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Global Expense Management & Compensation Delivery Overview
In the area of global expense management and compensation, many companies often rely on historical practices, but as rapidly as the world is changing these key areas of relocation management should be reviewed frequently to ensure compliance. Now more than ever, for those companies with a wide-ranging breadth of assignment locations and projected assignment durations, attention to the details is critical to compliance.
Running a compliant global compensation and expense management program can lower stress and realize considerable time and cost savings for HR and Payroll professionals. It is important to understand the various approaches to Program Management; Payment; and Payroll Delivery options to maximize company accountability and accuracy when collecting, tracking, and reporting expense and compensation information for employees relocating internationally.
Program Management - Outsourced or In-house?
When selecting a global compensation delivery model - whether managed in-house or outsourced – many considerations need to be evaluated. These items can include tax considerations based on the type of visa each employee is moving under; tax treaties and pay elements, as well as the associated global tax considerations of them.
Outsourcing to an RMC partner:
The client chooses a proven relocation management partner to assume responsibility for administration of the program with client global payroll internal stakeholders and a client-preferred tax partner.
Managing it In-house:
The client runs the process within the company for their employees relocating globally. In-house contributors can include HR, Payroll, Global Mobility in conjunction with outside tax partners to deliver services.
Payment - Host, Home or Global?
As every company’s goals, culture and mission is different, each one also has a different rationale for determining how to conduct payroll options for employees working across borders. While each approach has its advantages and disadvantages, it is important to note that most multinational NEI clients use either home country or split payrolls for their expat employees. Let’s examine the primary options:
Host Based Approach:
Known for its cost- effectiveness to “localize” the employee, the host- based approach uses the market rate of the host country to determine the assignee’s salary. In other words, the assignee transfers to the host country payroll and receives both base and incentive pay based on local compensation norms and regulations. The assignee pays the tax and social security (or social insurance) contributions required in the host country.
- A host-based approach may support moves into countries with higher salaries, compared to their home country, as employees will often see the positive in taking a rise in pay versus a decrease in pay.
Home Based Approach:
This approach, known also in the industry as a “balance sheet” method, is to maintain assignees’ home country purchasing power, so they are no better or worse off while on assignment in the host country, than if they had stayed at home.
- It is also the most widely used approach by U.S. multinational companies as the aim is to help maintain home country purchasing power. However, for relocations from low-to-high salary countries, the new, ensuing salary level may be too low to provide an appropriate standard of living or too low for the countries’ immigration requirements.
- Many feel that the home-based approach is also more appropriate for assignments where an employee will return home after the assignment, compared to an employee who may go on to live in multiple countries and not return home.
Global Approach:
Though the “global” approach to payment has more equality and inclusivity among similar jobs within global organizations, it is also the least utilized approach due the complexity of global delivery.
Differences in each country’s laws, as well as vast differences in local taxes and living costs must be considered in establishing equitable expatriate compensation. Additionally, not all companies will have the corporate interest - or internal bandwidth – to establish a strategic global compensation system. This is a reason why host- and home-based approaches continue to be the most used approach.
Payroll Delivery – Split or Shadow Payroll?
Global compensation rules are already complex and confusing and even seasoned relocation professionals sometimes need a refresher of the payroll delivery concepts and the particular importance it plays in today’s changing world of global mobility. Let’s examine the options:
Shadow Payroll Approach:
Some employers may have dual payroll withholding responsibilities in both their home country and a foreign jurisdiction. If so, they will often run what is known as a “shadow payroll” in respect to an employee’s taxable income. The payroll in the host country will “shadow” what is being reported in the home country for the purposes of being able to meet various withholding requirements.
Split Payroll Approach:
Some employers allow employees to receive a portion of their salary in both the home and host country payroll to receive a portion of their pay in the local currency. It is also common for assignment allowances to be paid in the host country if using a split payroll approach.
Split payrolls may also be required due to some countries’ regulations for compliance of local pay delivery.
