One of the most common questions we receive during client briefings is: “What do we actually pay this candidate?” Whether you’re setting a budget for new talent or refining your hiring process, understanding the different types of employment contracts is crucial. This article breaks down the key differences between expat, local plus, and local contracts to help you develop a competitive compensation package.
Why Understanding Employment Contracts Matters
Determining the right compensation package involves more than just setting a base salary. Employers must balance budget constraints, market competitiveness, and the unique needs of each role. The structure of an employment contract is vital in attracting and retaining top talent.
For instance, when sourcing candidates, employers need to consider not only the candidate’s experience and skills but also the financial implications of various contract types. An ill-fitting contract can lead to wasted resources, miscommunication, or even losing a promising candidate who may not see the value in the offer.
The Key Questions Behind Contract Decisions
During our briefing calls with prospective clients, we often encounter questions such as:
- “How do we define the right package for this candidate?”
- “What differences should we consider between an expat and a local hire?”
- “Is a local plus contract more appropriate given our industry and location?”
The answers lie in understanding the unique features and benefits associated with each contract type. Let’s take a closer look.
Types of Employment Contracts Explained
When structuring a compensation package, it’s important to understand the three main types of contracts commonly used in today’s job market.
1. Expat Contracts
Overview:
Expat contracts are designed for candidates recruited from outside the local market or expected to relocate from another country. These contracts typically include an extensive range of benefits to support the candidate and their family during the transition.
Key Benefits Often Include:
- Housing Allowance: Assistance with rent or a company-provided residence.
- Travel Allowance: Round-trip airfare or periodic travel expenses.
- Medical Insurance: Comprehensive health coverage for the candidate and sometimes their family.
- Vehicle Allowance: A company car or transportation stipend.
- Family Support: Benefits that may extend to family members, such as schooling for children.
- Pension Contributions: Enhanced retirement benefits.
- Bonuses and Moving Allowances: Additional incentives to ease the relocation process.
Considerations:
These contracts are usually more expensive due to the additional benefits provided. They are appropriate for roles where the candidate’s skills are in high demand internationally or when the position requires specialized expertise not readily available in the local market.
2. Local Plus Contracts
Overview:
Local plus contracts offer a middle ground between expat and local contracts. They provide a benefits package similar to an expat contract but are structured for candidates who are already in the region or who do not require the full suite of expat benefits.
Key Benefits Often Include:
- Housing or Accommodation Allowance: Typically less comprehensive than an expat package.
- Travel Benefits: Limited travel allowances, often only for essential business trips.
- Medical Insurance: Basic to mid-level health coverage.
- Vehicle Allowance: May be provided but often less generous.
- Additional Incentives: Bonuses or allowances that reflect local market conditions.
Considerations:
Local plus contracts strike a balance between offering competitive benefits and managing costs. They’re ideal for candidates with international experience or high-level skills who do not need the full range of expat benefits.
3. Local Contracts
Overview:
Local contracts are the most straightforward and cost-effective option, focusing on providing a competitive gross salary with minimal additional benefits.
Key Features Often Include:
- Base Salary: A predetermined gross salary that forms the core of the compensation package.
- Basic Benefits: May include standard pension contributions or a modest bonus structure.
- Limited Perks: Benefits like health insurance or performance bonuses may be included but are usually less elaborate than those offered in expat or local plus contracts.
Considerations:
Local contracts are common in markets where the cost of living is lower or where additional benefits are managed separately. They are ideal for roles that do not require extensive relocation support or additional benefits.
Factors Influencing Contract Decisions
While the three contract types provide a framework, the final decision depends on several factors:
Regional Differences
Different African countries—and even regions within a country—can have significant variations in cost of living, tax laws, and market expectations. For instance, a contract in a major urban center might differ significantly from one in a smaller city.
Industry Standards
Certain sectors, such as technology or finance, may demand more competitive packages with additional benefits or performance-based bonuses. Understanding industry benchmarks is essential for tailoring the contract appropriately.
Role Seniority
Higher-level positions or roles requiring niche expertise might warrant a more generous benefits package, while entry-level roles may be adequately covered with a standard local contract.
Candidate Profile
Candidates with advanced skills or unique qualifications might be better positioned to negotiate for a local plus or even an expat contract, especially if their expertise is scarce in the local market.
Strategies for Budgeting and Negotiation
Step 1: Gather Market Data
Conduct thorough market research by looking for salary benchmarks, consulting with industry experts, and utilizing online resources to understand current trends. This data will provide a strong foundation for your negotiations.
Step 2: Define Your Budget
Determine what your company can realistically offer. Consider not only the base salary but also additional benefits, ensuring your budget aligns with market rates while maintaining quality.
Step 3: Customize the Package
Tailor the contract based on market research and the candidate’s needs. If the role demands exceptional skills, consider a local plus or expat package. Otherwise, a local contract may suffice.
Step 4: Communicate Clearly
Clearly outline the benefits and expectations during negotiations. Transparency builds trust and ensures both parties understand the terms of the offer.
Step 5: Be Prepared to Adjust
Stay flexible—market conditions can change, and adjustments might be necessary. A well-structured contract should be adaptable while protecting your company’s interests.
Real-World Applications
Consider an employer sourcing candidates for a specialized role in a rapidly growing industry. Instead of offering a one-size-fits-all package, the employer evaluates whether an expat contract, a local plus contract, or a local contract is most appropriate. For instance, if the candidate is an experienced professional from overseas, an expat contract might be justified. However, if the candidate already resides in the region and market conditions are favorable, a local plus or local contract could be more suitable.
By evaluating factors such as location, industry standards, and candidate profiles, employers can present competitive yet sustainable offers that meet both candidate expectations and budgetary constraints.
Conclusion
Understanding the various types of employment contracts is essential for making informed hiring decisions. Whether you choose an expat, local plus, or local contract, knowing the nuances of each option will help you balance costs with competitive advantage. A well-structured contract not only reflects your company’s values but also plays a significant role in attracting and retaining the right talent.
By leveraging market data, setting realistic budgets, and customizing offers to suit individual roles, you can create compensation packages that satisfy both employer and candidate needs. As the employment landscape evolves, staying informed about contract trends and remaining adaptable in your approach will ensure your hiring process remains efficient and effective.
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