Employee Mobility Strategy Planning
13th December 2018
As international business and trade continues to grow, even in these uncertain times in the UK and Europe as a result of Brexit, employee mobilisations, even to previously "unreachable" corners of the globe have become, in some cases, commonplace. International growth and the expansion of an organisation's global footprint, whilst undoubtedly an opportunity, as well as an attractive and alluring proposition, also brings with it many tangible and intangible challenges. Two of these contrasting but intrinsically linked challenges are:
- All of the constituent parts that sit under the umbrella entitled "employment taxes".
- The human cost of employee mobilisation.
Whilst the first challenge can be driven by an unemotional, cost and compliance fuelled strategy, the second challenge brings intangible and sometimes hidden costs fuelled by human emotion and the impact on personal life and family relations as a result of an international mobilisation.
The Economic Challenge
Achieving global employment tax compliance for any organisation with international interests, whether that is a fledgling company taking its first baby steps into an overseas territory or a well-established organisation operating globally, can be extremely challenging!
Just some of the topics to be reviewed, analysed and documented under the employment taxes banner when any business is considering mobilising employees from their home location to a foreign jurisdiction are as follows:
- Immigration (work permits, residence permits, visa's etc.);
- Employment Law (contracts, assignment letters, local legislation….);
- Income Tax Liabilities and Obligations (home and host locations);
- Social Security Liabilities and Obligations (home and host locations);
- Relocation (what to provide and how to provide it? Identifying housing and schooling in the host location etc.);
- Pensions (home and host location requirements or opportunities and interaction between each);
- Benefits (as with pensions);
- Payroll (location of payroll, currency of payment, split or shadow payroll requirements, withholding, reporting and remittance obligations in home and host locations).
All of the above are common and real-life challenges that face any organisation with an international footprint and a "mobile workforce" and each single topic is intrinsically linked with all others. In short, the action taken by an organisation or employee in relation to one of these topics almost certainly creates a reaction in respect of, in some cases, all 7 other topics.
Many organisations may even be unaware that their employee population includes a mobile workforce however the reality is that all of the following scenarios constitute a mobile employee and therefore some or all of the above topics require consideration:
- Permanent transfers to an overseas location;
- Long term assignments or secondments (usually defined as greater than 1 year duration);
- Short term assignments or secondments (less than 1 year duration);
- Business travellers;
- Commuters (employees who live in one country but work in another).
The key to ensuring global employment tax compliance is achieved and maintained, irrespective of the nature of an organisation's mobile workforce, the number of mobile employees or the length and breadth of the global footprint, is developing a global mobility strategy.
A robust global mobility strategy, which is specific to your organisation and is intrinsically linked to the Company's corporate blueprint, vision and values can and should provide structure, efficiency, consistency and ultimately compliance in respect of any cross-border employee mobilisations.
Most global mobility strategies are underpinned by policies, procedures or methodologies which can be global in their application or designed to be region, country or even location specific. Ultimately one size does not fit all when considering a global mobility strategy, therefore taking the time and effort to map out a strategy and structure that fits the requirements of your organisation and your cross-border population will prove to be a shrewd business decision over time.
However, fundamentally the following questions (amongst many others) will need to be kept in mind when any organisation is considering the content and structure of their global mobility strategy:
The legal structure of your overseas operation – the work being undertaken by your employee overseas, the nature of your business and the overseas location will all be determining factors as to whether a physical entity is required in the overseas territory (and if so what options exist in terms of the nature of the legal entity required).
Immigration obligations – depending on the home and host location combination, the nationality or citizenship of the mobilising employee and the duration of the mobilisation, work and/or residence permits may be required before an employee is legally permitted to work in the overseas location.
When immigration obligations do exist, an in-country employing sponsor is usually required. This can bring challenges if an organisation has no legal entity or physical presence in the host location (as considered above).
Overseas employment tax legislation – an overseas mobilisation can either be an attractive or unattractive proposition (and accordingly an easy or difficult sell by the employer) depending on the host location. Various factors can contribute to the attractiveness (or otherwise) of the host location including climate and culture, however in most cases the level of income tax and/or social security rates in the host location are a hugely significant factor.
Compensation structure – it is critical that a global mobility strategy considers and communicates the compensation structure(s) to be implemented for internationally mobile employees. Determining the existence and quantum of "mobilisation" related compensation items such as housing, schooling, cost of living and location allowances and relocation packages and the eligibility for such items is a crucial component of the global mobility strategy.
Taxation policy – having identified and designed an appropriate compensation structure, the global mobility strategy must also determine to what extent the mobilising employee is personally responsible for any home and/or host country employment tax liabilities that arise on the compensation structure.
Many tax policy structures exist such as tax equalisation, tax protection, local plus etc. and a global mobility structure may have different tax structures depending on the category of the mobilising employee (for example a different tax policy structure may be appropriate for a business traveller to that for a long term assignee).
The Human Challenge
Whilst ensuring that the 8 key principles of the employment tax umbrella are understood and managed in order to achieve compliance in all locations where an organisation has an employee footprint is critical, the importance of ensuring the emotional wellbeing of a mobilising employee, partner and children cannot be understated, but very often is.
The most robust, cost effective and comprehensively structured global mobility strategy, from an employment tax compliance perspective, can be torn apart and reduced to what appears to be a disjointed and ill-conceived strategy if appropriate consideration is not given to the human side of an international mobilisation.
Failure to provide the employee and family with guidance, support and advice at all stages of an international mobilisation, with particular emphasis on communication, engagement and decision making at the planning stage of the mobilisation can turn a motivated, incentivised and productive employee into the exact opposite, therefore rendering the careful economic strategy worthless.
In contrast, providing family engagement and support with some or all of the following items can provide for an emotionally and economically successful mobilisation for employee and employer:
- Children's education;
- Trailing spouse/partner employment;
- Language and cultural assistance;
- Recreational and peer group support;
- Host location familiarisation solutions.
Statistically, organisations with a global mobility strategy that place a similar level of importance on both the economic and emotional aspects of employee mobilisation will achieve greater success in many respects than implementing a strategy that places a much greater emphasis on only the economic aspect.
If you'd like to discuss employee mobility planning in more detail please contact Graham McKechnie, Global Tax Director, activpayroll on T 0131 240 3400 or email firstname.lastname@example.org. Activpayroll are international payroll, global mobility and expat tax specialists, visit activpayroll.com.
This blog post is an extract from Thorpe Molloy Recruitment's North East Salary Guide, which is available to download.