In Effectively Utilizing Global Mobility to Support Growth and Talent Attraction, we explored the many reasons companies and employees want to move to another location. We also talked about what it means for payroll teams to have employees on assignments overseas from a payroll perspective.
Today I want to expand on this subject and examine the main areas payroll must concentrate on when dealing with globally mobile employees.
To begin, here are the top issues to consider and evaluate when managing employees on assignments:
#1 Payroll withholding obligations
These may exist in various locations based on where the employees are carrying out their duties of employment. Remember, it is essential to consider both local tax rules and double taxation agreements where applicable.
#2 Social Security compliance
All applicable local legislation, EU rules, and other international agreements must be reviewed. While people may have a preference in some countries, it is not always a choice, and the rules dictate the final answer.
#3 Employment law
This is dictated by the jurisdiction and varies from country to country. It is up to the in-house teams (HR, legal, and tax) to work together to understand the rules and take independent advice on all employment law rules for each location.
#4 Employer policies
This will vary depending on your company’s approach. Some questions to ask are whether you will adopt a tax equalization policy so the assignee pays no more/no less tax than they would at home or a tax protection policy that passes any tax benefits to the assignee?
#5 Personal tax implications
There may be tax implications for employees on assignments where they need to submit personal tax filings. Again, it may be up to the company to work with advisors to ensure that all domestic rules and double taxation agreements are considered.
#6 Corporate tax implications
Similar to the personal tax question, this time, it refers to the company. Does the presence of the employee create a permanent establishment or corporate tax presence?
#7 Classification of employee
You will need to categorize whether the employee is an assignee, cross-border worker, local hire, or other. There are reasons and rulings around each classification, so be sure to get the information related to the country in question.
#8 Risk factors
Sometimes a lack of clarity in a location may mean that the risk-averse employer may have to invest a lot of time and money in liaising with authorities to get rulings. To avoid this, gather all the relevant information ahead of time and have this to share with both the employee and leadership.
How can organizations ensure employees are not taxed twice?
Most companies with globally mobile employees recognize the need for dedicated policies for global mobility. These policies can protect employees from hardship arising from taxes imposed in a host location. The overall aim of such policies is to ensure that employees are no worse off from a net pay perspective because of the assignment abroad (with equalization also ensuring that an employee is no better off). Sometimes employers will therefore apply "hypothetical tax" in a home location to pay the employee the same net pay via the home country payroll as if they had not gone on assignment, where actual tax withholding no longer applies.
Whether or not actual taxes remain due in the home location will be dependent on the employee's resident status and the specific rules of the jurisdiction. Double taxation agreements (DTAs) are usually helpful in alleviating a double tax charge on the same income, but payroll compliance rules do not always provide for such relief in real-time.
How should payroll teams approach Social Security?
The social security position of the international assignee must be carefully considered before the commencement of the assignment. Domestic legislation, EU regulations, and bilateral agreements will also have to be factored in, and the correct country for the contributions must be determined. The social security position will not necessarily be the same as the tax position. Usually, employees on international assignment will remain in their home country’s social security system, but it is important to ensure that the correct documentation is in place to allow for exemption in the other location.
Please remember that there is a time limitation on social security arrangements – keep a close eye on the expiry dates of any certificates.
What will global mobility look like in the future?
In part, due to the global pandemic, flexibility is now vital. The option to work from home (WFH) will need to be addressed in HR policies for employers with globally mobile employees. I also believe that more emphasis will be placed on contractual arrangements in determining the actual and shadow payroll obligations. Employers will look more to the tax and payroll obligations in jurisdictions where an employee is working from home, and corporate tax considerations will play a more significant role in sending employees overseas. We’ll also start seeing companies track employee movements around the globe, and from this, inform their workforce strategy.
