This timely and important topic was discussed by our hosts, Vincenzo Borzaro, Tax & Comp Director at Weichert Workforce Mobility and Barry Flanagan, Global Tax Director at Immedis.
During the program, attendees provided us with worthy questions that we wanted to share and respond to.
I sat down with Enzo to discuss these questions and he provided his subject matter expertise on the following:
Q. When you are referring to “payroll obligations in the host country for business travelers,” do you refer to business travelers who are rendering services to the benefit of a host legal entity, i.e. are you suggesting that any business travelers would have a payroll obligation as of day 1?
A. One needs to look at the local jurisdiction’s regulations and any treaties that may exist between the home and host location. There are often very specific conditions to be met in order for the employee to not trip a reportable and/or taxable event. One of them is the concept of economic employer (i.e., which entity is benefitting from the services rendered by the business traveler).
There are other concerns at play, such as, time spent in country, nature of the task, whom the person takes direction from (home or host leadership) which entity is bearing the costs, and income earned thresholds. As such, it is possible that a business traveler will not trigger a taxable event, but depending on the rules established by that foreign jurisdiction and the treaty position, if one exists, they may.
Q. What is the meaning of “validation by automation”?
A. In brief, the term itself describes the concept. There are efficiencies and decreased defect instances by implementing data validation schemes designed to catch common data errors. By checking payroll data in an automated manner, validation can enable payroll teams to catch and fix errors before they occur. Identifying concerns upfront leads to lowered instances of re-runs, added costs, processing delays, and other downstream concerns, such as incorrect payment or tax filings.
Q. What is your recommendation to avoid over payment and how to manage that best? What are the specific areas where we can ask about the deductions for X, Y, and Z?
A. It does come down to several things:
- understanding the legislative landscape of the home and host location
- there are very specific laws that govern taxability (including rates and timing) of compensation
- filing the proper payroll and/or government mandated forms
- for example, waivers, requests for reduction in withholding, proper immigration documentation
- engaging with business units and HR managers to monitor the global movement of employees
- proactively manage which locations people are going to so as to proactively address the first two points
- understanding that while there may be an immediate tax payment, but with the filing of tax returns, the taxes paid may be refunded in part or in whole
- understanding whether there is a payroll reporting obligation or just an income tax filing event
Q. How are companies managing non-US business travelers to NY or CA withholding requirements, especially without a social security number?
A. Other than the more obvious steps employers take in getting informed about what, and when, will trigger a reportable and/or taxable event, there is a need to put in place a robust means for monitoring movement between states, regardless of whether the employee is a US citizen/permanent resident.
We have seen employers apply treaty exemptions where possible, but that may only work at the Federal income tax level. In circumstances where the employer is aware of the upcoming visit and the regulations at hand, there may be time to apply for a proper, non-business, visa. That will allow the individual to apply for a SSN. Barring that, there is the practical approach of applying for an ITIN (Individual Taxpayer Identification Number) and filing a tax return to declare the income.
If you would like more information on this topic or if you missed the webinar, we are happy to provide a link. Please email: firstname.lastname@example.org.