Let’s face it, many people find taxes to be intimidating, time consuming, and confusing. Why else would so many people procrastinate when it comes to filing their taxes? Then, add in the intricacies when taxpayers are dealing with multiple tax jurisdictions—due to an international transfer, international assignment, business travel, or even remote work—and the complexities skyrocket. When employees work outside of their Home location, delivering timely communications can go a long way in managing risks and providing an exceptional employee experience—helping you retain top talent and providing essential duty of care to your workforce. Below, we outline key items you should be discussing with your remote workers, business travelers, and/or international transferees or assignees.
Communications for your remote employees or business travelers
By communicating regularly with your remote workers and business travelers, you can manage both corporate and employee risks, understand where your employees are working and the jobs they are performing, and ensure duty of care (i.e., the legal and ethical obligation that employers have to ensure the health, safety, and well-being of their employees).
Manage the corporate and employee risks
Remote workers and business travelers can create both corporate and employee tax risks. Without a clear communication plan and process, it can be difficult to fully understand and be prepared for these risks. For example, identifying and managing hidden payroll tax requirements can be particularly complicated when there is a lack of information on where employees are living and working.
It is imperative to understand what these risks are; yet tackling them is often difficult without regular communication with your workforce. Timely communication will help your organization:
- Track the increasing volume of remote workers and business travelers that involve new locations.
- Educate employees on process, policy, and expectations, thereby reducing the strain on internal resources and bandwidth by limiting ongoing questions.
- Manage organizational risk and employee duty of care responsibilities.
- Implement new policies to address changing business and talent management needs.
- Communicate risks and information requirements to help mobile employees avoid tax traps and implement tax planning opportunities.
Once you understand the risks and issues, it is important to establish a process to track where your employees are working and to clearly communicate their responsibilities in managing this process. There should be clear guidelines provided to all managers as well as employees so you can maintain consistent treatment throughout your employee population. Mobile employees need to understand their responsibilities and what level of support will and will not be provided under your policy.
Understand where they are working and what jobs they are performing
Regular communication helps ensure employees understand their compliance obligations. In a recent GTN Work Anywhere Pulse Survey, conducted with cooperating vendors, over half of the more than 100 companies surveyed indicated they expected employees to self-report their work locations. Yet employees aren't always aware if or when they need to report their travel. This means you could have multiple employees spending extended time away from their typical tax jurisdiction but continuing to file only in their Home location, unaware they should report this new location to anyone.
To ensure company awareness and compliance, employees need to understand what should be reported, who they should report it to, and when they should report it. Development and implementation of remote work and business travel policies and processes are great first steps in supporting your employees.
Ensure duty of care for your workforce
Once you have drafted appropriate guidelines and policies, it's critical to communicate them to your employees and set up procedures to allow for review and approval of new cases. Without enforcement of the policies, your organization won't be able to meet its own obligations and will not meet the appropriate duty of care standards for your employees.
As employers establish the amount of support they will provide to their employees, they must consider duty of care. Some examples may include:
- Local-level health and safety regulations (e.g., OSHA in the US)—either with a US state or another country
- Workers' compensation coverage
- Other personal regulatory compliance, such as immigration and tax compliance
Previously, employers often provided more support for authorized business travelers, as opposed to employees who primarily traveled for personal reasons, but also spent some time working during their travels. However, with the shift in remote work environments, the line between work and personal time has become less defined and employers must now consider how it impacts the duty of care they have to their employees.
Duty of care has a very broad definition and different companies may have different ideas on what this means in terms of employee support. Ultimately, your obligation as an employer is to ensure duty of care for your employees and to understand and meet any tax and legal obligations for the company.
Communications for international transfers
There is a common perception that international transfers (i.e., employees who are permanently transferring to a new location for business purposes) don’t create as many ongoing issues as tax equalized expats (i.e., employees who are temporarily relocating to a new location for business purposes). However, trailing liabilities in the Home country related to bonuses and equity compensation can create significant cash flow issues for permanent transfers. We often see situations where prior year bonus or equity-based compensation is reported entirely in the current work location. This often results in an employee being underwithheld in the previous Home location.
For example, an employee working in California is granted restricted stock units (RSUs) that vest after the employee has moved to the UK. If the RSU income is reported entirely in the UK with UK withholdings, but no US federal or CA state tax withholdings, the employee will face an unexpected balance due when they file their US tax returns. Due to timing differences with the UK tax filing, they may have to pay out-of-pocket for the US underwithholding and will be without that money for a considerable period until the UK tax refund is received. The result is a very unhappy employee. The global mobility, payroll, and stock administration teams all have a duty of care in ensuring the trailing liabilities are reported correctly in the Home and Host locations.
