If your company relocates employees globally, ensuring that those employees are compensated and taxed correctly while on assignment isn’t just good practice, it’s keeping them and your company compliant with the law. In this arena, the stakes are high and potential problems can be hidden around every corner.
Global compensation can cause headaches for even the most astute mobility program managers, and the fact that over 200 corporate mobility professionals turned out for our recent webinar on this topic shows how much of a complex and formidable challenge it continues to be.
While we tackled a few of the questions attendees posed during the Q&A portion of our program, I wanted to dedicate this blog post to some of the questions we didn’t have time for. So without further ado, I’ll turn the spotlight to you.
Q: Can you please share your thoughts about the principle of “equal job, equal pay” as it pertains to foreigners working in the USA? For example, if we bring an employee into the US from another country and the contract is for 10 years, would it be ok to pay the employee those extra allowances or salary that a US-based professional would not get? if the answer is yes, then what happens if the contract is renewed for another 10 years?
A: For a ten-year contract we typically do not see ongoing allowances. For that type of move, one typically sees some allowances to get the person settled, from which point they are treated as local on local payroll and employment terms. As such, they would be treated as a peer in terms of pay, merit increase and taxation. We would be happy to discuss program structure and what other employers are doing in this regard as there are multiple factors to consider.
Q: What’s the common practice to consolidate different pay cycles (ex.: 12 in host vs. 13 in home, with payment in the host payroll)?
A: Let me caveat this by saying that there are other payroll tax and reporting complexities (home and host) that one would have to address in a host-paid model. Specifically to your question, many companies will simply deal with the difference in pay cycles and divide the home country payments evenly to accommodate the host cycle. This often becomes the solution as there is usually not a critical mass of such moves to warrant a more elaborate arrangement. Of course, the home country will run a shadow (if applicable) to make sure those host-paid items are captured for home country reporting/taxation requirements. Further, one would still need to address the funding of the employee’s home country benefit and tax obligations, as applicable, and establish the process to accommodate that.
Q: If in Canada the first day in-country imposes taxes, does this also impact every single person visiting Canada from other parts of the business? For example, one of our UK employees coming to our Canadian office for a week of internal meetings?
A: Technically, one is taxable from Day One when entering Canada. But there are a number of things to consider. First, one would have to look at the nature of the activity that the person is engaging in while in Canada; that will not only determine taxation, but also the type of visa the person may require, if any, to enter the country. Then one would have to look at the number of days spent in Canada and associated earnings with that period. Depending on the specific circumstances, there may be a need for a T4, a filing requirement, application of a treaty exemptions and refunds. We would recommend reviewing your business travel patterns into Canada, for this example, to identify possible violations, and discuss exposure with your global tax advisor.
Thanks again to everyone who attended our webinar. If you missed it but you’d like to get the recording, email us.
This blog post is provided for informational purposes only; any changes to your company’s tax or visa processes should be discussed with your legal and tax advisors.