Transcript Slide 1

EXPAND YOUR HORIZONS
Make the Right Connections
Show Me the $$$$$ - Global Assignment Cost
Projections and Compensation
Presenters:
L. Sean Raney, GMS
VP, International Assignment
Compensation Services
CARTUS
Michele Honomichl
CEO
Celergo, LLC
Roger W. Turner, GMS
Global Mobility Lead,
HR – Intl. Benefit Design/Mobility
Eli Lilly and Company
Moderator:
Terry Mandle, CRP, GMS
Senior Global Mobility Specialist
Black & Veatch Corporation
Show Me the $$$$$ - Global Assignment Cost
Projections and Compensation
L. Sean Raney, GMS
VP, International Assignment
Compensation Services
CARTUS
Background
The economic downturn of 2008-2011 has put increased pressure
on companies to proactively manage their expenditures, as well
as accruals
Depending on which data source one uses, the number of
companies that utilize Cost Projections before an international
assignment fluctuates between 46-86%* depending on
assignment type
Between 50-64% track costs during the assignment*
Less than 33% compare Actual Costs vs. Estimated Costs*
Only 3% report effectively measuring Return on Investment of an
international assignment**
*2010 PWC IA Policy Survey and 2011 Brookfield IA Survey
**2010 Mercer IA Survey
Largest Costs of an Assignment
• Base and Incentive Compensation: 40-50%
• Taxes: 20-40%
• Housing: 5-10%
• Cost of Living/Allowances: 0-5%
• Physical Cost of Moving: 5-10%
Assignment Budgets & Tracking Costs
• Start with original Cost Projection for the first year budget
• Best practice recommendation:
– Reexamine budget once a year, either anniversary date of assignment
or calendar/fiscal year-end when submitting accruals
• Are original CP assumptions/numbers still valid?
• Any adjustments needed?
– To do this you have to be able to accurately track costs and compare
to original CP
Tools to Forecast
• Online Cost Estimate Tools
– COLA providers
– Technology firms
– Big 4 firms
– Relocation companies
• Budget to actual tool
• Forecast methodologies
– Average of each month’s expense
– Most recent month’s expense
– 12-month’s average expense
Tracking, Budgeting, Forecasting Project Goals
• Provide a tool to business units that allows them to see actual spend
for all expatriate costs against projected spend (Cost Projection) on a
individual basis, year over year through the term of the assignment
(including any residual costs in years following the end of the
assignment)
• Enhance the Global Mobility Group’s ability to engage with the
business and be viewed as adding value to the process
• Ensure that the businesses are not “surprised” at year-end or
following an assignment with expenses that they were not expected or
projected; allows the business to see costs as they are happening on
a monthly basis
Anticipated Results
• Budget to forecast exercise will allow Company to:
– Gain a more comprehensive understanding of costs for all
assignment types
• Better understand cost levers
• Model potential “changes” in terms of impact on levers
– Understand how actual assignment costs are tracking compared
with the original Cost Projection
• Will enable us to better advise the business on budgeting
process at the beginning of an assignment (typical variance)
• Enable us to get to “why” with respect to greatest areas of
variance
Anticipated Results
(continued)
– Be able to gauge what costs have occurred vs. what are “left” to
occur (i.e. better forecasting)
• Provide more accurate accruals at the time of repatriation
– Consult with business about future “spend” on new projects based
on past actual experience/cost
– Better estimate cost/impact assessment of future policy changes
• Streamline the billing/charge-out process at the same time
Show Me the $$$$$ - Global Assignment Cost
Projections and Compensation
Roger W. Turner, GMS
Global Mobility Lead,
HR – International Benefit Design/Mobility
Eli Lilly and Company
Thoughts on Cost Projections
• Cost projection tool must match planning philosophy
– Order of magnitude vs. Detailed score card
• Are you holding people accountable?
• Are you treating all int’l assignees the same?
• Is it meant to be for a general planning tool?
– Expense control/management vs. Business control/management
• We know it’s expensive, but the reason for the assignee may
be more important
• Expense for every assignee will differ, but not that much, the
business productivity or controls may be more important than
the cost
Thoughts on Cost Projections
(continued)
– Return on Investment
• The real return may not be measurable until well after
assignee departs
• The objective for the assignment must warrant a high cost
International Assignee Payroll
• The pay sheet/balance sheet can be a simple or a complicated tool
– What does the employee need to see?
• Clarity on benefits and calculation of amounts
• Changes over time
• Reference document
– What does the business need to see?
• Detail for tax calculations
• Detail for home or host payment
• Useful demographic information
• Documentation for education purposes
Show Me the $$$$$ - Global Assignment Cost
Projections and Compensation
Michele Honomichl
CEO
Celergo, LLC
What Is A Shadow Payroll?
Host Shadow Payroll
Home Shadow Payroll
What is a Host Shadow Payroll?
