For many companies, the new workforce norm has shifted to virtual and remote employees. However, for several businesses, there remains a need to have employees working in-person on multiple projects across the country or around the world. Business travel, while still not up to pre-pandemic levels, is making its way back as a standard way of working.
While typical mobile workforce structures such as permanent and long-term assignments are generally managed through a defined HR or mobility function, management of short-term business travel tends to be less defined. Yet, understanding and actively managing the tax risks of short-term business travelers can greatly reduce costs and a variety of risks for both your organization and business travelers. Therefore, developing a structure to oversee this area is imperative.
Below we outline best practices and simple steps to consider when managing the tax risks of your company's business traveler population.
Track and Proactively Manage Workdays
Tracking the location where your employees are working/physically present is a critical first step in understanding compliance requirements, including the determination of company reporting and withholding requirements. It is important to institute a system, whether that be a policy or automated approach, that ensures employees provide this information. Typically, there are two ways in which this process is managed. Either in-house through an approved business traveler policy managed by the company HR or travel team, or using a third-party resource, such as a travel agency.
In 2021, GTN conducted a business travel survey of 169 organizations representing a wide range of industries, headquarter locations, and remote work/business travel population sizes. Out of the companies surveyed, 72% said they currently have a global travel policy in place that covers international and/or domestic business travel, while 13% responded they do not have a global travel policy at all. Yet, within the 72% of companies that reported having a global travel policy in place, only 31% are utilizing a method to track their business travel population.
If your business travelers are using a common tool for booking or tracking their travel, it is often possible to use that tool to implement a process for monitoring and addressing the tax and legal requirements for the locations where your employees are working. Although there are several high-cost technology solutions on the market to assist with this process, it may be possible to generate reports out of your current travel system that would allow you to understand and address risk in a more reasonable manner.
If internal resources or solutions are not available, it may be possible to create a technology-enabled process that helps highlight cases that need more review. For example, GTN has developed a tool that will import files from many sources which will generate reports to highlight employees who may be nearing or already past compliance thresholds as defined by location specific tax rules and/or company policy. In this way, the analysis of data is automated, allowing your organization to use available resources to proactively understand and manage scenarios with the highest risk.
For companies that prefer a more direct tracking approach from their employees, an online travel calendar is an inexpensive solution. An online travel calendar is a tool, typically provided by your mobility tax services provider, which employees can use to track their workdays around the world. Depending on the tool, once an individual records their work location, reports can be generated to help determine when to implement reporting and withholding for a particular employee. It also provides one more way for company program managers to gain access to travel and workday detail for all employees, ensuring monitoring can occur on a real-time basis. Companies using this alternative should make sure their mobile employees understand the importance of keeping their calendar up-to-date, preferably supported by policy language that provides appropriate incentives to do so.
Technology will be a lifesaver, especially for companies with more remote and global work management needs. With the right technology, your HR or mobility team can centralize data and manage workflows without drowning in employee requests. Consult with your various mobility providers on technology that will streamline your processes and support the specific needs of your mobility program.
Understand the Tax Rules
Nonresident country and state reporting and withholding rules can be complex and may differ by jurisdiction. These requirements can also vary depending on several factors:
- Your company's corporate structure
- The activities performed by the individual in the work location
- The relationship the company has with the individual (i.e., independent contractor vs. employee)
- The individual's personal national, state, and local tax residency positions
It is important that your organization understand the technical requirements for each jurisdiction and implement processes and procedures to appropriately monitor and evaluate reporting and withholding requirements for your mobile employees.
The biggest mistake is to assume that the country or state the employee is going to doesn’t have any additional reporting requirements for either the company or the employee. Your employee is doing business in another location on your behalf either at their temporary location, a client site, or even one of your office locations. Local tax authorities are fully aware of this and expect their local rules to be adhered to. These authorities can stop an individual at the border or audit you, as the employer, and ask questions on how you manage this employee population.
Keep these additional scenarios in mind:
First, your hybrid and permanent remote workers may become business travelers. They often start from a location outside of a business location (i.e., their home). This may require a different handling of corporate reporting.
Second, to a tax jurisdiction, a temporary remote worker who travels to a location on business could create additional reporting obligations through their cumulative days of presence in that tax jurisdiction for any purpose (e.g., days in country for vacation could also impact the reporting and tax position relating to workdays in that location). The days under consideration by the tax authorities can also span more than one calendar year. As these types of reporting challenges are often not foreseen, it is important to locate and count total days of presence in all locations for your remote workers and understand the time periods needing review.
There are a number of tax related considerations to keep in mind when setting up a business traveler program. Below is a list of most of them:
- Compensation: How are you collecting and reporting compensation data? Is this inclusive of equity/deferred compensation data? It is important to remember that equity and deferred compensation may have reporting and withholding obligations in both resident and non-resident locations based on the employee’s work locations over a multi-year earnings period.
- Corporate tax: Is your workforce creating a corporate presence and registration requirement in any jurisdiction? Have you assessed permanent establishment risks? Are you considering other cost saving opportunities such as where you book deductions or if VAT refunds may be available? It is important to remember that your corporate tax position can have an impact on the individual taxation of your company’s business travelers.
- Data privacy and GDPR: When dealing with individual tax, there is a considerable amount of personally identifiable information being shared among several teams. Do local rules expose the company to different safety requirements or restrictions and could local authorities access sensitive information because work is being performed in their jurisdiction?
