8/12/2013. Then. Now. Managing risk and compliance. August 14, 2013

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G

LOBAL

/I

NTERNATIONAL

P

AYROLL

–

““T

T

HE

G

ROUND

W

ORK

””

August 14, 2013

Then

Identifying & tracking

the assignees

Drafting a policy

document

Implementing a

mobility process

Deploying an

assignment

management system

Reporting

Now

Linking with talent

management &

business strategy

Collecting all costs in

order to manage costs

and accruals

Implementing process

efficiencies/workflow

management

Integrating systems

Data anal tics

Data analytics

Deploying portals &

apps

Managing risk and compliance

Mobility Management

Mobility Management: Then &

: Then & Now

Now

Challenges Responses

“Pent-up” Globalization initiatives as economies emerge from a few years of waiting out recessionary conditions

Broader spectrum of market activity—from emerging to mature

Rebound of Merger, Acquisition, and Divestiture activity

Business

Global Mobility model that inserts itself into global strategic initiatives

Global Mobility is aligned to business objectives Global Mobility is a credible and relevant

resource to the business Continued disconnect between skills businesses

required and people seeking employment Organizations are sourcing available talent

through more and more channels Talent

Global Mobility promotes organizational capability worldwide

Global Mobility as a key ingredient or factor in corporate talent initiatives (leadership development, management of high-potentials, etc.)

Renewed emphasis on transparency Global Mobility promotes a governance and

Challenges facing mobility

More accountability within organizations Regulatory environments tightening at a faster

pace across the globe

Compliance & Risk

framework

Global Mobility can support due diligence and mitigate risk

Demand for operational excellence Lack of skilled global mobility professionals Increased push for cost reduction Operations

Move toward an advisor role within the business

(2)

• Payroll administration • Shadow payroll

administration • Local payroll and

tax compliance • Compensation collection • Ongoing accruals funding reports • Assignee tax compliance • Budgeting & Forecasting

• Establishing Accruals • Cost management, exception tracking • Individual and corporate

tax planning • Assignee career management • Proactive repatriation planning Deployment Data

VA

LU

E

HIGH SATISFACTION

• Global HR Metrics – attrition, retention • Total cost reporting • Benchmarking • Return on investment

evaluation • Vendor cost

management • Global mobility policy

design • Individual pension and

social security planning • Tax policy design

Analysis Decision

Program Administration Lifecycle

HIGH



Globally mobile employees create individual and employer

tax obligations



Incentive awards - cash and equity contribute to exposure



Risk Exposure (tax audits, PE, brand reputation)



Corporate tax and finance focus on global cost and tax rate

l

f

d

l

Business Issues



Complexities of tax, administration and internal

coordination



Increasing regulatory oversight

Skills &

Experience

Communication

Technology

_{Global & Local}

Processes,

Challenges managing a mobility

program

(3)



Numerous compensation

items and sources



Negative compensation

entries



Claim of right



Benefits-in-kind



Payments to third parties



Method of delivery



Shadow versus paying

payroll



Nonresident reporting and



Home and host payroll

reporting and withholding

obligations



Tax equalization policy

implementation



Multiple employers



Limitations of existing

payroll systems



Tax gross-ups



Accounting for tax

reimbursements

Why is international payroll so

difficult?



Nonresident reporting and

withholding obligations

reimbursements



Exchange rates

7

Verify assignee

information:

• Citizenship

• Visa

• Family size /

status

• Personal income

• Residence – home

& host

• Ties to home

t

Define the

assignment:

• Anticipated Length

• Purpose (e.g.,

Skills

Development,

Leadership

Development,

Practice

Development, etc)

• Policy /

Determine the

employer:

