Global payroll challenges for us employers (6 25-2019)

Global payroll
challenges for US
employers
June 25, 2019
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Global payroll challenges for US employers
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Disclaimer

Meet the panel
Host Co-host
Erik van der Hoeven
Ernst & Young LLP (US)
Client Executive, Global
Payroll Operate
erik.vanderhoeven@ey.com
Michael Baer
Bloomberg Tax
Managing Editor
Payroll
mbaer@bloombergtax.com
Francisco Bautista
Mancera S.C
Partner, LATAM Payroll
Operate Leader
francisco.bautista@mx.ey.com
Raffaela Donnelly
Managing Director, People
Advisory Services
raffaela.donnelly@ey.com
Gino Petrozzi
Senior Manager,
Global Payroll Operate
gino.petrozzi@ey.com
Debby Salam
Director, Payroll Information
Services
debera.salam@ey.com
Sheri Sullivan
EY Global and Americas Global
Payroll Operate Leader
Partner, Ernst & Young LLP (US)
sheri.sullivan@ey.com

Today’s agenda
US inbound payroll tax obligations
US employees working abroad
International audit landscape
EY/Bloomberg survey results
Resources
Global trends impacting payroll
US business expansion into foreign countries
Building your global payroll checklist

EY/Bloomberg survey results

2017 Multistate Payroll Tax Compliance Survey
US international payroll
The international employment footprint
42%
58%
Do you employ foreign,
nonresident workers in the US?
Yes
No
None
Number of US citizens/residents
working outside of the US
1 to 999
1,000+
43%
12%
44%

US international payroll, cont’d
Resources relied on
What system is used to
meet international
payroll obligations?
How is travel data obtained
for foreign employees?
Direct from
employee
Travel provider Employee
timesheets
GPS mobile
phone
50%
17%
1%
32%
53%
Third-party
service provider
In-house
manual
21%
In-house software
assisted
26%
Other20%

US international payroll, cont’d
The international payroll risk
71%
29%
Has foreign employment in the
US been identified as a risk by
your organization?
Yes
No
Do you have a formal policy to
manage foreign persons working
in the US?
74%
26%
Yes
No

The multistate payroll tax
compliance challenge is
complicated by the lack of effective
internal processes for many
employers, according to results
gleaned from our 2017 survey.
Following are the areas where
payroll and human resources (HR)
may need more focus.
Read more of our insights about
collaboration pitfalls in this article published
by BBNA Weekly State Tax Report.
Do you obtain Form 8233
before implementing an
income tax treaty
exemption for nonresident
alien employees?
Corrected Forms W-2 are frequently required when the correct
work or resident state is not available by the close of the
calendar year.
Yes
80%
How could payroll and HR benefit from better collaboration?
Survey results show
need for improved
collaboration
Does the payroll department
receive timely notification of
employee work states?
Yes 63%
Why do you not source
trailing compensation to the
work states earned?
Lack of
historical work
state data
47%
No 37%
Failure to receive timely notification of an
employee’s work or resident state can
result in improper employment tax
payments, income tax withholdings, late
deposits and reporting errors.
Corrected Forms W-2 are frequently
required when the correct work or resident
state is not updated by the close of the
calendar year.
Do multistate reporting issues
result in the need to correct
the Form W-2, Wage and Tax
Statement?
The collection and integration of tax onboarding forms into
the payroll system is one important collaboration point
between human resources and payroll.
No
22%

Polling question 1
Tell us about your international employment footprint.
A. I am a US employer with employees working outside of the US
B. I am a foreign employer with employees working in the US
C. None of the above
D. Does not apply (EY, faculty, other)

