What Keeps You Up at Night? International
Compensation, Payroll and Tax – Ask the Experts
Agenda
> Introductions
> Overviews
o International Compensation
o International and Expatriate Payroll
o International Taxation
> Q&A
PRESENTERS:
Linette Barclay – Sr. Mgr., Int’l Expatriate Services, Grant Thornton LLP
Dave Leboff – President, Expaticore
Nellie Bogart – VP, Int’l Comp & Payroll Admin, MSI
Kate DeFrancisco – Director, Client Management, MSI (Moderator)
International Compensation
Hot Topics…
> Developing a compensation policy and strategy that can grow
with the organization.
> Compensation Accumulation and ensuring all parties within an
organization understand the importance of reporting and
shadow payroll reporting requirements.
> Educating business units/subsidiaries/management on the
importance of establishing budget and accruing for “hidden”
costs such as allowances and tax costs.
International and Expatriate Payroll
Hot Topics…
> Understanding shadow payrolls. Why they are needed, how to
run them concurrently with the primary payroll and how to
ensure the accurate, compliant administration of both.
> Using technology to solve expatriate payroll problems – is there
a holy grail?
> When is outsourcing a viable option for expatriate payroll?
International Taxation
Hot Topics…
> Taxation of frequent travelers and “stealth expatriates:”
keeping up with a mobile workforce.
> Increasing tax rates in Europe may raise costs of expatriate
assignments.
> Cutting the cord – what to do with long term expatriates who are
not coming home.
Q&A
FAQs – International Compensation
1. I continually receive questions from business unit leaders when they receive their monthly
quarterly cost allocation reports. They don’t seem to understand the costs that are being
charged back by our Corporate finance department. What tools are available to me that
can help me to educate our foreign managers on the costs of international assignments?
At the beginning of each assignment it is essential that everyone is aware of the associated and
“hidden” costs of sending someone on assignment. One of the best ways to prepare business
until leaders is to provide a cost estimate at the beginning of the assignment. Many times, there
is an urgent business need to send someone on assignment, but business unit leaders may not
understand the additional costs that are required in order to send someone and possibly their
accompanying family members to another country. By preparing and providing a cost estimate,
global mobility HR managers and leaders can discuss the various options and costs with the
business unit leaders. Items such as taxes, immigration, household goods shipment, temporary
living, goods & services and rent can be reviewed with the finance teams to ensure everyone has
a good understanding of what it will cost to send someone on assignment to a foreign location for
a specified period of time. Providing cost estimates helps business units to budget and also
helps to avoid misunderstandings in the future. Additionally, reviewing the costs once per year by
revising the cost estimates for any changes that may have taken place over the course of the
previous year and plan for the future assists business units with allocating appropriate costs
within their budgets for the coming fiscal period.
FAQs – International and Expatriate Payroll
1.
My company seems to be entering a new country every month. What do I need to know from an
expatriate payroll perspective before putting the expat on the ground?
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You need to confirm that your company is registered to do business legally and employ people in the new
location. Some countries under certain circumstances do not require an entity – only a registration.
Make sure that you have good, locally compliant employment agreement templates in local language. The US
is one of only a couple of countries in the world where employment is at will and where an employment
agreement is not a basic requirement. Your expat may have to sign one.
Make sure that your expatriate has appropriate work authorization before moving. Noncompliance with labor
laws is very risky for the company and the employee. Jail is a possibility as are heavy fines for the
company. Push back on local business managers who tell you to ignore or circumvent immigration process
(If locals are involved, determine appropriate compensation for local jobs and denominate compensation for
locals in local currency. I am always surprised by how many sophisticated companies offer compensation in
USD to foreign locals
Figure out what if any benefits are going to be offered to locals over and above the local social benefits (which
are often the only benefits offered))
Register your payroll
Set up payroll to reflect all expatriate compensation details (e.g. hypos, home leave, tuition, etc.) and confirm
that you are not overpaying because of local pay idiosyncrasies such as 13th/14th month pay)
Be prepared to gross up locally
Organize local net pay and home country net pay to equal precisely what the employee is entitled to.
Make sure that underlying intercompany accounting is correctly in place so double expense (relating to two
payrolls) does not occur
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FAQs – International and Expatriate Payroll
2. A former employee who has no earnings with our company this year just paid a large tax
equalization sum back to the company. How do I report this for payroll purposes?
No reporting is necessary (there can not be a negative W2). The employee is eligible for a “claim of
right” deduction that reflects the payment back to the company on his/her schedule A. If the tax
benefit from the equalization is big enough (e.g. it generates a reduction in the employee’s tax in
excess, let’s say, of $10,000, consider recovering it from the employee. This tax benefit is the
property of the company.
3. My company has had a difficult time calculating accurate tax equalizations and collecting tax
receivables. Someone told me that the key to tax equalization collections is accurate payroll
reporting. Can you please explain? We need to get better at this.
If all of the employee’s compensation, tax gross-ups, hypo taxes, etc. are accurately reported on a
W-2, it is easy to create a clear reconcilement of tax equalization responsibilities (between the
employee and the company) that the employee can understand. If the computation is clear, made
timely, the numbers are credible, and the employer can confidently defend them, then it is easier to
rationalize the collection process and motivate the employee to pay up. Our experience is that if the
numbers are not credible on their face, if the employer has difficultly communicating the calculation,
or appears to lack confidence in the numbers and/or if the detail is not sufficient to validate the
balances due to the employer, it is hard to convince the employee to repay. So payroll is the key. If it
works well and all the detail is maintained, then all balances can be calculated quickly, correctly and
with sufficient detail that the employee understands the balance owed and pays it.
FAQs – International Taxation
1. What questions should I ask business unit leaders to identify situations where
employees are putting the company at risk for additional corporate taxes and transfer
pricing issues?
a. Do you have employees working in foreign countries on a regular basis? This could mean
anything from employees who make frequent trips and stay a week to employees who make
fewer trips but stay longer. In most cases, you need to monitor presence when an employee
spends more than 60 days in a calendar year in any one country. It is important to know
where your employees are working.
b.
Do you have a project where travel and entertainment expenses have significantly
exceeded the budget? This could be a sign that employees are spending more time in a
foreign location than originally planned.
c.
What activities are the employees engaged in when working in a foreign country? If they
are in a sales position and are negotiating contracts, then even minimal presence in a
country can result in exposure to the company for corporate taxes. Are they involved in
training or are they working on client sites?
FAQs – International Taxation
2. I know my company is not going to be 100% compliant with tax laws in every country;
how do I evaluate and manage risk?
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There are a number of factors that need to be evaluated to determine the level of employer
risk in a given country. The important things is to know all the facts so that an accurate risk
assessment can be made. Factors to evaluate include:
Number of employees working within a foreign country
Amount of payroll being paid to people working in the foreign country
Tax rate in the country
Level of other corporate activity within the country
Types of activities the employees are involved in (profitable project or contract that is
underwater)?
Current level of enforcement in each country
Visa representations that have been made
Strategic plans for the country (i.e. expansion or contraction of business in the future)
Understanding of “worst case” scenario (i.e. if enforcement actions occur, how will business
be impacted)
THANK YOU!