CapRelo Blog

My Way, Your Way, Our Way in Global Mobility Programs

Posted by CapRelo on Tue, Oct 09, 2018

Today, we are joined by guest author, Nigel Ewington from TCO International.

Our WayRecently I got the opportunity to work with a Global Mobility professional who told me a story about a loss of trust she experienced in some global colleagues. She was feeling frustrated and let-down by the actions of some colleagues who had failed to follow the policy they had agreed together. It was made worse by the fact that she had only found out about the actions indirectly.

She was a Global Mobility VP working for a global manufacturing company and responsible for a tri-regional mobility program with key mobility stakeholders in Germany and China. This program was currently occupied with moving some German managers into China. The Mobility function had recently been through a process of drawing up and agreeing on new policy, with a strict set of processes to follow across the globe. Despite seeming to have secured agreement to these new policies from her regional colleagues at a three-way meeting in the USA, the Global Mobility VP had found out that one key area of policy linked to Transportation had been flouted in China. It seemed that the rules had been broken for a German C-suite executive moving to China, and no one had bothered to inform her.

On exploring the story more deeply, I learned that during the meeting itself the Global Mobility VP had presented her ideas about a new mobility policy and asked for reactions. She feared lack of buy-in from German team members, who asked her lots of difficult questions in response to her question. She had not anticipated that the flouting of the policy would come from her Chinese colleagues. At the meeting they had listened respectfully and merely commented that they were “grateful for these directions” and “would do their very best” to implement them. She left the meeting confident that buy-in had taken place. She was now mystified as to why this hadn’t happened.

As I reflected on the story, it seemed to me to be symptomatic of a key challenge besetting global mobility. In this VUCA (Volatile. Uncertain. Complex. Ambiguous) world, global mobility professionals themselves have to respond to the shifting needs of their internal customers by collaborating together as one global team with one shared policy across a number of locations. Here complexity is increased by the challenge of cultural differences and distance. They are faced with the challenge of who owns Global Mobility globally, and how to make new levels of global collaboration work

If the ownership of Global Mobility is now dispersed globally, it takes special sensitivity to make sure that the cross-border collaboration is effective. The communication problem our VP faced here was not a lack of clarity nor a lack of respect, but a failure to get real buy-in from her global colleagues.

While it is a universal truth that as human beings we all love to communicate our intentions, this story reveals that we have different cultural assumptions about how to go about doing this. Chinese tend to be higher-context in their communication style, avoiding over-direct use of text and assuming that their important messages will be read between the lines. Inference, body language and situational cues are the tools of the high-context communicator. Germans on the other hand, tend to be lower-context in style, preferring to communicate the critical nature of what they are thinking more directly in the exact text of what they say. They are more direct in challenging others, even when maintaining a good relationship is critical to them. Americans – sitting culturally in the middle of these two other cultures – may misconstrue the Chinese indirectness for agreement and the German critical feedback for aggression. Here, a failure to understand the Your Way of effective communication, and how it may differ from My Way may compromise the formulation of a workable global Our Way for moving forward globally.

The lack of cultural sensitivity revealed in this case was not only a question of communication. I learned that the Global Mobility VP had dug deeper into the exact local context in which there had been a flouting of the Transportation allowance policy. In this organization’s policy, assignees are given a Transportation allowance of USD 1,000 per month used to subsidize transportation needs. Such needs include car rental, use of taxis, etc. In China, due to the regulations, expats are not encouraged to drive on their own, and car rentals tend to come with a driver instead. The German C-suite executive assumed that the car and driver was an entitlement and demanded the full costs to pay for it, although the intention was to subsidize the cost, not pay the full entitlement. Local HR acquiesced and paid from another budget.

If we accept that the Chinese mobility team was aware of the rules, despite having some concerns that they had not voiced at the meeting in the US, why did they simply not follow them? Is this possibly another cultural factor relating to understand the “your way” of global collaboration, or is it simply a lack of professionalism?

Research indicates that cultures have different assumptions about rules vs. exceptions. In all cultures we need to find the right balance between knowing when to follow the rule regardless of the context, and when to adapt the rule according to special circumstances.  Some cultures can be described as “universalist,” where people tend to follow the rule regardless of the context in which it is applied. In “particularist” cultures, on the other hand, rules always need to be reinterpreted to meet the needs of particular people in particular contexts. Very often like China, such “particularist” cultures tend to be also “hierarchical” in style, where people tend to maximize the deference and privileges given to bosses, rather than minimize them.