Global trends impacting payroll

Over the past several decades, we have witnessed significant changes in the role
of the human resources function.
Payroll of the past
► Payroll outsourcing
comes alive in US,
Canada and UK
► Computer loaning is
utilized to produce
payroll calculations
overnight
► Some use of
spreadsheets,
automated
procedures, and
networked systems
► Regulatory pressure
increases and so do
payroll rules
Payroll evolves
► Payroll systems become
advanced and streamline
processes to tie into time
and attendance, new hire
process, and HCM
► Companies start seeking
a global/regional payroll
solution
► Proof points show that
payroll in regional shared
services is possible
► Data privacy around PII
starts
The new era of payroll
► The Cloud is here to stay
► Shared services is the norm
► Technologies enable access to
new classes of digital, mobile, and
social tools
► Broad-based outsourcing is largely
on its way out; targeted
outsourcing (e.g., payroll, tax filing)
remains strong
► Line managers and employees
own key inputs and are held
accountable
► Senior leaders expect more value
from the payroll function (accurate
& timely payroll are “table stakes”)
1990s
2000s
Current
state
1980s
The start of an evolution
► New technologies
facilitated rapid change:
the World Wide Web, Wi-
Fi, satellite
communication
► Contingent/flexible
workforce begins with
heightened need for
workforce planning
► Outsourcing of support
services begins
► Countries are
decentralized and most
payroll is still done by
accountants
The evolution of payroll service delivery

Integration
with client's
system of
record
► Integration and give
the client's tools to
manage all the
items that build their
gross in a
consistent,
managed way
► Time and
attendance
► Stock options
► Local ESS
► Prevent and detect
controls
Compliance
for gross to
net
• Court order program
• Standard payroll reports
• Ad-hoc roll-up reporting
available across
countries
• GL’s are customized and
integrated with the
company’s financial
system
• Accrual reports are
created
• Custom multi-country
reports generated
Movement
toward FAQ and
integration into
client’s CRM
system in real
time
Link of data
between
systems to
answer and align
questions
Client's
demand
pay slip
portals on
line for
their client
base
regardless
of country
Regulatory
tax and
social
security
filing. Some
countries
still require
physical
stamping
but many
going to
electronic
real time
reporting
Ernst & Young LLP’s payroll taxonomy
What is global payroll?
What services should any technology facilitate?

Current payroll models

38%
19%
43%
In-house
Outsourced
Both outsourced and in-house
57% of clients do not think
vendors have kept up with client
needs around global payroll and
are dissatisfied with current
solutions
Payroll outsourcing research

Tier 0
Self service
Tier 1-2
Shared services/outsourcing
Tier 3
business partners/centers of expertise
Direct access
• Self-Service
• Portal/Web
• Mobile apps
• Call capabilities
Service center
► Service desk
► Transaction teams
► Specialists
► Inquiry resolution;
call and case
tracking
Processing center
► Payroll inputs
and HR data
► Payroll gross to
net
► Funding and
outputs
Centers of Expertise
Service management
Finance Business Partner
Site Business Partner
Technology infrastructure & applications
End to end senior leadership team
(Governance strategy alignment, investment prioritization, metrics, continuous improvement)
Country Business Partner
Candidates
Employees
Managers
Business Leaders
Alumni & Retirees
Payroll Operations
Specialists/SME
► Complex
solutions, inquiry
resolution,
transactions, in-
depth research
related to a
function or
process
Managers/Business Leaders
60% to 80% 20% to 30% 5% or less
Current leading practice payroll service
delivery model

High
Maturity
Savings/
impact
High
Low
Low
Deductionsetup&changes
Massdatachanges
Garnishmentprocessing
Taxsetup&changes
Employee data maintenance
Grossups
Expatpayrollprocessing
Stockdividendpayments
Standardreportgeneration&distribution
Payment
calculation
Year-endemployeestatements&distribution
Casemanagementtool
Payrollissuesandresolution
Year-endemployeecorrections
Quarterly/annualtaxfiling
Payroll inquiry &
response
Reconciliation&exceptionreporting
Generalledgerinterface.
Paycycletaxdepositpayments
Wage&hourregulation
Positivepay
Garnishmentfundsdisbursements
EE/ERtaxcompliance
Retropaycalculation
Timecollections
Accruals
Directdepositfiletransmission
Pensionpaymentstoplan
Payroll tax filing and
payments
Time reporting
Regulatorycertifications
Wagegarnishmentlaws
“Knowledge-
based”
Traditional SSC/GBS leverage processes
Emerging candidates for SSC/GBS
Historically retained (Corporate/business unit) processes
Disasterrecovery
Payroll
accounting
Payment distribution
Typical shared service placement – payroll processes

Polling question 2
How many vendors do you use to support your international
payroll and employment operations?
A. 0 to 4
B. 5 to 10
C. More than 10
D. I don’t know
E. Does not apply (EY, faculty, other)