NEI’s Consultative Approach Benefits All Clients
NEI has extensive experience providing international payroll delivery support, including the compensation gathering from multiple payrolls. This expertise translates into less work for a client’s payroll department, freeing up important time for other core responsibilities.
We recommend performing up front analysis and planning in conjunction with any client tax firm to cover important items:
- Determine which payroll processing method– home or host country, split payroll, shadow payroll –works best for you and your company’s compliance and administrative processes.
- Obtain accurate information about tax requirements, labor laws and regulatory mandates.
- Comply with local customs, cultural issues of each country.
- Work with payroll firms to address technology needs surrounding global payroll plans.
- Assess language barriers and time zone differentials, which can affect payroll processing.
- Revisit payroll systems and processes regularly.
NEI takes ownership and accountability with our partners to ensure the domestic and international assignment process is not only seamless but stays as stress-free as possible and on track from the beginning by setting expectations upfront for each benefit.
Overseen by a staff of CPAs, NEI provides global expense management and global compensation accumulation and reporting. This service is performed in-house and coordinates with each client's payroll and tax partner to ensure the details are captured for reporting.
This means less work for client payroll and mobility / human resources departments, freeing up time for other core responsibilities. Potentially, this can also lead to lower costs with the tax partner as they are provided accurate details captured by NEI for easier filings without spending billable time gathering information or seeking data clarifications.
Our internal control process is SOC 2 Type II certified and supports accuracy through a series of audits and controls. Working closely with the NEI Account Executive,
the Expense Administrator and Auditor become experts in administering client expenses according to unique policies and procedures.
Consultative Support
There is no single “best way” to implement Global Expense Management, Compensation and Payroll. NEI’s many years’ experience helping global clients navigate these matters provides consultative support, education or training as needed to ensure your global compensation program -- and compliance needs -- are or email away. Please contact your NEI representative; Mary Petersen, CPA, Controller; or Michelle Moore, NEI’s Chief Global Mobility Officer, at any time to discuss further.
The above information is for general information only and is not presented as tax or legal advice. Please consult with your tax or legal advisors and internal stakeholders before making decisions and taking any action.
Global Expense Management & Compensation Delivery Overview
In the area of global expense management and compensation, many companies often rely on historical practices, but as rapidly as the world is changing these key areas of relocation management should be reviewed frequently to ensure compliance. Now more than ever, for those companies with a wide-ranging breadth of assignment locations and projected assignment durations, attention to the details is critical to compliance.
Running a compliant global compensation and expense management program can lower stress and realize considerable time and cost savings for HR and Payroll professionals. It is important to understand the various approaches to Program Management; Payment; and Payroll Delivery options to maximize company accountability and accuracy when collecting, tracking, and reporting expense and compensation information for employees relocating internationally.
Program Management - Outsourced or In-house?
When selecting a global compensation delivery model - whether managed in-house or outsourced – many considerations need to be evaluated. These items can include tax considerations based on the type of visa each employee is moving under; tax treaties and pay elements, as well as the associated global tax considerations of them.
Outsourcing to an RMC partner:
The client chooses a proven relocation management partner to assume responsibility for administration of the program with client global payroll internal stakeholders and a client-preferred tax partner.
Managing it In-house:
The client runs the process within the company for their employees relocating globally. In-house contributors can include HR, Payroll, Global Mobility in conjunction with outside tax partners to deliver services.
Payment - Host, Home or Global?
As every company’s goals, culture and mission is different, each one also has a different rationale for determining how to conduct payroll options for employees working across borders. While each approach has its advantages and disadvantages, it is important to note that most multinational NEI clients use either home country or split payrolls for their expat employees. Let’s examine the primary options:
Host Based Approach:
Known for its cost- effectiveness to “localize” the employee, the host- based approach uses the market rate of the host country to determine the assignee’s salary. In other words, the assignee transfers to the host country payroll and receives both base and incentive pay based on local compensation norms and regulations. The assignee pays the tax and social security (or social insurance) contributions required in the host country.
- A host-based approach may support moves into countries with higher salaries, compared to their home country, as employees will often see the positive in taking a rise in pay versus a decrease in pay.
