Volatile rupee may trigger expat pay reset
Bengaluru: The sharp depreciation of the rupee may spur companies to look afresh at expatriate compensation in India and factor in currency volatility while drawing up employment contracts, said industry executives, lawyers and headhunters.
Expat salary is benchmarked mostly in foreign currency but paid out in rupees at a pre-agreed exchange rate in keeping with employment contracts, shielding both employers and employees from short-term swings. However, with recent sharp volatility testing these limits, companies and executives may be compelled to re-evaluate how currency risks play out.
Tighter contracts, voluntary payouts to make up the difference to retain senior talent and more specific volatility clauses may be on the cards, said people familiar with the matter.
Expat employment contracts are negotiated in a way that both the employer and the employee’s interests are taken care of, with the predetermined rate set slightly higher than the recent average to factor in any minor currency fluctuations.
About 25-30% contracts currently expressly spell out that in case of any unavoidable circumstances, such as a global geopolitical or economic crisis, the parties will renegotiate and agree on a new conversion rate through mutually acceptable formula or methodology, said Anshul Prakash, partner, Khaitan & Co. “These clauses are likely to figure in many more expat contracts going forward,” he said.
As the Iran war rages on, the rupee has been under stress, breaching the 95-mark against the US dollar for the first time on Monday, slipping from Rs 85.57 per dollar on April 1, 2025, before recovering slightly on Tuesday.
“A scenario is now coming up where you need to capture how you intend to make good any shortfall, which is emanating from a potential fall in the value of foreign currency or local currency. So even if an exchange rate is pre-determined in a contract, you have a rider to say that in case it transpires that the value of that currency is eroded, then the employer will make good that shortfall,” said Prakash.
Navnit Singh, chairman at executive search firm Korn Ferry, said contracts are typically pegged to a prefixed rate which is revisited after a year. “Depending on the prevailing rate at the time, it is fixed for the next year. But the way things are going, people will start rethinking on fresh contracts; build in that buffer,” he said.
In the absence of any current contract expressly spelling it out, some companies may even voluntarily consider making good the shortfall to retain the executive, said Prakash.
“Some may even look at a lump sum payment,” said Singh.
However, in case the contract does not factor in such an eventuality, the decision to make up the shortfall would be completely at the discretion of the companies, said experts. Only a small percentage of expats have currency volatility factored into their monthly salaries, with the calculated based on SBI TT (telegraphic transfer) buying rate—the exchange rate at which State Bank of India buys foreign currency from customers.
So far, currency fluctuation has not emerged as a significant point of dispute, said K Sudarshan, managing director, EMA Partners India, adding that the executive search firm had not come across instances of a dollar-rupee reset for compensation in the past.
But it may happen now, given the extent of the volatility, according to Sudarshan. “That will become a point of conversation, not contention,” he said.
Expat salary is benchmarked mostly in foreign currency but paid out in rupees at a pre-agreed exchange rate in keeping with employment contracts, shielding both employers and employees from short-term swings. However, with recent sharp volatility testing these limits, companies and executives may be compelled to re-evaluate how currency risks play out.
Tighter contracts, voluntary payouts to make up the difference to retain senior talent and more specific volatility clauses may be on the cards, said people familiar with the matter.
Expat employment contracts are negotiated in a way that both the employer and the employee’s interests are taken care of, with the predetermined rate set slightly higher than the recent average to factor in any minor currency fluctuations.
About 25-30% contracts currently expressly spell out that in case of any unavoidable circumstances, such as a global geopolitical or economic crisis, the parties will renegotiate and agree on a new conversion rate through mutually acceptable formula or methodology, said Anshul Prakash, partner, Khaitan & Co. “These clauses are likely to figure in many more expat contracts going forward,” he said.
As the Iran war rages on, the rupee has been under stress, breaching the 95-mark against the US dollar for the first time on Monday, slipping from Rs 85.57 per dollar on April 1, 2025, before recovering slightly on Tuesday.
“A scenario is now coming up where you need to capture how you intend to make good any shortfall, which is emanating from a potential fall in the value of foreign currency or local currency. So even if an exchange rate is pre-determined in a contract, you have a rider to say that in case it transpires that the value of that currency is eroded, then the employer will make good that shortfall,” said Prakash.
Navnit Singh, chairman at executive search firm Korn Ferry, said contracts are typically pegged to a prefixed rate which is revisited after a year. “Depending on the prevailing rate at the time, it is fixed for the next year. But the way things are going, people will start rethinking on fresh contracts; build in that buffer,” he said.
In the absence of any current contract expressly spelling it out, some companies may even voluntarily consider making good the shortfall to retain the executive, said Prakash.
“Some may even look at a lump sum payment,” said Singh.
However, in case the contract does not factor in such an eventuality, the decision to make up the shortfall would be completely at the discretion of the companies, said experts. Only a small percentage of expats have currency volatility factored into their monthly salaries, with the calculated based on SBI TT (telegraphic transfer) buying rate—the exchange rate at which State Bank of India buys foreign currency from customers.
So far, currency fluctuation has not emerged as a significant point of dispute, said K Sudarshan, managing director, EMA Partners India, adding that the executive search firm had not come across instances of a dollar-rupee reset for compensation in the past.
But it may happen now, given the extent of the volatility, according to Sudarshan. “That will become a point of conversation, not contention,” he said.
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