This “particularist,” hierarchical side of Chinese culture and the flexible approach to rules that ensues can be a source of frustration to “universalist” global partners, but it can provide the sensitive handling of the delicate needs of key stakeholders locally that is critical to the implementation of mobility programs

In reflecting on the learning from this story, it occurred to me that one of the features of this story is the gap between intentions and impact, which is typical of breakdowns in global collaboration. Both sides have positive intentions in what they do and say, but due to a smokescreen of instinctive cultural styles the impact is often negative. To get real buy-in in a world where ownership of global mobility is dispersed across locations, the Global Mobility VP should have avoided leading with a presentation of her own first draft of policy, before getting reactions. Instead she could have framed the intentions of policy, and before getting to drafting rules of guidelines, she should have listened and explored how key stakeholders would implement those intentions in key global locations. In this way she would have learned about some of the cultural differences – both of the “harder,” more visible kind and the “softer,” more attitudinal and values-driven kind – revealed in the case.

I was reminded of the trilemma of focusing on My Way vs. Your Way vs. Our Way when collaborating and building buy-in in a global context. Whereas undoubtedly, to build trust you need to be yourself, authentic and honest. However, the My Way needs to be tempered with awareness and skills in understanding the Your Way of your global partners. Only in this way can you reflect on the best Our Way for turning positive intentions into effective communication, process and policy.

 

About Nigel Ewington

Nigel is a co-founding partner of TCO who has worked for over 20 years with over 100 organizations in the area of developing global agility.  He has developed a deep understanding of what organizations need to do in order to thrive and prosper in a complex, diverse and changing world. This has been honed by his experience of living and working in other countries, as well as his own agility in travelling around the world on assignments where on a week-to-week basis he needs to bring value to many different kinds of people in many different cultural and organisational contexts.

A key underlying gift that Nigel brings to TCO clients is how to get the best out of themselves and others when managing change across geographic and organizational boundaries. Here he has built a strong reputation as a presenter, trainer and facilitator, from the very largest events on the theme of global leadership down to small, compact leadership teams that are looking increase productivity in terms of how they work together. He has been instrumental in creating the signature concepts, models and activities that make TCO original and unique.

 

Topics: global mobility policy, global mobility, global assignments, communication

5 Important Topics to Include in a Global Assignment Letter of Understanding

Posted by Amy Mergler on Thu, Jul 19, 2018

Image of businessman at airport looking at airplane taking offOne way to help ensure global assignment success is to prepare an effective global assignment letter of understanding that outlines the pertinent details and benefits of the assignment in a way that leaves no room for misinterpretation. 

After your letter of understanding addresses specific information regarding the scope of the assignment, you can delve into the specifics of your global mobility policy and explain the benefits the employee will receive.

Explain Your Global Mobility Policy

Your letter should summarize the portions of your global mobility policy that are applicable to the employee. Among the issues your policy addresses, it is important to include information on the five topics below because they are:

  • The most costly components of an assignment or transfer and
  • Usually the greatest stressors to an employee, which can cause reduced productivity.

Relocation Expenses

When writing the letter, review your policies to determine what is relevant to the particular employee. While it’s not recommended to copy your policy verbatim into the letter, you should summarize:

  • Specific expenses and the amounts the company pays for directly.
  • Types of expenses that can be reimbursed, along with any limits. Note whether the employee is required to document each expense, should submit a consolidated summary or will be given a lump sum amount for miscellaneous expenses.
  • The ongoing allowances for specific benefits.
  • Expenses the employee is responsible for paying.
  • Repayment agreement terms.

Moving Household Goods

Household goods shipments can be a significant part of your overall global relocation expense. The moving cost can vary widely depending upon whether the employee is relocating permanently or will be on assignment for a set length of time, the distance between the current and destination locations and the family size.

Global movement of household goods will typically include sea and air shipments and long-term storage. The letter of understanding should be clear on what is covered. Typical benefits include a 20-foot or 40-foot container and 500 pounds for an air shipment. Long-term storage is generally only provided for those on assignment, and for the length of the assignment.

The cost of storage and valuation coverage for household goods must also be considered. Your letter should specify the amount the company will pay for household goods transport, storage and valuation along with any limitations or restrictions.

Tax Implications and Assistance

Taxes Concept on File Label in Multicolor Card Index. Closeup View. Selective Focus.Global assignments and relocation can have significant tax implications. The letter of understanding should outline the assistance provided, which may include a pre-assignment/relocation orientation with a third-party tax provider, tax return preparation assistance and tax equalization. It should also include details on the employee’s and the company’s responsibilities. The company’s tax provider may also suggest including a tax equalization addendum that outlines the company’s policy to be signed by the employee.

Immigration

The letter of understanding should emphasize the importance of compliance with global immigration laws and should outline the assistance provided by the immigration partner or department. The employee’s responsibilities to provide accurate and timely information and to follow all instructions regarding travel limitations of the host country should be clearly documented. The assignment or relocation cannot begin until required immigration documents are obtained.

Housing and Settling In Assistance

Getting your employee and their family settled into a new residence is crucial because it helps them to return to full productivity quickly. Each employee is unique. Some may need temporary housing while they search for a new residence. Your letter should reflect the level of assistance the company provides.

