You likely know by now that employees who receive equity-based compensation, and who relocate—either domestically or internationally—during the life of the award, create tax withholding and reporting obligations. Still, when it comes to equity reporting and withholding, companies do not always act to address the risk with their mobile workforce. Often this comes down to a lack of staffing, information, or technology. So how do you move from the stage of recognizing the problem to finding and implementing a solution?
Our Mobile Equity Compliance Roadmap was created to help companies navigate common tax considerations for mobile employees who receive equity-based compensation. By thinking through these questions, companies are able to understand the key issues for their equity-based compensation plans, identify potential tax compliance gaps, and determine next steps for implementing a process to minimize their compliance concerns. Download this roadmap and use the steps below to help align your corporate strategy around equity incentive initiatives.
Step 1: Assess your compliance risk
You have the roadmap so now what do you do? To begin, you must first assess your compliance risk, both for your company and your mobile employees. Ask yourself the following questions to identify if you have an equity non-compliance issue due to a mobile workforce:
- Do you have any international permanent relocations?
- Do you have state-to-state transfers?
- Do you have any business travelers?
- Do you have any remote workers or employees who are working from anywhere?
If the answer is yes to any of these questions, you may have a tax withholding issue and should work to ensure you are following the rules for equity awards in the jurisdiction(s) where your employees have been working over the life of the awards.
It is equally important that your employees understand where they may have individual tax filing and payment requirements. Communication with your employees is key in keeping them safe, compliant, and happy so you can maintain stock remuneration as a valuable incentive.
The Mobile Equity Compliance Roadmap will also help walk you through considerations to keep in mind when assessing your compliance risk, such as:
Identify your mobile employee population. This includes any person holding equity remuneration that crosses any border, foreign or domestic. Consider:
- High profile employees (C-suite, executives)
- Highly compensated employees
- Employees that travel frequently, such as your sales force, project managers, engineers, and/or functional experts
- Employee geographic locations:
- Review presence in countries/states with aggressive tax policies
- Consider recent shifts in employee locations because of remote work, such as those caused by COVID-19
Gather data about your mobile employee population:
- How many employees fall into each group identified above?
- Of these, how many fall into each of these categories:
- Domestic transfers
- International transfers and assignments
- Work from anywhere
- Business travelers
Gather data about your equity plans:
- Are they US-based?
- Are there any sub-plans?
- Are there corporate cross charges?
Once you understand your compliance risk, you can begin to see where you may have a tax withholding issue. Work with your external providers, such as your mobility tax firm, to ensure you are following the rules for equity awards in the jurisdiction(s) where your employees have been working over the life of the awards. They can help you determine when and how much is subject to employer reporting and withholding obligations and can assist with the necessary employee communications.
Step 2: Make an implementation plan
Once you have determined your compliance risk and have taken steps to alleviate these risks, it is time to create an implementation plan. Having a plan that can reduce your company and employee risk is essential to keeping on track and maintaining compliance.
This plan should not only include actions the equity team should take, but should also include collaboration between your equity, HR/mobility, and payroll teams so you can scale your company’s equity program to accommodate your US domestic and globally mobile and remote workforce.
Some of the steps outlined in the Mobile Equity Compliance Roadmap include:
- Prioritize which groups are most important to bring into compliance first.
- Define what “compliance” will look like for your company. For some companies, compliance is a continuum, while for others it is an absolute. It depends on factors such as your company culture, risk tolerance, and industry. Choose the path that best suits your culture and needs.
- Determine how many equity staff members you have internally and what their roles are versus what you may need to outsource.
It takes a village and an orchestration of tools and teams to manage the equity compensation of your mobile workforce. Determine how you will dedicate your resources, whether that be dollars or people, and ensure you have the right resources, whether that is your internal staff or external support and services. When all stakeholders are involved, and the mobile reporting intricacies are communicated, timely compliance and reporting is possible while maintaining equity compensation as a value-added incentive for your mobile employees.
Step 3: Develop a policy that includes communication with mobile employees and internal stakeholders
Now that you have gone through the Mobile Equity Compliance Roadmap, it’s time to begin developing a formal policy. A good mobility tax firm will be well versed in mobile employee equity incentive scenarios and should be a resource to help guide you through some of the considerations as the company builds out an appropriate policy. These firms work with clients of all sizes and across all industries so chances are they have worked through some of the questions you have and have developed best practices. Lean on them to help you develop a policy that will work for your program, your company, and your employees.
Just like anything else in business, it comes down to open and frequent communication. Communicate often with your mobile employees. Your employees are receiving a benefit of equity compensation, but do they see it as a benefit? Are they fully informed of what will be withheld and any further requirements? Do they have access to assistance so they can address potential issues? Education and employee communication is essential in your company’s ability to maintain stock remuneration as a valuable incentive for your workforce.
In addition, communicate often with the other stakeholders in your company. Often, departments are unaware of the intricacies of the company’s reporting needs when employees move – whether on a permanent basis, or when their jobs require them to work in multiple jurisdictions. Get relevant teams together so you can establish a plan, implement a process, and work together to make it successful. Each team will bring unique knowledge and access to information that will be needed to implement your compliance plan:
- Equity team: broker reporting needs - shares for withholding, tax rate
- Mobility team: employees requiring mobile reporting, based on assignment, transfer, or non-traditional mobile employees
- Payroll team: global reporting for compensation and tax withholding
Consistent communication along with following our roadmap will help you understand the key issues to consider for your equity-based compensation plans, identify potential areas of tax compliance gaps that may need to be addressed, and determine the next steps for implementing a process to minimize your compliance concerns.
Equity compensation and its related reporting and withholding is a complex area which often requires significant analysis—we are here to help. Schedule a free consultation with one of our equity tax experts. We will discuss your specific situation and help you outline a plan of action that will best fit your company and employee needs.