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Emerging Trends

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Emerging Trends in Global Payroll Integration

By Sandy Shurin, with Frank J. Mendelson

Sandy Shurin 010

What are the emerging trends in global payroll that are attracting your attention? 

We are witnessing a growing number of individual mobility types. These include short-term assignees, long-term assignees, payroll transfers, business travelers, and cross-border commuters. This means we need to identify the differen

t technical obligations for each population. The interplay between local legislation, treaties, and global standards makes this a complex area to navigate.

In addition, we’re seeing different classifications such as non-employee directors, contractors, traditional employees, and others that may have existed in a company’s headquarters location that are now located in its foreign locations. For example, it includes more foreign national/foreign resident directors and contingent workers abroad.

Is there a frequently asked question that will no longer be part of the conversation in payroll in the near future? 

“Can’t the individual just fix this with their tax return?” 

We’re seeing a number of regulators globally ask if individuals really need to be filing tax returns. Some places have already taken steps to abolish the need for an individual tax return—but this applies only to certain cases. In those locations, accurate payroll reporting becomes even more critical. Even if a technical obligation exists today, I expect that audit activity around payroll reporting may increase where an underlying assumption is that wages have been reported and taxes withheld/remitted correctly. 

This will naturally place a greater burden on payroll to have a comprehensive understanding of compliance obligations.

What resources do you use to stay current on the latest legislation and trends in payroll? 

This is probably the question I get most at the end of a long meeting or call where we’ve walked through planning considerations or technical requirements (assuming everyone is still awake and asking questions). I’m fortunate to have an incredibly talented global network of professionals behind me, and in turn I try to be their U.S. resource. We’re dependent upon each other, and believe that when we’re all well-informed we’re better able to serve our clients. Whether it’s gender pay gap regulations in the U.K., compensation deduction rulings in Belgium, tax authority announcements in Bulgaria, or proposed tax changes in the United States, our global member team is in constant contact (literally on calls at all hours, as well as regularly issuing technical updates). Ultimately, I hope our clients benefit.

How can a payroll department integrate on a strategic level with corporate finance, human resources, and other departments to provide a competitive advantage?

I spend a lot of time in the global long-term incentive area, and I’ve come to learn that payroll increasingly serves a vital role for numerous functions. The following examples illustrate some of the areas that payroll serves: 

  • When I’m in a meeting discussing compensation costs for deduction purposes, where, and for how much—we will quickly turn to payroll to see how we can leverage the detail that resides in-house. 
  • Mobility program managers typically do not explain to individuals how they will be paid, what taxes they can expect to have withheld, and what benefit programs they can/cannot participate in without payroll’s validation. We’re seeing some cases where individuals are being shifted between different retirement plans when they work in multiple countries, with a resulting net impact on the amount of the retirement benefit they receive. 
  • Stock administration teams often lean on payroll to accurately record transactions that are initially typically executed by a third-party broker/administrator.
  • If finance wants to know the anticipated impact to cash flow from, for example, different withholding settlement strategies, payroll can play a vital role in that forecasting. Of course, there are plan participants themselves (how often have we heard, “Well, I thought my W-2 had everything I was supposed to report”?).
Payroll can also help inform certain risk areas, such as permanent establishment risks in locations where individuals may perform services without going on a local payroll, as well as compliance obligations when new entities are added to, or removed from, an organization chart.

What are the biggest challenges for payroll teams? 

Unfortunately, payroll oftentimes can still be “the last to know” when the business makes a decision. For example, if a target company is acquired, this may place the business in jurisdictions in which payroll does not have sufficient technical experience. 

The business may also decide to acquire a new population of individuals who present a challenge from a payroll reporting perspective. Intercompany cost-sharing arrangements may also impact payroll compliance, though that decision will typically reside, at least initially, with other stakeholders. Payroll is often on the execution end of a decision, when it also would have been able to add valuable input in the decision-making process.

What are some of the key best practices and strategic choices you apply to manage risk and compliance? 

First, decide what your goals are. I often advise my clients to focus on either specific populations such as executives, domestically mobile employees, globally mobile employees, non-employee service providers—or specific locations. This might be countries/regions that are growth areas for the company, or locations where the company has increased audit risk for any reason. Once you feel comfortable you’ve met your initial goals, tackle another population or location.

I’ve seen companies try to start with a payment type (for example, variable pay for all plan participants in all locations), but this tends to be too broad. So if you are worried about a type of pay, then look at the specific people or places impacted by that compensation vehicle.

Also, when assessing risk mitigation, try to remain flexible, even when it seems painful. In some cases, a new earnings code can be the difference between accurate reporting and audit risk, or the path to executing on a business decision regarding a tax position. In some cases, it can be more involved. Either way, if the functionality exists, it can promote payroll as a function having a positive impact on risk mitigation. 

How can companies better leverage payroll data for strategic decision-making?  How will payroll data emerge as a critical analytic business tool?

We’ve done some interesting analyses with payroll data around compliance risks, as well as planning considerations. Payroll data can be the key to understanding trends in employee movement around the world, or domestically between states. This data can identify compliance gaps and inform decisions such as whether the business should consider opening/registering an entity in a certain location, and help with talent discussions around whether to hire more local talent rather than bear the costs associated with ongoing employee mobility. As an example, we have leveraged different data visualization tools to pull this data together to help forecast anticipated payroll obligations associated with certain forms of multi-year compensation (allowing users to click on and drill down into specific scenarios). 

This interview does not constitute tax, legal, or other advice from Deloitte Tax LLP, which assumes no responsibility with respect to assessing or advising the reader as to tax, legal, or other consequences arising from the reader’s particular situation.


SandyShurin_Contributors_GPR_Aug_Sept17Sandy Shurin is a Senior Manager in Deloitte Tax’s Global Employer Services (GES) practice. He specializes in tax advice regarding the design of global compensation programs, and addressing associated compliance obligations. He earned his J.D. from Washington & Lee University School of Law.