  • Temporary Housing: Summarize what provisions the company makes for temporary living and for how long.
  • Home Finding Travel: Summarize the assistance the company provides, such as home finding trips. Include the number of trips allowed, the expenses covered and the family members approved.
  • Destination Services: Summarize the services the company provides, which might include home finding assistance, orientation to the new area, contacts with local schools, colleges, medical facilities, etc.
  • Long-Term Housing (Assignments Only): Summarize the housing assistance provided, including monthly housing allowance based on family size and location, method of payment, utilities included and employee responsibilities for maintenance and upkeep.

Ideally, your letter of understanding should focus on the employee and the benefits of the new role while creating a positive impression and enthusiasm for the new opportunity. Make sure to outline the expectations and responsibilities in the new role to avoid any possible misunderstanding. Explain and summarize the relevant points from your global mobility policy, paying particular attention to the five topics discussed above.

Writing an International Letter of Understanding

Topics: global mobility, global assignments, global mobility management, letter of understanding, global mobility policy

Best practices for Writing a Global Assignment Letter Of Understanding

Posted by Amy Mergler on Thu, Jul 12, 2018

reeditor-2015-singapore-flying-high-for-global-mobility_3566Relocating globally or going on an assignment for a job is considered a major life event because it often requires an employee selling a home before moving the family to a new country and changing many of their typical routines. Your employee letter of understanding must cover a number of important topics, but without increasing your employee's anxiety.

A letter of understanding outlines the details and benefits of the assignment. This legally binding document basically serves as an addendum to the employee’s regular employment contract and lays out any varying or additional terms that apply for the duration of the assignment. As such, it must be signed by all parties. In addition to the assignment start and end date, job title and location, the letter of assignment must specify all contractual agreements, code of conduct, compensation and benefits, assignment-specific benefits such as moving expenses and repatriation allowance, tax equalization and other fiscal matters.

It’s important that the letter of understanding lay out all pertinent details of an assignment in a way that leaves no room for misinterpretation. Any lack of clarity could lead to misunderstanding, which in turn could lead to costly and time-consuming problems. This can be a drain on resources, and it can create a distraction for the employee and impact the success of the assignment.

The key to drafting effective letters of understanding begins with knowing your employees and focusing on them and their families. You can find sample templates on the internet to help you draft a letter of understanding, but unfortunately, many of them begin something like this:

Dear Mr. Jones,

This letter is to inform you that you will be transferred effective [date] to our location in...

Considering the upheaval a relocation will cause in your employee's life, this approach is rather abrupt. Here are some best practices to help you write an effective letter of understanding.

Discuss the Global Relocation or Assignment First

team of successful business people having a meeting in executive sunlit officeYour company has made the decision to relocate or send an employee on assignment to benefit the organization in some way. You may need to add talent to a business unit in another city, or to reduce it at the employee’s current location. You may want to move a manager to provide new leadership in another territory. You may even want to give a high-potential employee broader experience as part of a career development plan. No matter the reason, be sure you or the appropriate manager(s) discuss those reasons with the employee long before you write the letter.

Having a detailed discussion provides an opportunity to create enthusiasm about a new role by:

  • Increasing the likelihood of an accepted offer.
  • Providing a platform to discuss your global mobility policy and company-provided financial assistance.
  • Clarifying the specific skill-building and learning opportunities available in the new role.
  • Showing that the company values the employee and wants to make an investment in his or her future.
  • Demonstrating that the employee is important to the growth of the business.

Holding a preliminary discussion shows respect for the employee and allows you to craft a letter tailored to that individual. In turn, you’re more likely to increase loyalty and productivity — and reduce the chance of a relocation offer being declined.

Outline the New Role

Your employee’s job title and responsibilities may remain the same in the new location. If that is the case, make sure the transfer letter of understanding includes the name of the person to whom the employee will report and the duration of the transfer or assignment. For employees taking on new responsibilities, you’ll also want to include the following:

  • The employee's new job title or position.
  • A description of any increased benefits, salary or bonuses.

Similar in some ways to an employment offer letter to a prospective new employee, this portion of the letter of understanding focuses on the specifics of the new role. It documents the job title, salary and related matters to eliminate misunderstandings later. The letter should be dated and signed by the appropriate manager, and be sure the letter contains:

  • The employee's full name and current home address.
  • Department names — both the current department and the new destination department.
  • The effective date the employee should report to the new location.
  • The anticipated end date in the case of an assignment.
  • The name of the employee's new supervisor.
  • The date by which the individual relocation and assignment benefits must be used.

After you proved this pertinent information, you can delve into the specifics of your company's global mobility policy and explain the benefits the employee will receive. Check back next week to learn about the five most important topics to include in your global assignment employee letter of understanding.

