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A Checklist of the Top 12 Questions to Answer for Year-End Compensation and Payroll Planning

December 8, 2015 3:25:44 PM EST | By: Barbara Hodgdon, CPA, GPHR

Compensation, payroll, tax checklist for global mobilityAs 2015 winds down and you start to look toward a new year, there are a number of action items that can slip through the cracks when it comes to compensation and payroll. Managing your global mobility program doesn’t end when a relocation or assignment is complete – there are many follow-up tasks that need to be addressed, especially when it comes to compensation. We’ve put together this comprehensive checklist of questions to help you stay at the top of your game, even with the December distractions of holiday parties and shopping!

Global Payroll Compliance: 

1. Has your organization reviewed the year-end wage reporting rules for all countries where employees are conducting business? Regardless of whether your employee is on a long-term assignment, short-term assignment or is simply a business traveler working on a project in another jurisdiction, your company may be responsible for reporting wages and issuing year-end wage statements (along with tax withholding) in that location.

2. Have all global compensation data items been shared between the relevant home and/or host countries for shadow payroll reporting purposes? All amounts paid by payroll, accounts payable, third party vendors and any assignment expenses deemed taxable in either the home or host country or both should be considered for payroll compliance. For example, if housing, a car benefit or foreign taxes are paid in the host country, is this data being communicated back to home payroll for year-end reporting? In many instances, U.S. outbound assignees remain on U.S. payroll and 100% of their wages need to be reported on their W-2 statement regardless of where the amounts were paid from (inside OR outside the U.S.).

3. Have all elements of global compensation been considered as part of the payroll compliance review? Worldwide earnings include base salary, bonus, hypothetical tax withheld, equity, relocation benefits and allowances, car, housing, home/host taxes, any assignment expenses deemed taxable in either the home or host country or both and more. Make sure to review country-specific tax rules to determine the taxability of wages in each jurisdiction and ensure currency amounts are converted using the appropriate exchange rates (i.e. on payment dates).

4. Have maximum wage thresholds on social security (i.e. FICA/Medicare) tax payments been considered? Adjustments may need to be made for excess or insufficient social security tax payments as a result of year-end global wage reporting.

5. Have company funded amounts for home country and/or host country taxes been separately identified for payroll reporting purposes? This will enable tax service providers to provide tax reconciliation (or tax equalization) calculations. In order to facilitate the annual compliance process along with tax equalizations, companies need to provide their tax service providers with country-specific wage statements reflecting total wages along with supporting compensation details, company-funded taxes, etc.

U.S. Domestic Payroll Compliance:

6. Have state wages been reported for employees who have worked in other states during the calendar year? The appropriate state taxes should be withheld or re-classified if not yet reported. If your employees spent time working outside of their normal work state for business purposes and triggered a state tax liability as a result, your company may have an additional state wage reporting requirement (if they have nexus in that state). Tracking employee workdays outside of their normal work state is necessary to allocate state wages appropriately.

7. For U.S. outbound employees, have state residency rules been reviewed to determine whether state wage reporting (and tax withholding) should continue during the global assignment period? It’s important not to assume that state taxes are no longer an issue.

Tax Services:

Global taxation8. Have you reviewed your list of globally mobile employees with your tax service provider to confirm whether tax return prep assistance is required? There may be tax implications on trailing allowances or excess foreign tax credits that exceed the cost of tax return preparation for your repatriated employees as well as your current global assignee population. A discussion with your tax service provider may assist with this cost benefit analysis.

9. Have you notified your assignee population of company policy on tax services? Let those who are authorized for tax services know that is the case in order to ensure global compliance and facilitate tax equalizations. If tax returns are filed personally by the employee without factoring in expatriate-related exemptions or tax credits for company funded taxes, amended or delinquent tax returns may need to be filed in order to facilitate global compliance and/or tax equalization calculations.

Alternatively, for employees who have received benefits or expense reimbursements related to a relocation or assignment that have been grossed up without the need for tax reconciliation according to company policy, it may be beneficial to clearly communicate that policy when wage statements are issued.

NOTE:  Planning and setting expectations upfront will save time and effort in the long run.

Year-End Tax Withholding:

10. Have tax gross-ups and tax withholding amounts been reviewed to ensure adequate taxes are paid in? If additional calculations need to be done at year-end before wages are reported and final tax payments are made, don’t let that fall through the cracks. Companies should monitor tax costs closely at year-end to manage cash flow issues caused by significant underpayment or overpayment of taxes.

Accrual Adjustments for Assignment Costs:

11. Have you monitored ongoing assignment costs periodically (at the end of each calendar or fiscal year) to make adjustments? Most companies estimate assignment costs at the start of the assignment, but it’s important to review them periodically. If not, your organization may be at risk for additional assignment costs that were unexpected. By reviewing your budgeted costs to actual expenses incurred to date, adjustments can be made for outstanding assignment costs to be incurred over the remaining assignment length for improved financial management performance.

Compensation Updates:

12. Does assignee compensation (including assignment allowances and hypothetical tax withheld) need to be updated periodically based on company policy, salary increases, changes in family size or current tax law changes? If so, planning for such updates now will ensure a smooth process for the first quarter of the new calendar year and secure additional resources, if needed.

It’s obvious that there are a lot of areas to be mindful of when it comes to year-end compensation planning. This is one area in particular where it’s helpful to rely on a relocation management company to help relieve the burden. These are the kinds of questions Lexicon can guide you through, ensuring your program is fully compliant – leaving you time to enjoy the holiday season worry-free!

Topics: global mobility, tax implications, compensation, payroll

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