For many employees, moving to a foreign country can be one of the most exciting—and most stressful—events in the course of their careers. Employees should keep many considerations top of mind before relocating. These include where to live, how to get around, and where the children will go to school. One thing employees shouldn’t have to worry about is how they will be paid—accurately and on time.
Payroll requirements in the United States can be difficult enough to get right without the added burden of trying to understand and meet payroll reporting, remittance, and cash disbursement requirements in a foreign country. As companies continue to gain an understanding and appreciation for the difficulties surrounding payroll reporting and delivery related to their globally mobile employees, it is imperative that the payroll department participate in all phases of the lifecycle of the assignment: pre-assignment planning, assignment initiation, annual ongoing support, repatriation, and post-assignment planning.
Payroll’s Port of Entry
Too often, companies will only bring in the payroll department at the point of assignment initiation (or even after the employee has actually started in the new location), believing that it can simply add an allowance or a deduction to account for the geographical differences. However, this strategy fails to address the complexities that exist in trying to determine where the payment will be initiated (i.e., in the home location or the host location) and where payroll needs to be reported (in one or both locations). Payroll considerations should be included in the initial planning conversations to help a company’s global mobility program become more strategic.
What types of hurdles can be avoided by the payroll department having a seat at the table during the pre-assignment planning stage? A full review of the facts and circumstances of the assignment can help determine if a split payroll or shadow payroll is needed. Additionally (and most importantly), early conversations can determine if a payroll department/vendor exists in the host location to assist with local requirements, or if this needs to be established in advance of the assignment initiation.
So how can careful attention to pre-assignment planning impact the “go-live” stage? A lack of knowledge about a new assignment can lead to confusion when initiation is under way, such as when the company gives instructions to add an allowance or make other adjustments to someone’s pay. Last-minute requests can result in a mad scramble as payroll professionals try to understand what the new instructions mean, how the changes will impact the net pay, and whether the payroll platform is set up to support such an arrangement.
Other considerations that arise during initiation include how the employee is set up within HR systems and whether payroll has the appropriate codes for items that may include hypothetical tax deductions, cost-of-living allowances, and pre- or after-tax housing contributions. The number of assignees and types of assignments a company has established can also influence initiation considerations. Thoughtfully and diligently reviewing these items during the assignment planning stage tends to lead to a streamlined assignment initiation with significantly fewer errors, less confusion, and less frustration.
As the lifecycle of the assignment moves beyond the initiation phase, payroll will, ideally, need less month-to-month attention as the proper set up is complete. The department focus can shift to providing insightful data to various stakeholders within the company’s global mobility program. This can include, but is not limited to, assignment cost reports to senior leaders and full compensation breakdowns for use in preparation of tax returns. Of course, in order to be able to produce these strategic reports, there must be a process in place to gather evidence of all expenses or payments made outside of payroll for analysis of the reporting requirements within payroll. This is best done in partnership with various departments and/or vendors including the company’s payroll provider (if an external provider is used), tax advisors, and any relocation partners the company has. The more frequent the collection of non-payroll-initiated costs occurs, the more useful the payroll department can be when reports are needed. Many companies are beginning to complete this collection quarterly as opposed to yearly.
Ongoing Monitoring Into Repatriation Planning and Beyond
Payroll’s responsibilities during the actual assignment do not stop at reporting. In fact, payroll leads need to continually monitor the pay records for all assignees on a routine basis. For example, in many large organizations, bonuses and other incentive payments are processed through software programs that feed directly into the payroll system. During the course of this feed, do not miss the opportunity to review the need for what, if any, actual or hypothetical taxes should be taken from the payment. Skipping this step may result in an absence of any tax withholding on the compensation and, in turn, likely leave the employee short of his or her annual tax obligations.
Clearly, payroll is an integral part of a company’s extended global mobility team and should be a part of every phase of an assignment. This does not end with the delivery of payroll each pay period or after reports are provided but continues into repatriation planning and even beyond. When it comes to expatriate payroll, there is not always a clear stop. Even after an assignment ends, continue to focus on the collection of expenses incurred outside of payroll and then determine where and how to impute these into payroll. Often, certain assignment-related expenses such as payment of foreign taxes or a tax equalization payment can be seen two or three years after an assignment ends. In addition, a number of questions may arise when an employee repatriates. If the employee moves to a different pay group, do these expenses hit the assignment-related pay group or the new pay group? What happens with an individual’s social taxes if reporting on multiple pay groups? If the repatriated assignee owes money to the company on a tax settlement a few years later, how is this recorded in payroll—or should it be? The more integrated payroll is with a company’s global mobility group and other key stakeholders, the more clarity can be brought to these situations.
The same can be said when looking at the final step in the lifecycle of an assignment. Post-assignment planning may not be seen to be the most important step, but it is critical to the overall success of a company’s global mobility strategy. All stakeholders should come together after an assignment ends to review and discuss what worked and didn’t work to determine how processes need to evolve to improve the program. Again, the payroll department needs to be a valued partner at the table for these conversations so that its expertise is considered when identifying opportunities for new process improvements or other enhancements.
As global mobility becomes more of a strategic function within an organization and stakeholders become more aware of the complexities of having a global workforce, it becomes increasingly apparent that not all assignments are the same and there is no one-size-fits-all approach. As such, all expertise from within an organization, including the involvement of the payroll department, stands to play an even bigger role throughout the lifecycle of an international assignment.
In summary, payroll plays an important role in all phases of the lifecycle of an assignment:
- Pre-Assignment Planning—Where should pay be delivered? What needs to be reported and where? Do you need to operate shadow payroll or a split payroll? Is the payroll platform set up to handle the assignment?
- Assignment Initiation—Is set-up done correctly throughout the system? What will impact actual tax withholding/social security? Are they exempt?
- Annual Ongoing Support—When will expense data be collected and imputed? Will you provide cost reports/compensation breakdowns? What other payments are being made to the assignee, and is different processing required?
- Repatriation Planning—Review the employee’s set-up again. Is the employee now subject to actual withholding again? Where do trailing expenses get reported?
- Post-Assignment Planning—What worked? What needs to improve? Are other options for delivery and reporting worth considering?
Overall, communication and integration are keys to an effective program. Partnership among a company’s internal groups and key external vendors will go a long way in ensuring a successful lifecycle of an assignment