Writing an International Letter of Understanding

Topics: global assignments, global mobility management, letter of understanding, global mobility

Global Compensation Services (Part 3)

Posted by Amy Mergler on Thu, Apr 05, 2018

FormsA global mobility program can offer significant value to a company, not only because of the business opportunities it presents, but also because it helps to attract and retain quality talent. However, to remain in compliance with the rules and regulations of various countries, a well-run global mobility program needs accurate, timely administration and bookkeeping. Working with a global compensation services provider offers companies a cost-effective way to gain access to the expertise, manpower and resources needed to maintain centralized, organized payroll and tax reporting.

Today is the last post in our series of posts about the services offered by global compensation services providers. Keep checking back to learn more.

Global Statement of Earnings (GSOE)

The global statement of earnings (GSOE) provides a comprehensive, detailed overview of what was paid to (or on behalf of) each assignee. It is sent to the tax provider for ease of preparation of tax returns. In addition, it’s used as a data source for shadow payroll. The GSOE is reconciled to the U.S. Box 1 Form W-2 at year’s end.

The GSOE is critical to accurate reporting. It ensures that the company is in compliance both at home and in the host country, as well as that all taxes are properly recorded for reporting purposes. Furthermore, it makes sure assignees are paying taxes as needed and enables the employer to provide assignees with tax return preparation assistance, which can be an important benefit.

Shadow Payroll

Shadow payroll, also referred to as “ghost payroll,” reports compensation that is paid to an assignee from another country. Running a shadow payroll concurrently in the host location simplifies income and tax reporting and facilitates compliance efforts.

Compensation reporting can be complex, because the various components of an assignee’s total compensation may originate from different locations. The base salary and any bonuses are usually paid from the assignee’s country of origin, but many assignment-related costs such as housing allowances, dependents’ allowances and taxes are paid from the host country. Keeping records in both countries ensures timely and accurate reporting. For this reason, compensation services providers send shadow payroll reports that show all payments made to the host location and/or the company’s tax provider. They also send an “add to earnings” file to the payroll department in the home country for the payments made in the host location. This ensures that there’s a full and accurate report of all costs associated with an assignment in each location.

Balance Sheet Updates

Balance sheet updates are adjustments to the initial balance sheet that was created at the beginning of the assignment and affixed to the letter of assignment. Balance sheet updates can be performed during an assignment for a number of reasons, such as a change in salary or family size. They’re also required at regular intervals to revise the cost of living adjustment (COLA) as needed. Compensation service providers work with the company’s data provider to obtain updated COLA indexes and exchange rates.

Tax Equalization

The fundamental principle of tax equalization is that the assignee will not suffer financial hardship nor experience a financial windfall as a result of the tax consequences of a global assignment. Tax equalization plays an important role in helping employees make a balanced decision about accepting an global assignment. Without it, an employee might not want to go to Sweden, where the income tax rate is currently more than 57 percent, while others could be lining up for assignments in countries with low tax rates like Saudi Arabia.

During the tax equalization process, the company’s tax provider calculates what the assignee’s tax liability would have been in his or her own country for non-assignment compensation. That means that base pay is taken into account, but things like cost of living allowance, education allowance, relocation costs and other similar costs are not included in the calculation. The resulting sum indicates whether the assignee’s compensation needs to be adjusted up or down, and the tax provider prepares a settlement accordingly. Consequently, the compensation services provider processes the payment. If the employee owes the employer money, the compensation services provider will collect it and send the company the relevant reports.

Year-End Reporting

Year-end reporting involves the collection of all payroll and tax reports for all assignees, as well as the subsequent filing with all relevant national and state entities. A compensation services provider coordinates the tax eligibility list with the company and its tax provider. Throughout the year, it also provides preliminary reports to the tax provider to make sure any safe harbor (estimated tax) payments are being made. When all compensation data is collected, the GSOE is sent to the tax provider. This can be done in the currency of the home country, host country or the country where the company is headquartered.

 

The Value of Global Compensation Services

 

Topics: compensation and benefits, global compensation services, compensation services, global mobility, global assignments

Global Compensation Services (Part 2)

Posted by Amy Mergler on Tue, Mar 27, 2018

PayrollsA global mobility program can offer significant value to a company, not only because of the business opportunities it presents, but also because it helps to attract and retain quality talent. However, to remain in compliance with the rules and regulations of various countries, a well-run global mobility program needs accurate, timely administration and bookkeeping. Working with a global compensation services provider offers companies a cost-effective way to gain access to the expertise, manpower and resources needed to maintain centralized, organized payroll and tax reporting.

Today is Part 2 in our series of posts about the services offered by global compensation services providers. Keep checking back to learn more.