• Facts and

circumstances

• Right to hire and fire

• Right to direct

• Integration into

organizational

structure

• Consequences

• Obligation to

Payroll Due Diligence

country

Policy /

_Compensation

Package

• Cost Sharing

• Impact on Tax

Residences

• Obligation to

withhold and

report

• Coverage under

social security

system

• Participation in

benefit plans

Home

•Long term or short term assignment •Receives Home Salary

plus additional assignment allowances as defined by the policy •May be tax equalized,

pays hypothetical taxes •May participate in home

country benefit plans •Depending on host

location, may be

Host

•Typically on a long term assignment and is not tax equalized •Receives host salary

(denominated in host currency) plus additional assignment allowances as defined by the policy •Assignee pays actual

taxes

•Company typically tax

Split

•Types of split payroll arrangements •Home and host

company payroll •Home payroll and

portion of pay delivered via A/P, vendor •Host payroll and

portion of pay delivered by A/P, vendor

Approaches to Payroll Delivery

location, may be eligible for a Certificate of Coverage

p y yp y protects select assignment allowances •May be able to remain on select home country benefit plans •Depending on host

location, assignee may be eligible for a Certificate of Coverage

•A portion of pay is delivered in both locations •Amount delivered in

(4)

Advantages Home Host Split Disadvantages

Facilitates continued participation in home country programs (company-related,

pension, social, etc.)



Need for host country currency will require supplemental assistance Less challenging to go on to a new

assignment location



Not well-suited if home country has few outbound assignees, challenging to set up (payroll, systems, processes, etc.) May mitigate reluctance to accept an

international assignment



May make compliance in host country tax regimes more challenging Facilitates easier repatriation



May require processes to support cross-charging Pay and allowances may be

delivered easily



Impedes continued participation in home country programs (company-related, pension, social, etc.) May promote more



Need for home country currency will consistent administration



require supplemental assistance Could promote perceived equity amongst

assignees at the host location



May be challenging for assignees on multiple assignments Compliance and managing data can

be easiest



Makes repatriation more difficult

Aligns best to balance sheet

compensation approaches



Most administratively challenging and the most expensive Home/host country currency

needs mitigated



Compliance issues could arise Facilitates both repatriation and mobility

on to another assignment



Issue resolution is more challenging since more than one organization is impacting pay

Assignment related compensation is more

visible and not diluted in overall pay



Compensation accumulation processes are challenging

To facilitate withholding requirements and to

report wages and remit applicable taxes on wages

earned by an assignee but paid by another payroll

or vendor to the assignee or to a third party on

behalf of the assignee.



Requirements vary locally



Countries in EMEA and Americas typically have monthly

requirements

Shadow Payroll Administration

q



China has a monthly filing requirement



Irrespective of payroll delivery methodology, a

shadow payroll process may be required in

home, host or both locations.

•Update assignment information •Calculate allowances to be

delivered via payroll •Obtain pay results from payroll, A/P, equity admin, third party vendors, etc. on monthly basis

Collect Compensation

Results •Compare results received with instructions to ensure accuracy of remittances and review non-payroll remittances for reasonableness and conformance to assignment policy

(5)

• Identify taxable

compensation to be

reported either back

to home or host

location and calculate

and remit local tax

payments

• Compare results

received for shadow

payroll instructions

with instructions to

ensure accuracy of

remittances

Reconcile (again)

Leading Practices in Expatriate

Payroll Administration

Comply with Local

Requirements for

Shadow Payroll

remittances

How does equity fit in?

Regulatory

Activity/

Tax

Long

Term

Awards

• Focus by media

• Scrutiny by global tax authorities

◦ Payroll- Reporting and Withholding ◦ Corporate- Chargeback's / Deductions

• Wider use of equity awards

◦ Less use of Stock Options ◦ More RS and RSU’s tied to

Performance

• Globally mobile workforces

◦ Long Term, Short Term, Business Trips

Tax

Compliance

Mobile

Employee

s

The Current Environment

◦ Domestic and International

• Ability of control process

◦ Complex Global Tax Regulations ◦ Increase in Volume of Award Grants

(6)

Typical Incentive Plans

Treatment of equity

compensation



Lack of corporate sponsorship



No central repository of information and system limitations



Complexity of implementation

◦

Multi-everything (country, currency, regulations, etc.)