US inbound payroll tax obligations

US federal employment taxes
Nonresident aliens in the US
1 Social Security and Medicare 2 Federal Unemployment Insurance
► Applicable to wages connected with services
performed within the US by most employees
► Special rules apply to flight crews and
members of vessels
► Exclusion applies to employees holding these
US Visas: F1, J1, M1, Q1, or Q2
► Employees who pay social tax in another
country may claim exclusion if there is a
totalization agreement between that country
and the US (generally limited to five years).
Employer must have certification of social
coverage in the foreign country
► For 2019, employee pays 6.2% on wages up to
$132,900, 1.45% on all wages, and 2.35% on
wages over $200,000
► For 2019, employer pays 6.2% on each
employee’s wages up to $132,900 and 1.45%
on all wages
► Applies to all covered employers having employment
within the US
► An employer (including a foreign employer) is
covered if:
► During any calendar quarter in the calendar year, or
during the preceding calendar year, paid wages of
US $1,500 or more, or
► Employed at least one individual for some portion
of each day for 20 days during the calendar year,
each day being in a different calendar week.
► Exclusion applies to employees holding these US
Visas: F1, J1, M1, Q1, or Q2
► For 2019, employer pays 6.0% on wages up to
$7,000 per employee. A variable credit that reduces
the rate may apply
► State unemployment insurance may also apply
according to state law

2019 state unemployment insurance trends
States and the District of Columbia, Puerto Rico and Virgin Islands

Social Security totalization agreements
► Social security totalization agreements
eliminate dual social tax when a worker
is required to pay such tax on the same
earnings in more than one country
► These agreements also fill gaps in
benefit protection when workers have
divided their careers between the US
and another country
► The exemption under a totalization
agreement applies for a limited period,
generally, five years
► Employees must present a certificate
of coverage from the foreign country to
qualify for exemption from US Social
Security and Medicare tax under the
agreement
Click here for more information
Countries with Social Security totalization
agreements with the US
Australia Germany Poland
Austria Greece Portugal
Belgium Hungary Slovenia
Brazil Iceland Slovak Republic
Canada Ireland South Korea
Chile Italy Spain
Czech Republic Japan Sweden
Denmark Luxembourg Switzerland
Finland Netherlands United Kingdom
France Norway Uruguay

Federal income tax withholding
Nonresident aliens in the US*
1 Temporary
employment
exclusion?
2 US permanent
establishment (PE)?
3 Treaty eligible?
► All wages earned in the US are
subject to federal income tax
withholding unless:
► The employee is present in the US
for a period of 90 days or less for
the taxable year, and
► Compensation in the aggregate for
the taxable year is $3,000 or less
► Services are provided for a foreign
employer that has no US
permanent establishment
► Example: Business visitors
attending a meeting in the US
for the benefit of the foreign
employer [IRC §861(a)(3)]
► While the US maintains treaties
with a number of countries to
prevent dual taxation, those
treaties will generally stipulate that
they do not apply if the employer
has a PE in the US.
► PE generally exists under a
treaty if:
► Number of days in the US for the tax
year is exceeded (e.g., for Canada
treaty, 183 days)
► There is a fixed US location from
where work is performed
► The nature of the employee’s activities
in the US triggers a PE
► If the employer/employee
qualifies for a treaty
exemption, federal income
tax is not required if:
► The employee completes,
signs and gives the employer
a Form 8233 with a US
taxpayer identification number
► Wages exempt under the treaty
are reported on Form 1042,
1042-S, 1042-T
► Nonresident alien is required to
file Form 1040NR if US sourced
income equals or exceeds one
personal exemption (no
personal allowances under the
Tax Cuts and Jobs Act (TCJA)
for tax years 2018-2025)
* US resident (rather than nonresident) status applies to green card holders and those meeting the physical presence test

US income tax treaties
► Greece
► Hungary
► Iceland
► India
► Indonesia
► Ireland
► Israel
► Italy
► Jamaica
► Japan
► Kazakhstan
► Korea
► Kyrgyzstan
► Latvia
► Lithuania
► Luxembourg
► Malta
► Mexico
► Moldova
► Morocco
► Netherlands
► New Zealand
► Norway
► Pakistan
► Philippines
► Poland
► Portugal
► Romania
► Russia
► Slovak Republic
► Slovenia
► South Africa
► Spain
► Sri Lanka
► Sweden
► Switzerland
► Tajikistan
► Thailand
► Trinidad
► Turkey
► Turkmenistan
► Ukraine
► USSR
► United Kingdom
► Uzbekistan
US income treaties are
available here.
► Armenia
► Australia
► Austria
► Azerbaijan
► Bangladesh
► Barbados
► Belarus
► Belgium
► Bulgaria
► Canada
► China
► Cyprus
► Czech Republic
► Denmark
► Egypt
► Estonia
► Finland
► France
► Georgia
► Germany