Certificate of Coverage

When an employee of a company is sent on an assignment to another country, he or she may be required to pay social security taxes both at the home and host locations—unless those countries have entered into totalization agreements. These are bilateral social security agreements that eliminate dual taxation by assigning coverage to only one of the countries, which is usually the one where the work is being performed. As a result, employees on global assignments and their employers are exempt from having to make social security payments in the other country. Currently, the U.S. has totalization agreements with 26 countries. The certificate of coverage is the document issued by the country that is assigned coverage of the employee’s work.

It’s important to understand social security coverage implications for global assignees. Employers need to be aware of the exact social security regulations of a country before sending employees on assignment, and if applicable, apply for a certificate of coverage before the assignment starts. This will protect both the company and its employees from dual taxation, preventing potential problems with employees who are relying on their employer to manage (or at least inform them about) these matters on their behalf. Moreover, it will safeguard the company from compliance issues.

In general, a certificate of coverage has a duration of five years. However, a country’s social security administration may grant extensions, although there is usually a processing period of four to six weeks involved. Compensation services providers can apply for certificates of coverage on behalf of their clients. In addition, they can help them track expiration dates so there isn’t a lapse of coverage.

Payroll Instructions

For each global assignment, payroll instructions must be developed based on the financial data as detailed in the assignee’s letter of assignment and initial balance sheet. The first objective of these instructions is naturally to ensure that all elements of the assignee’s compensation are accurately incorporated into payroll. The second objective is to make sure that all components are accurately recorded and that necessary withholdings are made and the funds sent to the appropriate governmental bodies—something that can be extremely complicated, depending on the location.

The payroll departments both at home and in the host locations need to receive and understand each assignment's payroll instructions. Some compensation services providers not only prepare payroll instructions, they also provide training on what the content of payroll files should be, as well as what data will be needed for payroll file returns. Instructions regarding payroll reporting can be flexible, with companies receiving instructions for full payroll details per cycle or only updates about any applicable changes.

Payroll Reconciliation

Payroll reconciliation is necessary to ensure that the payroll instructions are being carried out correctly. It verifies that the amounts are correct and for the appropriate time period, as well as that the monies are being directed to the correct accounts. When this is done by an external company, it’s an additional layer of protection against errors.

During payroll reconciliation, compensation services providers may also collect all payroll detail as a part of the compensation accumulation process.

Compensation Accumulation

Compensation accumulation is a critical component of a company’s global mobility reporting. Compensation accumulation is the collection of all assignment-related, off-payroll costs that are made to, or on behalf of, assignees through accounts payable (housing, for example) or finance (taxes). All reports are reconciled to the relevant assignee’s letter of assignment and balance sheet, as well as to company policy.

Compensation accumulation can be very challenging for companies that have assignees in multiple countries. Collecting the required data often involves interacting with multiple locations and departments. It can even involve interacting with service providers to whom a company has outsourced business processes. Nevertheless, it’s important to report all of these expenses accurately to remain compliant.

A compensation services provider collects the reconciled payroll data needed for compensation accumulation on a monthly basis and stores it in a central location. This keeps the process streamlined; plus, it organizes and eliminates the issues that can arise from decentralized, untimely data collection.

 

Check back next week for Part 3!

 

Managing Global Assignment Costs

 

Topics: compensation and benefits, global compensation services, compensation services, global mobility, global assignments

Global Compensation Services (Part 1)

Posted by Amy Mergler on Thu, Mar 22, 2018

Global CompensationA global mobility program can offer significant value to a company, not only because of the business opportunities it presents, but also because it helps to attract and retain quality talent. However, to remain in compliance with the rules and regulations of various countries, a well-run global mobility program needs accurate, timely administration and bookkeeping. Working with a global compensation services provider offers companies a cost-effective way to gain access to the expertise, manpower and resources needed to maintain centralized, organized payroll and tax reporting.

Today is the first in our series of posts about the services offered by global compensation services providers. Keep checking back to learn more.

Cost Projection

A cost projection is a comprehensive, high-level estimate of expected costs specific to the global assignment. This is based on the client's mobility and compensation policies, as well as all additional assumptions that have been agreed upon for a specific assignment. In addition to the employee’s base compensation, which consists of his or her salary and any bonuses, it includes all estimated assignment expenses and hypothetical expenses. This can involve a range of expenses such as relocation expense reimbursement, cost of living allowance, home leave, housing allowance, expatriate premium, tax services and more, depending on the individual case. It also includes a breakdown of the projected domestic and host country taxes. Costs are assessed based on reliable data sources and projected for the duration of the assignment. For assignments that are longer than two years, inflation may be taken into account. However, it’s important to understand that actual costs may vary due to economic fluctuations that impact the cost of living, as well as other factors such as hardship, emergencies, changes to family size and more.

The main purpose of a cost projection is to create a data-driven estimate of costs that the company can use to make strategic decisions regarding its workforce needs in that location. With an accurate and comprehensive overview of the required financial investment, the company can determine whether the assignment is financially viable. If necessary, it can be used as a tool to consider alternative solutions that require a lower investment such as sending a less senior—and therefore less expensive—employee or working with a local staffing agency to hire short-term, local professionals.

