Why do cost of living allowances (COLA) fluctuate?

Impact of exchange

Increased COLA is the result of:

  • Devaluation of home currency
  • Host inflation is higher than home

Decreased COLA is the result of:

  • Devaluation of host currency
  • Host inflation is lower than home

How to address
these changes

Why should the COLA increase?

  • Assignee’s contribution from salary now covers a smaller percentage of host goods and services costs
  • Company should increase COLA to make up the gap

Why should the COLA decrease?

  • Assignee’s contribution from salary now covers a higher percentage of their host goods and services costs
  • Company should reduce COLA to not overcompensate the assignee

What is the impact

Help your assignees understand the impact of exchange rate changes and inflation.
Remind them that:

Assignees are expected to contribute from salary; COLA makes up only a portion of total host goods and services expenditures

Changes in exchange rates and relative (host compared with home) inflation impact total host goods and services expenditures (home salary contribution plus COLA), but only COLA flexes up or down to ensure the assignee has sufficient funds to support the host goods and services expenditure. This means a 10% exchange rate change does NOT equal a 10% change in COLA. Percentage changes in COLA will be greater than the percentage changes in inflation and/or exchange rate. However, COLA changes can be easily reconciled by comparing the change in the total host goods and services expenditure

Tools that can help

Use the International Assignment Calculator to:

Manage and update your assignee allowances online

Ensure that allowances are correctly updated to ensure the right level of goods and services support

Ensure you have the most up-to-date COLA— the data in the International Assignment Calculator can be updated semi-annually, annually, or per client-specific schedules

Contact AIRINC

Schedule a Free Consultation

Learn more about COLA

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