US nonresident alien employee tax
onboarding (State income and unemployment tax rules vary)
Form I-9
indicates US
nonresident
alien status?
FIT/FITW
FICA
Yes
Form 8233 required
for exempt wages
Form W-4 subject to
special rules
Form 1042-S to report
exempt wages
Show “NRA” on
Form W-4, Line 6
Cannot claim exempt
Status is single and
not > than 1
allowance *
Certificate of coverage
required
Exempt from FICA
Show exempt wages
on Form 941
Exempt from FICA and
FUTA
Applies to F1, J1, M1,
Q1, or Q2 visas
Show exempt wages
on Form 940/941
Treaty exemption
Form W-4 special
rules
Totalization
agreement applies
Exempt under US
visa
* This requirement does not apply to
nonresidents of Canada, Mexico, South
Korea or student business apprentices
from India

Canada resident in the US as nonresident
Case study
A Canada widget distributor has one employee who travels to the US for tradeshows, annual client
reviews and to pursue new business. Under the physical presence test, he is a US nonresident. There
is no fixed US place of business. All sales are finalized in Canada but there is indication that key terms
of US contracts may be negotiated while the Canada employee is in the US.
Result: It is questionable if company can take positon under US-Canada income tax treaty that
there is no US PE.
Work location Days Day rate Annual FICA FUTA State income
tax withholding
US 65 $485 $31,525 No
(Totalization
agreement)
Yes (Exceeds
day and $
threshold)
Yes
(Treaty is N/A due
to US PE)
California
(CA) *
12 $485 $5,820 N/A N/A Yes
(Exceeds CA
$ threshold)
New York
(NY) *
16 $485 $7,760 N/A N/A Yes
(Exceeds NY 14
day threshold)
Florida (FL) 37 $485 $17,945 N/A N/A No income tax
* California does not follow the federal tax treaty provision but New York does; however, the federal treaty in this case is
not applicable because there is a US PE. If there were no US PE, there would be no NY income tax withholding.

Trailing compensation
Sourcing delayed wage payments to the jurisdiction earned
► In many US states and localities, lump sum
payments such as accrued paid time off,
severance, equity compensation and
nonqualified deferred compensation must be
sourced to the jurisdiction(s) where the
compensation was earned for income tax
withholding purposes
► For US state income tax purposes, an
exception applies to qualified retirement and to
top-heavy plans (Supplemental Executive
Retirement Plan (SERP) or nonqualified
deferred compensation) that are paid in
substantially equal periodic payments over a
period of not less than 10 years (P.L. 104-95)
In 2019, employee
is relocated to
Nevada and is paid
bonus
In 2018,
bonus is
earned in
New York
Scenario 1
In 2018 and 2019,
employee lives and
works in New
Jersey
In 2018,
employee
works part-
time in New
York and
earns bonus
that is paid in
2019
Scenario 2
Result: New York nonresident income tax on
bonus. There is no income tax in Nevada.
Result: New York nonresident income tax
and New Jersey resident income tax applies
to the bonus

US state telecommuter considerations
“Convenience of the employer”
rule
► New York and other states take the
position that 100% of the wages paid to
a nonresident are subject to New York
income tax if the employee is working
out of state for the employee’s own
convenience and spends at least one
day each year in New York
► The rule applies when an employee
receives direction and control from a
New York location
► To argue that work location is for
the employer’s convenience, there must
be a direct business benefit in having
the employee work outside of New York
► The rule can result in double taxation
(tax in both the resident state and
New York)
Working from home
► If employees regularly work from home,
the home office could be treated as a
work location of the employer in many
states (and localities)
► If the home office is deemed an
employer work location, income tax
withholding, unemployment insurance
and other business taxes can apply
► In a New Jersey case, it was
determined that a foreign corporation
with a principal place of business in
Maryland was subject to New Jersey’s
corporate income tax requirements
because one of its employees was
allowed to work on a full-time basis
from her New Jersey home office
(Telebright Corporation v. Director, N.J. Super. Ct.
App. Div., Dkt. No. A-5096-09T2, 03/02/2012)

