Brexit could shave off Indian expats’ earnings

The British pound fell to a 31-year low and is expected to extend its drop, which could result in lower earnings for expats from India


Besides salary, benefits like health insurance and pension given to employees will also be affected as companies will now have to renegotiate the terms with insurance providers. Photo: Jon Nazca/Reuters
Besides salary, benefits like health insurance and pension given to employees will also be affected as companies will now have to renegotiate the terms with insurance providers. Photo: Jon Nazca/Reuters

Bengaluru: With the United Kingdom voting to quit the European Union (EU), the consequences may be felt by Indian expats, as the move may potentially have an impact on the salaries they draw.

As the UK opted to end its 43-year-old association with EU in Thursday’s referendum, the British pound fell to a 31-year low and is expected to extend its drop, which could result in lower earnings for expats from India.

A pound fetched Rs.93.4 on Friday against Rs.96.3 a week ago.

Ruchika Pal, India practice leader, global mobility, at Mercer, which measures the cost of living across different countries, said: “The most direct impact the EU referendum will have (and has already had) on our Cost of Living ranking is through currency fluctuations.”

“If the GBP weakens further, this will further impact the cost of living differential of UK cities; UK cities will go down in the ranking, as they will become relatively cheaper for an assignee.”

This means that a person going to the UK will suddenly be eligible for lesser cost of living allowance (COLA). And usually, COLA accounts for 20-30% of salary, said Pal.

According to Mercer, 85% of the companies in India pay a COLA to their long-term assignees either as a separately identified allowance or as part of a single expatriate allowance, covering other items in addition to goods and services in the remuneration package.

Three-fourths of these companies determine the allowance using an index-based approach – usually the same index is used throughout the assignment for all typical long-term assignments.

UK is a top destination for Indian expats, next only to the US. Information technology industry lobby group Nasscom said there are about 800 Indian companies in the UK employing 110,000 individuals.

Besides salary, benefits like health insurance and pension given to employees will also be affected as companies will now have to renegotiate the terms with insurance providers.

“Earlier companies would have gotten a deal from insurance companies for their operations across EU, now that cross-border convenience could disappear, and companies will have to negotiate a deal for UK alone. This could increase cost for companies with respect to the benefits paid to employees,” said Pal.

Human resource (HR) heads say it is too soon to tell what the impact on their companies will be. “We will monitor how the pound fares and then take a call on whether to adjust the amount of rupees paid for a pound,” said Adil Malia, group president, HR, at Essar Group.

To be sure, even though the UK has voted in favour of leaving the EU, it will take some time before the real impact of the exit is assessed. Much uncertainty will remain until the UK government negotiates precise exit terms with the EU and member-states. This will take a minimum of two years.

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