Imagine this: James moves from London to New York for a three-year assignment. He will receive a relocation package and a series of assignment allowances to compensate for cost of living and housing. His home business line agrees to continue to pay and fund his salary and bonus costs, but the host business line in the United States will fund the assignment allowances. James will be paying income taxes in the United States at the federal, state, and local levels but will maintain his social security and pension in London.
Complicated? This is a standard arrangement.
Employee relocation is more than juggling moving vans and finding temporary housing. The details associated with global mobility can be overwhelming, even for the most experienced of human resources (HR) and finance departments. And, you can imagine how difficult it is for people like James who are often stuck in the middle at a time when they face a great deal of uncertainty and stress.
Think of how many firms are involved. An average international employee move will involve a dozen global suppliers, including shipping companies, travel agents, real estate firms, and immigration lawyers. You can receive invoices for 20 different companies in multiple currencies, as well as lines of employee expense claims and relocation allowances. Typically, more than 10 global teams will touch an employee move from start to finish, including finance, HR, and legal.
Once you have managed and paid all suppliers and the employee is settled in, payroll and finance teams are left to clean up the financial details—coordinating payments made in different countries by different teams, applying complicated tax logic across different countries, and managing compliance so that both the employee and the company remain on the right side of the tax and social security authorities.
Challenges for Payroll Going Global
Payroll teams have their domestic processes down to a science. However, when going global and relocating employees abroad—or (even more challengingly) for a long- or short-term assignment—the complexities may be daunting. It’s not just payroll teams. Many leading payroll software products are currently unsuited for the complexities such a move entails.
Collating information on relocation costs paid over myriad sources, understanding tax laws around exemptions for relocation expenses or special expatriate tax regimes, and “gross-ups” of expenses to ensure employees do not have to pay out of pocket are just the beginning. When it comes to assignees, many employees will have continuing dual tax or social security obligations in their home and host countries. They will require complex pay arrangements, such as split payrolls or tax equalized packages with additional “top-up” allowances that are constantly adjusted throughout the assignment.
Employees such as James feel their own challenges, particularly if they never have traveled to their new host city or country. On top of finding a suitable place to live and managing the shipment of personal belongings, the most common stressors for employees involve time. Tasks like opening a bank account, getting a mobile phone, setting up internet, or registering with health providers take time. The last thing an employee needs after the relocation is finalized is to find out that he will not be paid this month, or that there is a delay in reimbursing his expenses.
Then, employees are left being unable to pay for critical living expenses such as rent, mortgage, and school fees at a time when they already have large outgoing costs with the deposits and other fees needed for setting up their new lives.
For the employer, payroll complications around global mobility can result in extra work for the finance and HR teams. Tax teams may spend a significant amount of time performing year-end reconciliations and creating and filing forms to correct errors in income and withholding for mobile employees. If not in full compliance with the complex tax and social security laws around the globe, the company and the employee may be at risk for compliance violations and significant penalties. International tax authorities that focus on companies with mobile employee populations for audits and inspections understand this challenge well.
Coordination, Communication Are Critical
The holy grail for payroll teams is a “single source of truth.” This means one system to manage payments globally to ensure employees are paid accurately and on time, regardless of location or currency. However, this rarely happens. We more commonly see regional or local human resources information system (HRIS) with country-by-country relationships with local payroll vendors.
Therefore, to manage these challenges efficiently and without undue risk, coordination and communication are paramount. This means replacing the error-prone emails, paper-based processes, and calendar reminders with the latest HR technology tools to improve how people communicate and track their responsibilities.
The solution is to manage global mobility through a single, centralized platform—bringing all of the data stakeholders involved in mobility together for the first time and closing the gap between home and host teams and HR, payroll, and finance systems. Cloud-based technology can centrally store details of mobile employees. You can know where they’re moving from and to, their personal situations, and their entity and cost center codes across multiple countries—as well as details of their package and payroll agreements. Then you can connect it to built-in workflow capabilities and integrations specifically designed for the mobility space.
Complicated, But No Excuse for Noncompliance
The key to success is technology that can simplify the relocation process for all involved in the home and host country alike. Through a streamlined approach, HR initiates the assignment in the HRIS. It then flows directly to the global relocation platform, along with details such as department and cost center in both countries. With this approach, James’ relocation and assignment packages are populated automatically. That’s because the company’s assignment policies have been configured into the system. Allowances are calculated based on integrations with real-time cost-of-living and housing data sources. A cost estimate is automatically generated and electronically sent to finance with cost center details to book the relevant accruals. Payroll instructions that incorporate the tax logic for both locations are sent to home and host payroll teams.
While employees were often the main point of contact for the shipping companies, travel agents, immigration lawyers, and other vendors, the right system should allow for centralized vendor management, taking this burden off of the relocating employees.
Finally, as payments are made throughout the relocation or assignment, these are tracked centrally in the platform and trigger payroll and finance instructions as needed. Allowances can be updated automatically on a regular schedule that is fed current cost-of-living and housing data. Payroll is notified of changes.
Participating companies see how such a system controls inefficiencies and risks inherent with mobile employees. When conducting payroll or tax audits, global tax authorities will question companies on their methods of tracking and managing mobile employees. Regulatory entities are starting to expect to see the use of technology as a baseline. “It’s complicated” is no longer an excuse.
There can be several challenges to gaining internal support to implement an integrated global mobility platform. These include getting buy-in across the organization and the company’s willingness to adapt to new processes, particularly where the costs and risks of mobility can fly under the radar.
To ensure a successful transition, organizations must align stakeholders on the ultimate vision for the program, as well as the core strategic objectives—such as efficiency, cost control, compliance, and employee satisfaction as illustrated in the chart.
It is important to define successes by using measurable metrics to report the achieved benefits of change. For example, this may include employee satisfaction rates, late payments, or a decrease in hours spent managing payments. With HR teams spending less time on the administration of employee relocations, they can put more focus on helping employees like James through their assignment journey.
An advanced technology platform that is integrated across payroll, finance, HR, and mobility teams can help ensure a seamless relocation experience. It impacts the many teams that touch mobility and, of course, the employees themselves.
By bringing together all of the essential global mobility pieces into a single platform, the right technology solution can help organizations meet their business goals by increasing operational efficiencies, ensuring compliance with global regulations, improving financial control, and increasing employee satisfaction and productivity.
This piece was originally featured in Global Payroll Magazine.