Managing short-term business traveler risk
Assign ownership
Develop policy
Secure technology,
establish process
Monitor and govern
Compliance
Quantify exposure
• Undertake a risk assessment
• Identify at risk population
• Set policy parameters
• Start a pilot program
• Segment your
implementation
• Monitor
performance
Lossofreputation
Tax, penalty,
interest
Seizure of
assets
Employee
morale
Risks

FYI: US mobile workforce income tax
► Alabama. Proposed rule would change employer
due date from February 28 to January 31 effective
for tax year 2015
► Nebraska. Effective for tax year 2014, employee
copies are due February 1 rather than February 15
► Wisconsin. Effective for tax year 2015, the
Department of Revenue will return any Form W-2
files that don’t meet its requirements
► Virginia. Due date for electronically filing Form VA-
6 and Forms W-2 with is changed to January 31
effective with tax year 2014. More information is
available here
► Indiana: The Indiana Department of Revenue ruled
that a bonus earned in the state but paid to an
employee who subsequently moved to another state is
subject to state income tax withholding but not county
income tax withholding.
► Virginia: The Virginia Tax Commissioner ruled that
wages earned by a Virginia resident working from
home are sourced to Virginia for income tax and
withholding purposes even though the employer has
no other business office within the state.
One of the most challenging areas of employment tax compliance is the interaction of
the wage tax rules when employees work and reside across multiple jurisdictions during
the wage payment life cycle.

• Investigative teams are focused on transient out-of-
state vendors with business activities in New Jersey
that create “nexus” thereby triggering an obligation to
register with the New Jersey Division of Taxation
• For instance, the Division and the New Jersey State
Police teamed to focus on truck stops in order to
identify if out-of-state businesses were properly
registered to do business in the state
• The Division recovered nearly $1.2 million in back taxes
from unregistered companies during fiscal year 2014
New Jersey and New York nonresident audits
New Jersey’s efforts highlight a growing interest by a number of states to focus on uncollected
revenues from the mobile workforce. Domestic mobility tax is a significant compliance concern of
businesses today.

Polling question 3
Do you have a process or program in place to track and
maintain US payroll compliance for foreign employees
working in the US?
A. Yes
B. No
C. We are considering it
D. I don’t know
E. Does not apply (EY, faculty, other)

US employees working abroad

US employee outbound considerations
The worldwide wages paid by a
US employer to US employees
who are US citizens and US
residents is generally subject to
federal income tax withholding,
Social Security/Medicare and
federal unemployment
insurance
An exemption from federal income tax
withholding applies:
► Only if the employee completes, signs
and returns Form 673 to the employer,
and then:
► On the portion of wages exempt under IRC
§911 (foreign earned income and housing
exclusions)
► For US citizens only (and not
residents), on the portion of wages
subject to income tax withholding in the
foreign country [IRC Code
§3401(a)(8)(A)(i)]

Are employees working outside the US
subject to federal income tax withholding?
Foreign earned
income
exclusion ?
No Worldwide taxable
wages are subject
to withholding
No
Submit
Form W-4
US citizen or green
card holder? No
All wages are
exempt from
withholding
Yes
Submit Form
673
Wages exempt
within the
annual limits
Yes
Treaty exemption?
Yes
Submit
Form 8233
Wages per the
treaty are
exempt
1
Foreign tax
credit?
Yes
Submit written
statement
All wages are
exempt from
withholding
No
2 3
!
! Form W-4 is required on
wages not exempt
!
=

Federal income tax exemptions available
► Income tax treaties are
available to residents of
the US. They are not
available to US citizens
► The exemption does not
apply until Form 8233 is
submitted to employer
► The US has an income
tax treaty with a number
of countries
► Income tax treaties with
the US are available here
1Treaty
exemption
2Foreign
tax credit
► Applies to a US citizen in
a foreign country if the
law of the foreign country
requires income tax
withholding. Does not
apply if foreign
withholding is voluntary
► Not available to
nonresident/resident
aliens
► A signed statement
attesting to the foreign
withholding must be
submitted to employer
► See more on the foreign
tax credit here
3Foreign earned
income (§911)
exclusion
► Applies to a US citizen
► Exclusion is allowed up
to amount of foreign
earnings that is adjusted
annually for inflation
($105,900 per year for
2019). Certain foreign
housing amounts are
also excluded
► See more on the foreign
earned income exclusion
here and
IRC §3401(a)(8)(A)(ii)