Administration complex



No tracking of mobility of employees



No single owner of process or owner typically not IHR



Many departments involved in process

Company Challenges with Cross Border

Equity Tax Matters

(7)

Tax Issues

• When is the incentive taxable?

• How much is taxable?

• What are the payroll reporting and withholding requirements?

• What is the interplay between payroll obligations, personal tax filings

and tax equalization policies?

Payroll Issues

• Should we report?

• Should we withhold?

Common Issues

• Should we withhold?

• How much to report?

• How much to withhold?

• When to report?

• Timeliness of tax remittance to authorities

• Who is legally liable?

A grant to

A grant to vest example

vest example

E

Example

xample of withholding by

of withholding by

Vesting Tranche*

(8)



Increased focus on compliance



Increased level of complexity of

international moves



Must understand global taxation to

properly handle payroll reporting



Don’t forget equity and other long term

i

ti

In conclusion

incentives



We have a lot of data – let’s use it!

AUGUST 14, 2013

University of Michigan

Dearborn, MI

Hosts: Sponsors :

II

NTERNATIONAL

A

SSIGNMENT

C

OSTS

(P

ROJECTING

,

T

RACKING

& R

ECONCILING

))

T

(9)

Cross‐Border and Local Payroll –

The Ground Work

Structure and Administration Basics

• Data Management

–

Secure data acquisition and compilation

–

Updates to payroll processors

–

Delivery of gross‐to‐net data to data repository for reporting

–

Data retention for future reporting

• Payroll Processing

Calculation of gross to net

Gross earnings

Elements of International Payroll

Gross earnings Less: deductions Less: taxes Net pay

• Compliance

• Funding

–

The accurate and timely distribution of funds to beneficiaries as:

• Net pay • Tax payments • Third party payments (e.g. benefits)

• Management, accounting and other reporting

Standard Global Payroll Program

Management Model

Global Program

Governance

g

Management

(10)

(11)

Fully Centralized Shared Services Model

Shared Service Center (ERP Plus Payroll Processor Country A Instructions out

Governance

Country G Country F Country E (ERP Plus Workflow) Payroll Processor Country B Payroll Processor Country C Payroll Processor Country D Regional Outsourced Processor Data Returned Copyright © Expaticore Services LLC 2013 All rights reserved 7

Hybrid Shared Services Model

Governance

Managed Payroll Services

Joiners, Leavers, Updates

Governance

Program

Management

(

ith

Country C Country B Country A

(12)

BPO Model

Governance

Third Party BPO

Business Process Outsourcing

Time and

Attendance

Employee and

Management Self

Service

Capture and process payroll updates

(employees & contractors)

Payslips

Human

Resources

Core Services

Business Intelligence in Multiple Currencies/ Languages

Help desk

Funds management including net pay,

statutorily required payments and third

party pay

Compliance

Accounting

Management reporting

Updates Collated and

Distributed to Local

Processor

Payroll Data

Sources

Payroll

Processors Apply

Rules and Run

Gross-to-Net

Local

Compliance

Management and

In-Country Payroll Processing Flow

(13)

COUNTRY 1 Gross-to-Net Payroll Processing Local Feeds

Updates Collated and Distributed to Local Processor Payroll Data Sources Payroll Processors Apply

Rules and Run Gross-to-Net Local Compliance Management and Accounting Reports

Multi-Country Payroll Processing Flow

COUNTRY 2 Collation/Distribution of Joiners/Leavers/Updates Global or Regional Feeds Statutory Reports Employee Payslips COUNTRY 2 Gross-to-Net Payroll Processing COUNTRY 3 Gross-to-Net Payroll Processing Feed Back to Global Payroll Data Repository Copyright © Expaticore Services LLC 2013 All rights reserved 13