GTN Mobility Tax Blog

Attracting and retaining skilled workers in today’s tight labor market takes more than a competitive salary. Many companies find they can meet their employment needs and their employees’ incentive preferences by offering a portion of their compensation as equity.

This article was originally published in Spiceworks.

Starting in May 2024, the US Securities and Exchange Commission’s new, shorter settlement cycle kicks in—and it could leave businesses scrambling. HR, payroll, tax, and equity teams will have one fewer day to deliver shares and manage the related equity compensation tax implications. Plus, when the settlement window is shortened, it will focus more on the complexity of managing a mobile workforce. 

However, these new settlement cycles could serve as the wake-up call businesses need to jump-start much-needed technology upgrades. Why is the SEC’s rule so important for companies that offer equity compensation, and how can technology protect against tax violations, lost compensation, and burnout in this new environment? 

The Securities and Exchange Commission (SEC) has introduced a new rule that significantly impacts the settlement process for popular equity plans offered to employees, such as stock-settled Restricted Stock Units (RSUs) subject to tax withholding, and stock option/stock appreciation right exercises involving same-day sales. Effective May 28, 2024, the settlement cycle will be shortened from two business days after the transaction date (T+2) to one (T+1).

In the current global business landscape, it has become increasingly common for companies to offer long-term incentives to their employees as a means of attracting, retaining, and rewarding them. However, while such incentives, including equity income, can be highly effective, they also come with inherent risks that require careful management and oversight.

When it comes to payroll reporting and withholding for equity compensation, companies don't always realize they may be non-compliant if they have a mobile workforce. These companies may be unaware of the rules in the various jurisdictions their employees have worked, and they may not have processes in place to allow for the tracking of employees. For these reasons, the payroll reporting and withholding, related to equity income, may be handled as if the individual had only worked in one location. However, this approach is often not appropriate for mobile employees working in multiple locations since reporting and withholding rules can vary for each jurisdiction.

The provision of long-term incentives, such as stock options and other equity compensation, to employees who work in multiple locations has always been challenging. Because not all jurisdictions treat equity income in the same manner for tax purposes, companies can face many uncertainties when trying to understand their reporting and withholding obligations. Mobile employees can face complex tax filings and even double taxation.