Expatriate program impact
Don’t underestimate the risk
Risk footprint
Cost footprint
Size footprint
Although international
assignees may seem like a
small percent of an
organization’s employees,
they carry a highly
disproportionate level
of cost and risk due to
the many types of
expenses they incur and
the increased legal,
financial, and compliance
risks posed when company
representatives cross
international borders.

Life cycle of an expatriate
Phase 1
Pre-assignment
planning
 Timely responses to
questions; proactive
quarterly contact
 Global tax
compliance
 Tax equalization
 Monitor and renew
immigration forms
as needed
 Ongoing
compensation
accumulation and
reporting
 Cross-border equity
tracking and related
filings
Phase 3
During
assignment
 Settling in
services
 Compensation
accumulation and
reporting
 Cross-border
equity tracking
and related filings
 Global tax
compliance
 Determination of
international tax
status
 Finalization of
international taxes
 Final returns and
gross up
Phase 5
Post-repatriation
 Identify assignment
& assignee
 Prepare assignment
& tax cost estimate
 Identify country-
specific tax planning
specific immigration
planning
specific social tax
planning
 Review of third-party
provider
 Coordinate with
corporate tax
department
 Share leading
practices in country
 Conduct home and
host location tax
orientation meetings
 Conduct home and
host location
assignment
orientation meetings
 Vendor initiation and
coordination
 Obtain required
immigration
approvals (visas,
work permits, etc.)
 File for Certificate of
Coverage/E101 (if
applicable)
 Proactive tax
planning
Phase 2
Pre-departure
 Orientation for
repatriation
 Repatriation
orientation for
home/host tax
 Coordination of
repatriation vendors
 Proactive tax
planning
 Repatriation filings
related to Certificate
of Coverage/E101
 Repatriation filings
related to
immigration
Phase 4
Repatriation
Real-time integrated global program reporting

Pre-assignment planning
Phase 1
► Identify the assignment and the assigneeWhy and who?
Tax estimate ► Prepare assignment and cost estimate
Tax planning ► Identify country-specific tax planning
Immigration ► Identify country-specific immigration planning
Social tax ► Identify country-specific social tax planning
Third parties ► Review third-party providers
Tax coordination ► Coordinate with the corporate tax department
Leading practices ► Share leading practices in the country
Preplanning makes for a more successful assignment and working with
your service provider will minimize costs.

Assignment cost estimate
Why and who
Why has the assignment been initiated?
► Critical need
► Developmental
► Strategic
► Local resources
► Employer or employee initiated
What are the company objectives?
► Skill set
► Employee development
► Location
► Length (short or long term or business trip)
What are the assignee objectives?
► Career development
► Personal family needs
► Personal life experience
Budget for assignment
► What assignment package will be offered?
Phase 1

Prepare an assignment cost estimate
Consider these elements
Assignment requirements
► Document the specific requirements for the
assignment
Determine type of assignment package
► Tax equalized/protected
► Modified equalization
► Local
► Assignment allowances
► Benefits in kind
► Support services length (short or long term or
business trip)
Assignment start/end planning
► When will the assignment begin and end
► Any breaks in assignment?
Create assignment cost accruals
► Sharing of cost/chargebacks
Phase 1
Formalize the process for assignment initiation and get sign off from the
assignment sponsor for budget and cost estimate

Tax orientation
Perfecting the process
Phase 2
Detailed hypothetical tax calculations minimize time and cost to the
employer.
• Avoid unnecessary costs
driven by personal source
income
• Use the orientation as an
opportunity to set the
hypothetical tax withholding
correctly
• Confirm compliance in the
home/host location
• Form W-4, Form 673 for US
assignees
• Host tax registrations and
documents
• Immediately implement tax
positions to reduce cost
• Adjust assignment length
• Deliver assignment
allowances effectively
• Set assignee expectations