- Duty of care: Especially now, the need to consider the health and safety of your employees is paramount. However, it is also important to consider your mobile employee’s financial and legal health. Are you helping your mobile employees to understand and meet any tax compliance obligations that occur due to their company-sponsored business travel?
- Emergency risk: Are you thinking about what to do in the event of an emergency and do you know where your employees are located? What contingencies do you have in place? While emergency risk is not specific to tax, it could lead to tax ramifications. For example, if an employee becomes stuck in a different location from their Home location, the company and employee may have reporting and withholding responsibilities in that location. Likewise, if you need to relocate employees to a new location, do you understand the tax ramifications for your company and employees?
- Employment law: Are there employment law considerations for your mobile employees? For example, are there local benefits that could apply if your business travelers exceed certain physical presence or other thresholds?
- Immigration: Have you considered the work visa/permit requirements for each employee who may be outside of their Home jurisdiction? The immigration status of your mobile employee may impact their tax position.
- Income tax: Are you compliant? Have you reviewed tax positions to optimize cost and looked at double tax treaty benefits? Who is responsible for chasing refunds and reimbursements?
- Payroll: Do you have the expertise to run an international payroll? Are payroll services aligned with tracking, policy, and actions? Are the individuals that sign off on a specific country payroll confident that it is accurate for global, federal, and state reporting? Employees traveling for business to non-resident locations can generate tax reporting and withholding obligations for their employer and income tax return filing requirements for themselves. To make it more complicated, many payroll systems are not able to handle the reporting for employees working in more than one jurisdiction.
- Regulatory requirements: Does your business require regulatory registration/reporting in the country your business travelers are working in? These types of requirements may exist to allow for compliance with reporting and withholding requirements for your organization’s business travelers.
- Social security: Are you compliant? Have planning opportunities been optimized?
Educate Business Travelers and Program Managers
Education for both business travelers and program managers is key for any business traveler program. Knowing the potential tax risks involved, as well as the obligation to report and monitor travel will greatly increase compliance.
Ensure program managers are aware of the tax and reporting obligations involved when sending employees to work outside of their Home country or state. This will provide a higher potential for employees to track the travel and workday information from the start. Proactive planning can take place when everyone involved understands taxation thresholds for given jurisdictions.
Especially with short-term business travel, employees and managers may be unaware that they have tax reporting or registration duties. Regular communication or even periodic webinars can help new employees and managers understand the requirements and remind those who infrequently travel—or are used to long-term engagements—of their responsibilities. This will help avoid compliance or regulatory lapses before they ever leave the office and while they are on the road. Beyond creating greater awareness, the key is for your business travelers to provide you with enough time to plan, conduct the necessary immigration assessments, and identify and proactively implement any tax planning opportunities.
Develop a Company Business Traveler Tax Policy
Developing a company policy that provides clear guidance to program managers and employees is essential to tax risk management. We recommend a tax policy that will:
- Define who will be covered by the policy
- Set expectations on tracking travel and workdays
- Define the process to review and initiate any required reporting and withholding obligations
- Note the tax gross-up procedures the company will follow
- Confirm what tax services the company will provide for the employee
- Outline the process that will be followed if employee has questions regarding the tax gross-up
You can develop the tax policy as a standalone policy or include it as one section in a broader business travel policy. Your other mobility policies can be a great starting point for building this one. We recommend including HR, mobility, finance, payroll, and other key stakeholders in the development of the policy to ensure their support.
Ensure Company Support for the Employee
Once Host country or state income tax liabilities and withholdings are required, the employee will typically have an obligation to file an annual income tax return. If income is reported to both the resident and nonresident country or state(s), the employee will need to consider ways to address potential double taxation, such as through use of available tax credits on their resident income tax return. It is important to note, that although credits may be available, an employee's overall tax liability may increase depending on the amount of tax imposed by those non-resident jurisdiction(s).
For example, Texas has no individual income tax. Thus, any employees subject to tax in another state will experience an overall increase in their income tax liability. If the income is from their employment, the company should consider how to address this increased cost for the employee.
To address the potential increase in tax, some companies take the position that they will support the employees through tax gross-ups. This helps to ensure the employee is not incurring additional taxes due to the work performed in the nonresident country or state(s). This policy not only addresses the possible increase in tax for the employee, but also supports compliance, as the employee is more likely to report the location of their work if they know there is not an additional tax cost to them. In addition to the tax gross-ups, companies may pay a mobility tax provider to assist employees with their annual tax return preparation to address complexities that may arise when filing multiple country or state income tax returns.
The Risks of Noncompliance
As most countries and states are trying to increase revenue dollars, they are ramping up enforcement for tracking mobile employees to ensure they follow the jurisdiction’s tax laws. Technology has made it easier for tax auditors to focus on companies that may have a mobile workforce, with special enforcement on executives and board members. If auditors become aware of business travelers, they can initiate a payroll audit to ensure the company has withheld and reported the proper income tax.
Failure to comply with the appropriate payroll reporting and withholding can result in tax assessments to the employee and/or company, with related penalties and interest. These costs are often unexpected, leading to employee and potentially business unit dissatisfaction. In addition, the resulting "headlines" can be damaging to the reputation of your employees and organization.
As long as employees continue to work outside of their Home location, it is crucial for companies to monitor tax legislation in each jurisdiction and to ensure that they are compliant with all reporting and tax withholding obligations. A system to proactively track employee workdays and a process to report the required income and tax withholding must be implemented. Additionally, we recommend the company develop a policy and determine what level of tax assistance, if any, will be provided to the employee. Failure to follow these steps can lead to financial, legal, and reputational risks for your organization and its business travelers.