance is a supplementary allowance, typically offered net of tax in the host country. These additional salaries are often accompanied by other allowances and benefits such as flights home, relocation / settling in allowance, and an allowance to buy furniture.

If HR gets the allocated allowance wrong, it can be disastrous in a number of ways; too much money and the company is losing out unnecessarily; too little and you are likely to be left with a demoralised and unmotivated employee, resentful of their overseas move. This can be particularly troublesome for many companies – and HR Departments – when a senior member of staff is involved and is likely to complain loudly and vigorously.

So how do you find out what the cost of living is in a particular country when looking to work out what to pay an employee’s living expenses? Short of visiting the country, spending a number of weeks there, and purchasing everything an employee may need to spend money on, it can be very difficult to work out what to pay, particularly if you are in an office thousands of miles away in a different country.

In order to help companies work out what to pay their employees, there are a number of reports and calculators available to help them. These are typically called COLA reports. Cost of Living Allowance (COLA) reports are invaluable for estimating correct living allowances for HR teams and managers.

The reports are typically produced by comparing a standard number of items and services from both home and host locations. The great thing about many of these reports is that they can be completely tailored to the specific needs and circumstances of each individual employee.

Reports typically look at criteria such as employee earnings/spending level, home size, family size, number of cars, distances driven, and car value. Interestingly if you are looking to calculate temporary cost of living allowances for employees – as is common when employees are away for a short period of time, or during a transitional period - good COLA reports will allow you to create detailed cost of living comparison reports and also provide per diem rates for temporary relocation allowances.

One of the real benefits of COLA reports is that they are a quick and easy way to calculate cost of living and temporary relocation allowances.

There are a number of things to bear in mind when it comes to calculating a cost of living report. Be especially aware of changes in currency.

Significant changes in the exchange rate can distort any calculations you draw up in reports. For example, during the height of the 2008 Credit Crunch the major global exchange rates changed by as much as 30-40%.

When fluctuations such as this occur it can be even more challenging to calculate an exact expense wage for a member of your team. When setting up reports, many companies look to set up an exchange rate rule. This could be, for example, a system to review employee wages when currencies fluctuate by as much as 5 per cent or so.

Many of these aspects can be challenging, not to mention also very time consuming, which is why many faced with the task of relocation prefer to use the services of independent experts to help them calculate living costs.

The 360 COLA Report

The 360 COLA report compares cost of living levels in over 11,500 areas worldwide. The report data is compiled from thousands of surveys and sources worldwide. The report assumes the employee will maintain their home country spending pattern, but will purchase goods and services in a less cost effective manner whilst on assignment.

The report can be presented in the currency of your choice and the source reporting data is updated each quarter.

Data relating to cost of living is compiled and analysed from available sources and areas which are not commonly surveyed are researched individually.

Actual housing sales data is compiled from commercially available sources. Fuel, consumables, medical care premium costs and effective income tax rates are also collected from authoritative online databases.

The report can be amended to reflect any on assignment benefits provided to the employee, for instance housing costs.

Reports can be ordered online at i360, via email or telephone. No contract or subscription fee required, reports can be ordered individually.