One of the most difficult aspects of a supporting a globally mobile employee is delivering their pay. Generally, there are three options:
This newsletter highlights the benefits and drawbacks of each option and provides a summary of other issues to consider when delivering pay to globally mobile employees.
Under this method, the employee continues to be paid from the home country payroll in home country currency, just as before the assignment. This option is generally used when the employee is an extended business traveler or on a short-term assignment. This pay delivery method can be used for long term assignments where the company has support in place to deliver allowances or make certain payments in the host location.
For example, the company sends an employee from the US to Ireland for a four month training project. The employee stays on US payroll and is paid in US Dollars; they continue to participate in US benefits and US retirement plans.
Benefits:
Drawbacks:
For this method, the employee is no longer paid from the home country payroll, but rather is 100% paid from the host country payroll. This option is typically used when the employee is a permanent transfer.
To illustrate, the employee terminates employment with the US company and transfers (permanently / indefinitely) to the subsidiary in Brazil. They are placed on the Brazilian payroll and are paid in Brazilian Real. They are removed from the US payroll, benefits, and retirement plans, begin contributing to the Brazilian retirement plan, and enroll in Brazilian benefits.
Benefits:
Drawbacks:
Under this method, a portion of the employee's pay is delivered from the home country payroll and a portion is delivered from the host country payroll. The payroll delivery is thus "split" between two payrolls and two currencies. This method is often used when the employee is a long term assignee with continuing financial obligations in, and the intention to return to, the home country.
As an example, an employee is going on a two year assignment to Germany, after which they will return to the US. A portion of their pay would be delivered from the US company payroll in US dollars, and the balance from the German company payroll in Euros. They participate in the US social tax system and the US retirement plan, while receiving sufficient net pay in Germany to fund ongoing expenses.
Benefits:
Drawbacks:
Specific country regulations may limit your options when setting up a compensation delivery strategy. In some countries, the employer may prefer to deliver a limited amount of cash in the host country currency to avoid having a large cash balance in that currency (e.g., in Argentina or other countries with currency controls). Immigration regulations may also impact planning, as some work permits require that a minimum salary level be paid in the host country.
Further, by properly structuring the compensation elements and managing the timing of the delivery of compensation and allowances, the company may achieve significant tax savings. For example, assignment length or tax reimbursement methodology may have an impact on whether an item is subject to tax. We recommend exploring these opportunities with your mobility tax professional before the start of a global assignment.
While payroll reporting is outside the scope of this article, each pay delivery method outlined above entails specific compensation reporting issues. The specific facts and circumstances of each country, and the individual's situation, must be evaluated to ensure an appropriate strategy is implemented.
In the above examples, the company implemented the pay delivery method that was (based on their needs) best suited to the type of assignment. In each case, the company tried to ensure the employee was (to the extent possible) protected from currency fluctuations, had the appropriate currency to pay bills in both countries, and participated in the retirement plan that best reflects their needs.
We've mentioned a few issues to consider when implementing a home, host, or split payroll delivery method. Employee convenience and compliance with regulations should be considered and balanced with the company's capacity and willingness to undertake additional administrative work. As we reach mid-year, now may be a great time to re-evaluate your organization's process for compensation delivery so the appropriate procedures and controls can be implemented.
If you have any questions regarding your global mobility pay delivery challenges, please feel free to contact your GTN account manager or Brett Sipes at bsipes@gtn.com.
The information provided in this newsletter is for general guidance only and should not be utilized in lieu of obtaining professional tax and/or legal advice.