During the assignment
Emphasis on communication
Phase 3
Proactive and ongoing communication with all parties is critical to
success. The assignee should never be out of sight or mind.
Respond timely
to questions;
make contact
proactive
Confirm global
tax compliance
Perform annual
tax equalization
Monitor and
renew
immigration
forms as
needed
Maintain
ongoing
compensation
accumulation
and reporting
Track cross-
border equity
and implement
related filings
Consider impact on policy and
assignment due to changes in
economic environment

Compensation accumulation, reporting
Global payroll
compliance
Maintain assignee confidence
Timely file tax returns
Reduce penalty exposure in
home and host countries
Reduce audit risk
Reduce double taxation
Review assignment
accrual
Match budget to
actual assignment
cost
1
2
3
45
6
7
Phase 3
Accurate and timely compensation reporting
leads to improved efficiency.

Global compensation
Home off-payroll
payments
Host off-payroll
payments
Domestic
payroll
Relocation and
third-party
providers
Treasury
Host
payroll
Expense reports
Imputed benefits
Compensation
Phase 3

Determine taxable compensation
► Taxable compensation varies by country:
► Are there special tax rules that apply to the assignee?
► Income taxable as a result of tax residency status: is worldwide
income taxed or just local country sourced income?
► Does a special expatriate regime apply?
► How are the various assignment allowances taxed?
► How are benefits in kind taxed?
► Must imputed income be restated?
► How are employer and employee contributions to the home
country pension taxed?
► How are deferred payments taxed? Is the deferral respected or
ignored?
► How are payments relating to prior periods taxed? This would
include a bonus paid for services performed in the prior year and
equity compensation
Phase 3

Repatriation
Repatriation
considerations
Proactive tax planning
Repatriation
orientation for
home/host tax
Coordination of repatriation
vendors
Filings for Certificate of
Coverage (E101)
End of assignment
orientation and survey
Immigration filings
Termination including
severance
1
2
3
45
6
7
Phase 4
On average, 15% of assignees resign within two years of repatriation.

Proactive tax planning
Preplanning prior to expected end date. Hold discussions with the tax
provider to determine if accelerating or deferring the assignment will result
in home or host location savings.
Residual tax filings in host location. Consider acceleration of compensation
to avoid unnecessary tax filings.
Excess foreign tax credit relief. Reduce double taxation in multiple locations
by reviewing potential tax relief in the home location due to foreign tax credits.
Being proactive will result in ultimate
savings—tax, time and overall cost.
Phase 4

Pitfalls and cost drivers
Assignment
noncompliance:
reputational risk
Exceptions
to policy
Minimal
assignee
support
Payroll
inconsistency
Lack of
communication
Social tax
coverage
delays
Assignee
receivables

Important tips
► Minimize exceptions by clearly stating assignment policy
► Modify policy as needed
► Establish process to address non-compliers
► Impose penalty on non-compliers
► Implement higher rate of hypothetical withholding
► Eliminate allowances
► Penalty responsibility to assignee
► Terminate assignment
► Ensure payroll is consistent with start and end dates
► Reduces potential penalty in home/host location
► Provide a robust orientation for the assignee
► Assignee is aware of responsibilities in home and host location
► Timely completion of Certificate of Coverage
► Strong communication strategies are key to success
► Set accurate hypothetical withholding to minimize assignee
receivables

Polling question 4
Do you currently have a process in place for your international
assignment program to accurately report global compensation?
A. Yes, we report to both taxing authorities and to employees
B. Yes, but we report the information only to employees so that they
can complete their tax returns
C. No, we have no process in place

US business expansion into foreign countries

Expanding operations into foreign countries
Compliance
Technology
 Legislation, rules and local practices
 How to deal with unions?
 Complex regulatory requirements, local expertise?
 Global mobility employees
Efficiencies
Process
Vendors
 Are you able to visualize your entire payroll operation?
 How can your company manage multiple cross-country inputs and outputs?
 Is technology producing standard results?
 How to create value for the company?
 How to navigate costs and risks?
 Where to operate your payroll, in-house vs. out-sourced?
 How must the structure of the company change?
 How to ensure security and controls across countries?
 Do you have the right resources and team capabilities?
 Are you achieving value from existing vendors and current service delivery
models?
 How to balance between global systems and local/satellite payroll solutions?
 One global vendor?
1
2
3
4
5

