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| COLA Calculator Example |
Most companies that maintain
a global workforce or regularly send employees overseas on special assignments
offer a Cost Of Living Allowance (COLA). The purpose of a COLA is to partially
offset the high cost of living overseas and maintain an employee’s purchasing
power.
Disadvantages of Simple Cost
of Living Calculators
Many COLA calculators simply
apply a percentage adjustment between your current salary and the salary you
would need to earn at the destination you are moving to, based on the overall
cost of living. Simple calculators do not account your individual circumstances,
family situation, or the value of any benefits that your employer may offer
you.
The Xpatulator COLA
calculator allows you to run reports using many different scenarios. Depending
on the benefits that are included in the offer, you can check to see what the
affect will be on your actual purchasing power. The relative value of benefits such
as housing and health care may far outweigh any disadvantages of your salary
offer, such as accepting a compensation package tied to local pay rates.
Customized For Your
Situation and Lifestyle
The COLA calculator uses the
cost of approximately 200 goods and services grouped into 13 different baskets,
such as education, groceries and transportation. The baskets are then weighted
based on surveys of how expat workers actually spend their money. You can
choose which baskets to include in your calculation and which baskets to
exclude.
Choosing Your Baskets
You may wish to eliminate
certain baskets from your calculation based on your lifestyle, family situation
or the benefits that your employer is providing. You might eliminate tobacco
and alcohol as a lifestyle choice, education because you do not have any school
aged children or plan to homeschool and household because the company will be
providing housing for you. By removing these baskets the weight will be shifted
to the remaining baskets. The amount of COLA that you require to maintain your
purchasing power will be based on the expenses that you will actually be
responsible for.
Accounting for Hardship
There are often costs of
taking an overseas assignment that are more difficult to measure. Things like
social freedom, personal safety and difficulties associated with not knowing
the local language are broadly grouped as hardship. Xpatulator maintains a
global hardship rating for over 700 destinations based on quality of life
issues that foreign workers are likely to encounter. A relative difference in
the hardship rating is used to add or subtract from your COLA calculation.
For example, transferring
from a home location in Atlanta, Georgia, which has a hardship rating of 10%,
to Sao Paulo, Brazil, which has a hardship rating of 20%, would entail a 10%
relative difference in hardship. 10% of your inputted salary would be added to
your calculated COLA to account for the additional hardship of relocating from
Atlanta to Sao Paulo.
Adjusting Your Input Income
To accurately calculate your
COLA needs, you should base your calculations on your net income, after taxes.
Using the taxes you will be subject to at your host destination, determine how
much COLA you will require to maintain the same after tax purchasing power at
your host destination. You may need to contact tax advisers at home and abroad
to confirm what your tax, withholding and tax return filing responsibilities
will be.
If you are receiving
benefits such as housing, private education and transportation from your
company, adjust your income accordingly. Deduct the money that you would
normally spend on those items from the portion of your income you use to
calculate your required COLA.
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