As a best practice, the company and global mobility team should provide proactive communication to permanent transferees, prior to their moves, that highlight the ongoing tax withholding requirement in the previous Home country. This way, they will know what to expect and can plan accordingly or follow up with questions. The authorization of Home and Host tax counselling sessions with a mobility tax firm is also a great way to make sure that transferees are aware of compliance requirements and planning opportunities. In addition, the provision of tax assistance for the first year can help to ensure the transferee has met departure requirements and is appropriately set up on a go-forward basis in the new location.
Communications for employees on international assignment
Pre-assignment
Employees who are on an international assignment can sometimes feel removed from the company, especially if they are working in a location they have never been to before. Things like cultural differences and time zone changes can be stressful enough without the added strain of having to think about their tax situation.
Helping your employees understand their assignment-related tax implications prior to their acceptance of an international assignment can go a long way toward ensuring it's success. The following steps can provide the education necessary for your employees to understand their assignment terms:
- Provide an assignment letter that clearly details the assignment-related benefits they will receive such as company-provided housing, cost of living allowance, home leave, and coverage under a tax reimbursement policy (i.e., tax equalization).
- Provide a copy of the company’s assignment policy to ensure they understand how things like shipment of household goods will be handled, how their tax preparation will be handled, and any repayment provisions that apply if they resign during or shortly after their assignment.
- Provide a copy of the company’s tax reimbursement policy so they can familiarize themselves with the policy prior to their tax consultation with their tax services provider. Having the employee sign a statement indicating they have read the tax reimbursement policy and agree to remit any refunds or tax settlements owed to the company is a best practice.
- Authorize your employees for Home and Host country tax consultations prior to the assignment start date to ensure tax-planning opportunities aren’t missed, and to avoid triggering unnecessary tax implications related to the sale of stock or sale of their principal residence while on assignment.
Taking the above steps can help minimize the risk of unintended tax implications while helping ensure employees fully understand what they are entitled to receive and what their responsibilities are during the assignment.
During an assignment
Now that your employee is on assignment, you can breathe easy and leave everything to your tax services provider, right? Not so fast! While your tax services provider does the heavy lifting related to your employee’s taxes, there are several opportunities throughout the assignment where communications from an employee’s Home office can help minimize confusion.
- At year-end, a reminder that assignment-related benefits and gross-ups will be added to their taxable compensation can help minimize panicked emails and calls from employees who think their W-2 reporting is wrong.
- On an annual basis, it's important to remind employees who are authorized for tax services that they are required to complete the online travel calendar and tax notebook from their tax services provider to help avoid delays in the tax preparation process.
- Once their tax return and tax equalization calculation are completed, reminders of any amounts owed to the company can help to avoid situations where an employee resigns still owing the company money.
Out of sight shouldn’t mean out of mind—let your employees know you are thinking about them and provide ongoing communications throughout the assignment to help reinforce company assignment-related policies.
Prior to the end of an assignment
In addition to the need for a repatriation plan, there are several tax-related communications that are highly recommended prior to an assignment end date.
- Provide employees with a reminder that they may remain covered under the company’s tax reimbursement policy for at least one year after the assignment end date. Reasons for continued tax authorization include ongoing tax liabilities relating to the assignment (such as Host country taxation on bonuses and equity income received after returning home), potential utilization of unused foreign tax credits after repatriation, and the need for a final gross-up to remove them from the tax reimbursement program.
- A reminder that the tax benefit of unused company-paid foreign tax credits is for the benefit of the company and will need to be returned to the company if utilized by the employee in future years.
- An additional reminder that tax settlements and tax refunds owed to the company must be repaid in a timely manner to avoid potential corporate tax penalties under special IRS deferred compensation rules (i.e., IRC § 409A).
- Consider authorization of departure/repatriation tax briefings with a mobility tax firm to ensure assignees are aware of compliance requirements and planning opportunities.
Include these steps in your mobile employees' end-of-assignment tool kit, to help ensure a smooth transition back to the Home location.
Following these communication best practices can help minimize tax-related friction and misunderstandings for your mobile and remote employees, and ensure you are providing the exceptional employee experience your workforce expects and deserves.
