Developing and implementing payroll compliance plans for expatriate employees could help employers to satisfy the expectations of the workers’ home and host countries, managers with Ernst & Young LLP said May 15.
The five critical stages in the lifecycle of expatriates’ cross-border assignments should be included in payroll compliance plans, said Leesa Lemon, senior manager at EY.
These stages are the preparation of proposed assignments, initiation of assignments, the assignment, repatriation of expatriate employees following their assignments, and follow-up assessments that examine the degree to which related payroll processing was effective, Lemon said.
Payroll professionals should communicate to colleagues in other departments the details of payroll compliance plans associated with cross-border assignments as early as possible before the assignment starts to better implement the plan’s components, Patrick Landers, global lead for mobility service delivery at EY, said at the annual American Payroll Association Congress in National Harbor, Md.
“You have to communicate,” Landers said. “As a payroll organization, you want a seat at the table and to be involved in the decisions that are made.”
Among the payroll-related components to be addressed when preparing an expatriate employee’s proposed assignment: whether the expatriate employee would be paid from sources in the expatriate’s home country, paid from sources in the host country for the proposed assignment, or paid from a combination of sources in the home and host countries, Lemon said at the conference.
Establishing whether home country, host country, or multi-country sources would be used to pay the employee may help clarify how home- and host-country tax provisions interact and affect the expatriate’s wages, Lemon said.
Finalizing the payroll-related details of a balance sheet should accompany the initiation of cross-border assignments, as should the filing of forms with the home and host country that are needed to accommodate proper tax treatment of the assignments, Lemon said.
To determine the applicable tax treatment for an expatriate employee, a cross-border payroll compliance plan should indicate whether the expatriate, instead of absorbing all of the assignment’s tax costs, would be expected to pay only a hypothetical tax amount equal to the estimated tax that would have been owed had the employee remained in the host country, with the company covering the employee’s multinational tax costs in excess of the hypothetical tax amount, Landers said.
During an expatriate assignment, accurate records of the type and source of compensation accumulated is critical, and a payroll compliance plan must account for this, among the many payroll factors relevant for active cross-border assignments, Lemon said.
Equity compensation and other trailing items are important to track as part of the repatriation process in order to recognize the applicable home- and host-country tax treatment on equity compensation based on dates of granting, vesting, and exercise, Landers said.
The payroll compliance plan for the follow-up assessment stage of cross-border assignment lifecycles should include an examination of the degree to which the assignment’s payroll-related costs exceeded those that would have been incurred had the expatriate remained in the expatriate’s home country, Lemon said.
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