One of the most complex components of global workforce management is that of international payroll reporting. McCarney writes that it is critical that processing, tracking, and reporting expatriate compensation is accurate, and offers eight tips for improving payroll compliance in 2011.
Few components of global mobility are as complex as international payroll compliance and reporting. And few are more critical; rife with consequences if not done correctly.
To complicate matters, calculations for exclusions continue to change dramatically and IRS is monitoring expatriate-related payroll forms with greater scrutiny. In addition, a growing number of countries are embracing stricter rules for the reporting of equity-based compensation for international assignees and more sophisticated methods of capturing reportable wages related to deferred compensation arrangements.
Add it up, and it is easy to see why preparing year-end tax and payroll reporting for your company’s international assignees typically ranks somewhere between a root canal and a Justin Bieber concert on the enjoyment scale. But having to do it twice because of errors can be downright excruciating, not to mention expensive when you factor in possible penalties.
This makes it absolutely critical that you are accurately processing, tracking, and reporting expatriate compensation. And with your 2010 year-end reporting already completed—hopefully—there is no better time than the present to start planning for a problem-free 2011. The following tips can help you improve the overall process to boost tax compliance and reduce or eliminate late filings and W-2C amendments that inevitably will cost you more time, money, and sanity.
The Great Eight
1. While it is still fresh in your mind, make a list of the things that worked well in preparing your last
year-end report and what needs to be addressed for next year. Ask your assignment administration provider and your expatriate tax firm to create a similar list, with their perspectives on what worked and what did not. Then do the same for the individuals in your overseas offices who are responsible for providing data for the year-end process. Even if you only had to do one W-2C, why take a chance that the one mistake you make could be for a senior level executive? Bottom line: There always is room for improvement.
2. Centralize payments. Some companies have too many people making too many payments from a variety of locations across the globe. And most of the time they are not following up to see if these payments were ever recorded, or making note of the amounts paid. One way to overcome this problem is to reduce the number of payers (as much as possible) and centralize payments.
Establishing payment hubs in specific geographical or business locations will keep this critical process in the hands of the people who know it best—the subject matter experts tasked with overseeing your program.
3. Build consistency. Train the people who make your payments and equip them with the proper tools; their familiarity with the process will pay dividends and keep things consistent. Also, make training a regular and ongoing part of the process; solicit ideas from the group for topics they would like to explore in greater detail and build it into your project plan. This will reinforce the importance of the process and, ultimately, help make it better.
It is a practice that Michael McCleary, global mobility manager at Alcoa, Pittsburgh, PA, says he believes in. “The process has to start with the establishment of consistent payroll contacts across the globe who have proper training, utilize a consistent format to obtain the data, follow up to ensure one-hundred percent compliance, and review everything for accuracy,” he said. “At Alcoa, we conduct monthly payroll reconciliations with our relocation management company and our internal payroll groups. It’s sort of like an autopsy performed at the end of each month to see if anything went wrong and, if something did, how to prevent it from happening again. This keeps us on top of things on a monthly basis for our big populations and it works very well. We have very few problems, and the problems we do have get addressed immediately. Our motto, and I can’t stress this enough, is ‘consistency, consistency, and routine.’”
All too often, employers focus their benchmarking efforts on policy components instead of using benchmarking to drive program improvements. Traditional benchmarking can lull them into a “follow the pack” mentality (which can lead to mediocrity) instead of breaking new ground to find even better solutions.
With that in mind, Weichert Relocation Resources developed a diagnostic benchmark designed to help uncover opportunities for improvements not only in policies but process. As part of this benchmarking effort, companies are asked to assess how well they perform certain key functions that minimize risk and improve compliance. Respondents identified two key areas that have the potential for errors and as a result, compliance and penalties.
Among the employers completing the diagnostic benchmark in 2010 (a mix of client and prospect companies):
• Only 56 percent agreed or strongly agreed that “everyone involved in reporting assignment data has a clear understanding of requirements, process, and timetable.”
• Only 50 percent indicated they “collect all expense payments made locally in a timely manner and rarely have any gaps in data.”
• Only 38 percent agreed or strongly agreed that “corrections to year-end government tax reports (i.e., W-2) are rarely necessary.”
Following the eight tips presented in this article can help you tighten up these process fault lines and avoid international payroll aftershocks.
4. Provide your team with the right tools. Yes, your grandfather spent countless hours preaching to you the value of honest manual labor. But when it comes to international financial data, it is a good idea to leave it to the machines. The process of tracking and processing international payroll and payments, with all of its moving parts—from data gathering to compiling, including calculations and reporting, and then the integration of the data back into the organization—is really a perfect storm for disaster. Extra steps in the process that call for manually inputing the same data over and over again create additional opportunity for human error. Better if a report can be created from the accounts payable system or some other data-gathering tool so that the workload is reduced without adding extra steps.
5. Track and review data as it is collected throughout the year. Some companies only think about reviewing collected payroll data when they typically need to—at the end of the year. And while it might make sense from a timing perspective, you could reap significant benefits from making data tracking and reviewing a year-round effort.
For example, reviewing data quarterly (or even monthly, if possible) instead of annually will help you catch potential problems sooner so that they can be addressed immediately instead of in the midst of a year-end crunch. When it comes to international payroll, the more you can track, the better off you will be.
“There are so many things that get tied together when you’re processing payroll that if you wait until the end of the year, you’re just going to increase the number of opportunities for errors and rework down the road,” says McCleary. “Payroll should be a routine, not a fire drill.”
6. Along the lines of the previous tip, make a practice of interacting with payroll throughout the year, not just at year’s end. Performing regular reconciliations can help you make sure that the data provided and the data being stored are in synch, and that any payments made to expatriates above and beyond salary—such as deferred and incentive compensation, lump-sum bonuses, and one-time payouts—are recorded as they occur, making all of your data sources more accurate. This last point is particularly important, as countries and taxing authorities have become more aggressive, pursuing every dollar they can get to replace revenues lost to unemployment. With more jurisdictions tracking assignees after they have left and reviewing their host- country tax returns to identify any income that was earned in the host location and should have been taxed there, keeping tabs on these payments can help reduce concerns for your assignees.
7. Develop a project plan. Things tend to work smoother when there is a plan in place and a responsibility list for assigning accountability for critical tasks. Schedule regular “status check” meetings throughout the year with the appropriate parties to make sure everything is on track. This will encourage collaboration and efficient teamwork.
8. Start now. Ideally, planning for next year should begin as soon as the prior year is finalized.
Tim McCarney, GMS, is manager of marketing communications for Weichert Relocation Resources, Norwell, MA, and a member of the Mobility Editorial Advisory Committee. He can be reached at +1 781 982 5026 or e-mail email@example.com.