Quick Cost Projection

A quick cost projection tool is a standalone tool that the company can use to plan and compare different scenarios. Whereas a cost projection is a detailed document that’s tailored to a specific assignment using the most current data, a quick cost projection tool uses more general data based on country-specific information. Based on the user’s input, it calculates cost of living, education costs, tax data, housing costs, health care expenses and more to create quick cost projections that can be used to compare the investment associated with various scenarios.

For example, a company might want to compare the costs of sending a senior manager with a spouse to Frankfurt for two years to the costs associated with sending a lower level manager who has a spouse and a child on the same assignment. Or a multinational company might want to compare the costs of sending an engineer from Detroit, Michigan on a 12-month assignment to London with the costs required to send an engineer with the same skills but who’s currently based in Milan on the same assignment.

Many quick cost projection tools are web-based platforms that companies can access themselves and use at any time. This makes them both easy to use and much more affordable than in-depth cost projections—although an in-depth cost projection will be required further on in the assignment process.

Letter of Assignment

A letter of understanding or letter of assignment outlines the details and benefits of the assignment. It’s a legally binding document that basically serves as an addendum to the assignee’s regular employment contract and lays out any varying or additional terms that apply for the duration of the assignment. As such, it must be signed by all parties. In addition to the start and end date of the assignment, job title and location, the letter of assignment must specify all contractual agreements, code of conduct, compensation and benefits, assignment-specific benefits such as moving expenses and repatriation allowance, tax equalization and other fiscal matters.

It’s important that the letter of assignment lay out all pertinent details of an assignment in a manner that leaves no room for misinterpretation. Any lack of clarity could lead to misunderstanding, which in turn could lead to costly and time-consuming problems. This can be a drain on resources, and it can create a distraction for the employee and impact the success of his or her assignment.

Initial Balance Sheet

The initial balance sheet is typically affixed to the letter of assignment. It provides details regarding the assignment allowances the employee will receive.

 

Check back next week for Part 2!

 

Global Assignment Guide

Topics: compensation and benefits, global compensation services, compensation services, global mobility, global assignments

What Are Global Compensation Services?

Posted by Amy Mergler on Fri, Mar 16, 2018

Global CurrencyDue to increased globalization and cross-border projects, a growing number of companies are sending employees on short- and long-term global assignments. While this offers benefits for both employers and employees, it also makes payroll, as well as income and tax reporting, much more complex. This is further complicated because global assignments include relocation-related benefits that may or may not have to be reported. Nevertheless, employers are not only responsible for ensuring their employees receive adequate compensation and in a timely manner, but also that all local income and tax reporting regulations are adhered to.

Compliance with regulations and timely, accurate tax reporting are vital to protect both an organization and its employees from potential issues with revenue services, regardless of whether they’re those of the host country or in the country of origin. This can become highly complex, especially for companies with multiple assignment locations, a range of assignment lengths and types, different pay scales and employees with varying nationalities.

For companies with employees on global assignments, navigating the complexities of international regulations and reporting requirements can be a significant burden on their payroll and bookkeeping departments. Many do not have staff with the diverse, precise knowledge required. For example, a company might have seven employees on assignments in four different countries. If these employees are of varying levels of seniority, their wages and benefits will all be different. To enable accurate reporting, knowledge is needed of the regulations and employment tax laws of all four countries. If the employees also have varying countries of origin, the situation becomes even more complex. Additionally, the duration of an assignment has an impact on the taxability of compensation items associated with global assignments—such as household goods storage.

Even if a company does have professionals with the required knowledge on staff, the time and investment needed to ensure correct and comprehensive reporting may be a drain on resources that are needed elsewhere.

For this reason, a growing number of companies are outsourcing this business process to global compensation services providers. These are third-party service providers that assume the responsibilities associated with collecting, controlling and reporting all the compensation data of employees on global assignments on the employer’s behalf. They assist employers from the very beginning of an assignment, ensuring transparency for all parties, as well as correct and complete documentation. Furthermore, they provide accurate, comprehensive administration and reporting that complies with all applicable regulations.

The Value of Global Compensation Services

A global mobility program can offer significant value to a company, not only because of the business opportunities it presents, but also because it helps to attract and retain quality talent. However, to remain in compliance with the rules and regulations of various countries, a well-run global mobility program needs accurate, timely administration and bookkeeping. Working with a global compensation services provider offers companies a cost-effective way to gain access to the expertise, manpower and resources needed to maintain centralized, organized payroll and tax reporting.