Polling question 5
Tell us about your future plans to expand your international
employee footprint.
A. We are a foreign employer considering the assignment of employees
to the US for the first time
B. We are a US employer considering the expansion of our operations
into one or more foreign countries/territories where we have
previously not had US employees
C. We are not considering any expansion into new countries at this time

International audit landscape

IRS international audit focus
Two fronts now used in cross-border business visitor review
Employment Tax Group
► IRS focuses on payments from US, withholding,
Section 911, and inclusion in Form W-2
► Question low or no withholding where wages
reported in box 1
► Question no FICA withholding
► Look for Social Security certificates of coverage
► Review Social Security coverage
► Stock options and FITW, FICA
► IRS agents look for stock options to foreign
persons and question whether FICA or FITW
would apply
► Inbound short-term business visitor
► Some employers tell IRS that the business
visitor is employed by the foreign entity and that
the US entity is not the employer.
► Could backfire if IRS raises service PE issue for
foreign employer
► IRS has indicated it will open audits of foreign
entities sending workers to the US (we are not
aware of any audits yet)
Foreign Payment Practice Unit
► IRS inquiries about inbound short-term business
visitor
► Inquiries not focused on FICA, instead the IRS
confirms FITW at 30%; Form 1042-S or Form
W-2 reporting and use of graduated rates
► IRS focuses on payments from US, withholding,
Section 911, inclusion in Form W-2
► Some comments have been made about
referring cases to the Employment Tax
Group for FICA analysis

Withholding tax audits are increasing
In the US and across the world
SE
DE
US
MX
BR
ZA
NE
GB
FR
ES
LT RU
CN
JP
IN
IDMY
PH
AU
NZ
CA
TR
CH
IT
High risk Medium
high risk
Medium
risk
Lower
risk

Global traveler risk landscape
Audits are up in US and worldwide
The bottom line
Tax authorities globally
are focused on
business travelers
crossing borders
Substantial
assessments,
fines and penalties are
coming out of audits
International business
travelers are being
stopped and
questioned at
immigration
checkpoints
Employees are being turned
back at borders impacting
business continuity in those
countries
If you don’t have a
permanent establishment
in the US, or a US bank
account, how will you
perform shadow payroll
operations for the US?
Instances of tax and
immigration
non-compliance are front
page news – can your
company live with the
reputational risk?
Consider how the new focus on US border security will further complicate compliance.

Polling question 6
Will you require an RCH certificate for today’s webcast?
Those with CPP or FPC professional designations check
“yes” to this question. All others check “no.”
A. Yes
B. No

Building your global payroll checklist

Global payroll checklist
Considerations
Conduct home and
host location tax
orientation
meetings
Create policies that
support compliance with all
rules governing
employment and taxation.
Evaluate and
coordinate vendor
contracts
Evaluate the rules
governing the taxability of
wage components in all
governing jurisdictions
Obtain proper employee
tax onboarding
documents
Engage in proactive tax
planning
The rules governing employment and taxation are constantly changing
making perpetual review of processes and policies essential.

Global tax
processes
Global tax compliance
Compensation accumulation
and reporting
Cross border equity tracking
and related filings
Determination of
international tax status
Finalization of
international taxes
Final returns and
gross up
1
2
34
5
6
Accurate review of your accrual each year during the assignment will
minimize unexpected tax liabilities.
Global payroll checklist
Considerations (cont’d)

Check out these related publications
Click on the report covers to download

Download our special reports
Form W-4 compliance
2019
An employer’s guide to the
Tax Cuts and Jobs Act
US employment tax
rates and limits for 2019
Courtesy withholding
Paid family leave Managing wage
repayments
Guide to unemployment
insurance in 2017
Gross-ups
Transportation fringe
benefits

Acronyms
Acronym Definition
CRM Customer relationship management
EE Employee
ER Employer
ESS Employee self service
FICA Social Security and Medicare
FIT Federal income tax
FITW Federal income tax withholding
GBS Global business services
GL General ledger
HCM Human capital management
PII Personal identifiable information
SSC Shared service center

Ernst & Young LLP
Putting inform
into information
Stay connected
EY 2017 global payroll survey
EY get on board
EY Unemployment insurance FactFinder

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advisory services. The insights and quality services we deliver
help build trust and confidence in the capital markets and in
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who team to deliver on our promises to all of our stakeholders.
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more, of the member firms of Ernst & Young Global Limited,
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