Home Based Approach:
This approach, known also in the industry as a “balance sheet” method, is to maintain assignees’ home country purchasing power, so they are no better or worse off while on assignment in the host country, than if they had stayed at home.
- It is also the most widely used approach by U.S. multinational companies as the aim is to help maintain home country purchasing power. However, for relocations from low-to-high salary countries, the new, ensuing salary level may be too low to provide an appropriate standard of living or too low for the countries’ immigration requirements.
- Many feel that the home-based approach is also more appropriate for assignments where an employee will return home after the assignment, compared to an employee who may go on to live in multiple countries and not return home.
Global Approach:
Though the “global” approach to payment has more equality and inclusivity among similar jobs within global organizations, it is also the least utilized approach due the complexity of global delivery.
Differences in each country’s laws, as well as vast differences in local taxes and living costs must be considered in establishing equitable expatriate compensation. Additionally, not all companies will have the corporate interest - or internal bandwidth – to establish a strategic global compensation system. This is a reason why host- and home-based approaches continue to be the most used approach.
Payroll Delivery – Split or Shadow Payroll?
Global compensation rules are already complex and confusing and even seasoned relocation professionals sometimes need a refresher of the payroll delivery concepts and the particular importance it plays in today’s changing world of global mobility. Let’s examine the options:
Shadow Payroll Approach:
Some employers may have dual payroll withholding responsibilities in both their home country and a foreign jurisdiction. If so, they will often run what is known as a “shadow payroll” in respect to an employee’s taxable income. The payroll in the host country will “shadow” what is being reported in the home country for the purposes of being able to meet various withholding requirements.
Split Payroll Approach:
Some employers allow employees to receive a portion of their salary in both the home and host country payroll to receive a portion of their pay in the local currency. It is also common for assignment allowances to be paid in the host country if using a split payroll approach.
Split payrolls may also be required due to some countries’ regulations for compliance of local pay delivery.
NEI’s Consultative Approach Benefits All Clients
NEI has extensive experience providing international payroll delivery support, including the compensation gathering from multiple payrolls. This expertise translates into less work for a client’s payroll department, freeing up important time for other core responsibilities.
We recommend performing up front analysis and planning in conjunction with any client tax firm to cover important items:
- Determine which payroll processing method– home or host country, split payroll, shadow payroll –works best for you and your company’s compliance and administrative processes.
- Obtain accurate information about tax requirements, labor laws and regulatory mandates.
- Comply with local customs, cultural issues of each country.
- Work with payroll firms to address technology needs surrounding global payroll plans.
- Assess language barriers and time zone differentials, which can affect payroll processing.
- Revisit payroll systems and processes regularly.
NEI takes ownership and accountability with our partners to ensure the domestic and international assignment process is not only seamless but stays as stress-free as possible and on track from the beginning by setting expectations upfront for each benefit.
Overseen by a staff of CPAs, NEI provides global expense management and global compensation accumulation and reporting. This service is performed in-house and coordinates with each client's payroll and tax partner to ensure the details are captured for reporting.
This means less work for client payroll and mobility / human resources departments, freeing up time for other core responsibilities. Potentially, this can also lead to lower costs with the tax partner as they are provided accurate details captured by NEI for easier filings without spending billable time gathering information or seeking data clarifications.
Our internal control process is SOC 2 Type II certified and supports accuracy through a series of audits and controls. Working closely with the NEI Account Executive,
the Expense Administrator and Auditor become experts in administering client expenses according to unique policies and procedures.
Consultative Support
There is no single “best way” to implement Global Expense Management, Compensation and Payroll. NEI’s many years’ experience helping global clients navigate these matters provides consultative support, education or training as needed to ensure your global compensation program -- and compliance needs -- are or email away. Please contact your NEI representative; Mary Petersen, CPA, Controller; or Michelle Moore, NEI’s Chief Global Mobility Officer, at any time to discuss further.
The above information is for general information only and is not presented as tax or legal advice. Please consult with your tax or legal advisors and internal stakeholders before making decisions and taking any action.