COST PROJECTION

A cost projection is a comprehensive, high-level estimate of expected costs specific to the global assignment. This is based on the client's mobility and compensation policies, as well as all additional assumptions that have been agreed upon for a specific assignment. In addition to the employee’s base compensation, which consists of his or her salary and any bonuses, it includes all estimated assignment expenses and hypothetical expenses. This can involve a range of expenses such as relocation expense reimbursement, cost of living allowance, home leave, housing allowance, expatriate premium, tax services and more, depending on the individual case. It also includes a breakdown of the projected domestic and host country taxes. Costs are assessed based on reliable data sources and projected for the duration of the assignment. For assignments that are longer than two years, inflation may be taken into account. However, it’s important to understand that actual costs may vary due to economic fluctuations that impact the cost of living, as well as other factors such as hardship, emergencies, changes to family size and more.

The main purpose of a cost projection is to create a data-driven estimate of costs that the company can use to make strategic decisions regarding its workforce needs in that location. With an accurate and comprehensive overview of the required financial investment, the company can determine whether the assignment is financially viable. If necessary, it can be used as a tool to consider alternative solutions that require a lower investment such as sending a less senior—and therefore less expensive—employee or working with a local staffing agency to hire short-term, local professionals.

QUICK COST PROJECTION

A quick cost projection tool is a standalone tool that the company can use to plan and compare different scenarios. Whereas a cost projection is a detailed document that’s tailored to a specific assignment using the most current data, a quick cost projection tool uses more general data based on country-specific information. Based on the user’s input, it calculates cost of living, education costs, tax data, housing costs, health care expenses and more to create quick cost projections that can be used to compare the investment associated with various scenarios.

For example, a company might want to compare the costs of sending a senior manager with a spouse to Frankfurt for two years to the costs associated with sending a lower level manager who has a spouse and a child on the same assignment. Or a multinational company might want to compare the costs of sending an engineer from Detroit, Michigan on a 12-month assignment to London with the costs required to send an engineer with the same skills but who’s currently based in Milan on the same assignment.

Many quick cost projection tools are web-based platforms that companies can access themselves and use at any time. This makes them both easy to use and much more affordable than in-depth cost projections—although an in-depth cost projection will be required further on in the assignment process.

LETTER OF ASSIGNMENT

A letter of understanding or letter of assignment outlines the details and benefits of the assignment. It’s a legally binding document that basically serves as an addendum to the assignee’s regular employment contract and lays out any varying or additional terms that apply for the duration of the assignment. As such, it must be signed by all parties. In addition to the start and end date of the assignment, job title and location, the letter of assignment must specify all contractual agreements, code of conduct, compensation and benefits, assignment-specific benefits such as moving expenses and repatriation allowance, tax equalization and other fiscal matters.

It’s important that the letter of assignment lay out all pertinent details of an assignment in a manner that leaves no room for misinterpretation. Any lack of clarity could lead to misunderstanding, which in turn could lead to costly and time-consuming problems. This can be a drain on resources, and it can create a distraction for the employee and impact the success of his or her assignment.

INITIAL BALANCE SHEET

The initial balance sheet is typically affixed to the letter of assignment. It provides details regarding the assignment allowances the employee will receive.

CERTIFICATE OF COVERAGE

When an employee of a company is sent on an assignment to another country, he or she may be required to pay social security taxes both at the home and host locations—unless those countries have entered into totalization agreements. These are bilateral social security agreements that eliminate dual taxation by assigning coverage to only one of the countries, which is usually the one where the work is being performed. As a result, employees on global assignments and their employers are exempt from having to make social security payments in the other country. Currently, the U.S. has totalization agreements with 26 countries. The certificate of coverage is the document issued by the country that is assigned coverage of the employee’s work.

It’s important to understand social security coverage implications for global assignees. Employers need to be aware of the exact social security regulations of a country before sending employees on assignment, and if applicable, apply for a certificate of coverage before the assignment starts. This will protect both the company and its employees from dual taxation, preventing potential problems with employees who are relying on their employer to manage (or at least inform them about) these matters on their behalf. Moreover, it will safeguard the company from compliance issues.

In general, a certificate of coverage has a duration of five years. However, a country’s social security administration may grant extensions, although there is usually a processing period of four to six weeks involved. Compensation services providers can apply for certificates of coverage on behalf of their clients. In addition, they can help them track expiration dates so there isn’t a lapse of coverage.

PAYROLL INSTRUCTIONS

For each global assignment, payroll instructions must be developed based on the financial data as detailed in the assignee’s letter of assignment and initial balance sheet. The first objective of these instructions is naturally to ensure that all elements of the assignee’s compensation are accurately incorporated into payroll. The second objective is to make sure that all components are accurately recorded and that necessary withholdings are made and the funds sent to the appropriate governmental bodies—something that can be extremely complicated, depending on the location.

The payroll departments both at home and in the host locations need to receive and understand each assignment's payroll instructions. Some compensation services providers not only prepare payroll instructions, they also provide training on what the content of payroll files should be, as well as what data will be needed for payroll file returns. Instructions regarding payroll reporting can be flexible, with companies receiving instructions for full payroll details per cycle or only updates about any applicable changes.

PAYROLL RECONCILIATION

Payroll reconciliation is necessary to ensure that the payroll instructions are being carried out correctly. It verifies that the amounts are correct and for the appropriate time period, as well as that the monies are being directed to the correct accounts. When this is done by an external company, it’s an additional layer of protection against errors.

During payroll reconciliation, compensation services providers may also collect all payroll detail as a part of the compensation accumulation process.

COMPENSATION ACCUMULATION

Compensation accumulation is a critical component of a company’s global mobility reporting. Compensation accumulation is the collection of all assignment-related, off-payroll costs that are made to, or on behalf of, assignees through accounts payable (housing, for example) or finance (taxes). All reports are reconciled to the relevant assignee’s letter of assignment and balance sheet, as well as to company policy.

Compensation accumulation can be very challenging for companies that have assignees in multiple countries. Collecting the required data often involves interacting with multiple locations and departments. It can even involve interacting with service providers to whom a company has outsourced business processes. Nevertheless, it’s important to report all of these expenses accurately to remain compliant.

A compensation services provider collects the reconciled payroll data needed for compensation accumulation on a monthly basis and stores it in a central location. This keeps the process streamlined; plus, it organizes and eliminates the issues that can arise from decentralized, untimely data collection.

GLOBAL STATEMENT OF EARNINGS (GSOE)

The global statement of earnings (GSOE) provides a comprehensive, detailed overview of what was paid to (or on behalf of) each assignee. It is sent to the tax provider for ease of preparation of tax returns. In addition, it’s used as a data source for shadow payroll. The GSOE is reconciled to the U.S. Box 1 Form W-2 at year’s end.

The GSOE is critical to accurate reporting. It ensures that the company is in compliance both at home and in the host country, as well as that all taxes are properly recorded for reporting purposes. Furthermore, it makes sure assignees are paying taxes as needed and enables the employer to provide assignees with tax return preparation assistance, which can be an important benefit.

SHADOW PAYROLL

Shadow payroll, also referred to as “ghost payroll,” reports compensation that is paid to an assignee from another country. Running a shadow payroll concurrently in the host location simplifies income and tax reporting and facilitates compliance efforts.

Compensation reporting can be complex, because the various components of an assignee’s total compensation may originate from different locations. The base salary and any bonuses are usually paid from the assignee’s country of origin, but many assignment-related costs such as housing allowances, dependents’ allowances and taxes are paid from the host country. Keeping records in both countries ensures timely and accurate reporting. For this reason, compensation services providers send shadow payroll reports that show all payments made to the host location and/or the company’s tax provider. They also send an “add to earnings” file to the payroll department in the home country for the payments made in the host location. This ensures that there’s a full and accurate report of all costs associated with an assignment in each location.

BALANCE SHEET UPDATES

Balance sheet updates are adjustments to the initial balance sheet that was created at the beginning of the assignment and affixed to the letter of assignment. Balance sheet updates can be performed during an assignment for a number of reasons, such as a change in salary or family size. They’re also required at regular intervals to revise the cost of living adjustment (COLA) as needed. Compensation service providers work with the company’s data provider to obtain updated COLA indexes and exchange rates.

TAX EQUALIZATION

The fundamental principle of tax equalization is that the assignee will not suffer financial hardship nor experience a financial windfall as a result of the tax consequences of a global assignment. Tax equalization plays an important role in helping employees make a balanced decision about accepting an global assignment. Without it, an employee might not want to go to Sweden, where the income tax rate is currently more than 57 percent, while others could be lining up for assignments in countries with low tax rates like Saudi Arabia.

During the tax equalization process, the company’s tax provider calculates what the assignee’s tax liability would have been in his or her own country for non-assignment compensation. That means that base pay is taken into account, but things like cost of living allowance, education allowance, relocation costs and other similar costs are not included in the calculation. The resulting sum indicates whether the assignee’s compensation needs to be adjusted up or down, and the tax provider prepares a settlement accordingly. Consequently, the compensation services provider processes the payment. If the employee owes the employer money, the compensation services provider will collect it and send the company the relevant reports.

YEAR-END REPORTING

Year-end reporting involves the collection of all payroll and tax reports for all assignees, as well as the subsequent filing with all relevant national and state entities. A compensation services provider coordinates the tax eligibility list with the company and its tax provider. Throughout the year, it also provides preliminary reports to the tax provider to make sure any safe harbor (estimated tax) payments are being made. When all compensation data is collected, the GSOE is sent to the tax provider. This can be done in the currency of the home country, host country or the country where the company is headquartered.

Topics: global compensation services, compensation services, compensation and benefits, global mobility, global assignments

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