• Calculation of taxes at host location
• Often referred to as “Shadow Payroll”
• Typically employer pays this tax on behalf of the employee
• Typically grossed-up or rolled over
Types of Host Tax Programs
• Employee is on tax equalization and the employer pays the host tax
(gross-up needed)
• Employee is treated like a local, on local payroll and pays host tax
(no gross-up needed)
• Employee is on a home payroll but pays host taxes via a “host tax
deduction” on home payroll (no gross-up needed)
What is a Home Shadow Payroll?
• Typically occurs in countries with WW income requirements
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United States
Switzerland
South Africa
A Few Others
What Is Included In A Home Tax Payroll?
• Includes:
– Full compensation package (regardless where paid)
– Benefits in kind
– Host taxes
• Calculates:
– Social insurances
– US: Medicare, SS, sometimes State & Federal
When Do I Need A Shadow Payroll?
Long Term Expatriates
Local Rules on Foreign Workers
Compliance and Filing
Long Term Expatriate
• Most expatriates on long term assignment will need host tax
calculations if withholding is required in country
• Most countries require withholding – some do not (Hong Kong,
France, Singapore, etc.)
• Long-Term is often defined from a tax perspective as greater than
183 days
• Some countries require calculations at 90 days or less
Foreign Workers
• Host tax payrolls are often required by host locations regardless of
time in country
• May be dependent on visa type
• May be required to maintain drilling or working permits
Compliance
• Host tax payrolls are often required by host locations
• May be dependent on visa type
• May be required to maintain business license
• Need to calculate to not incur penalties
• May be audited more regularly
Tax Filings of Withholdings
• Expatriate host taxes payments can be tricky:
– Modified Scheme – Expat taxes submitted separately from local
taxes under same company tax ID (Example: UK)
– One company tax ID: Expat taxes must be submitted with local
taxes (Example: Germany)
– By Individual: Expat taxes are remitted for each individual
(Example: Spain)
Shadow Payroll Required Countries
S h ad o w Payro ll Co u n tries S o rted b y Du e Dates
India
T hailand
Malay sia
Australia
China
F rance
Japan
South Africa
South Korea
Spain
Sweden
Switzerland
Indonesia
Ir eland
Keny a
T aiwan
Brazil
Canada
Mex ico
Morocco
My anmar
Netherlands
Pakistan
Philippines
Germany
Israel
Vietman
Senegal
Denmark
Poland
New Z ealand
United Kingdom
United States
Co mmen ts
Due 25th of each pay roll month
Due Last day of the calendar month
Due Last monday of each pay roll month
Due 1st day of the following month
Due 1st day of the following month
Due 3rd day of the following month
Due 3rd day of the following month
Due 5th day of the following month
Due 5th day of the following month
Due 5th day of the following month
Due 5th day of the following month
Due 5th day of the following month
Due 5th day of the following month
Due 5th day of the following month
Due 5th day of the following month
Due 5th day of the following month
Due 5th working day of the following month
Due 5th working day of the following month
Due 5th working day of the following month
Due 5th working day of the following month
Due 5th working day of the following month
Due 5th working day of the following month
Due 5th working day of the following month
Due 5th working day of the following month
Due 7th day of the following month
Due 7th day of the following month
Due 7th day of the following month
Due 7th day of the following month
Due 7th working day of the following month
Due 10th day of the following month
Due 20th day of the following month
Monthly , but v ariable
Monthly but v ariable
What Are Common Expat Payroll Issues
and Best Practices?
Common Expat Payroll Issues
• Incomplete data
• Inaccurate exchange rates
• Misinterpretation of taxability
• Lack of expertise
• Lack of support at the local level
Best Practices
• Consistent and timely compensation accumulation
• Create tax matrix for each country
• Update payrolls monthly
• Review data for integrity
• Review program annually
Show Me the $$$$$ - Global Assignment Cost
Projections and Compensation
L. Sean Raney, GMS
VP, International Assignment
Compensation Services
CARTUS
•
Why do Compensation Accumulation
Personal income tax is often collected on a pay-as-you-earn basis, with small corrections made soon
after the end of the tax year. These corrections take one of two forms: payments to the government, for
taxpayers who have not paid enough during the tax year; and tax refunds from the government for those
who have overpaid. Income tax systems will often have deductions available that lessen the total tax
liability by reducing total taxable income. They may allow losses from one type of income to be counted
against another. For example, a loss on the stock market may be deducted against taxes paid on wages.
Other tax systems may isolate the loss, such that business losses can only be deducted against business
tax by carrying forward the loss to later tax years.
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Social security contributions
•
Many countries provide publicly funded retirement or health care systems. In connection with these
systems, the country typically requires employers and/or employees to make compulsory payments.
These payments are often computed by reference to wages or earnings from self employment. Tax rates
are generally fixed, but a different rate may be imposed on employers than on employees. Some systems
provide an upper limit on earnings subject to the tax. A few systems provide that the tax is payable only on
wages above a particular amount. Such upper or lower limits may apply for retirement but not health care
components of the tax.
Taxes on payroll or workforce
Unemployment and similar taxes are often imposed on employers based on total payroll. These taxes may
be imposed at both the country and sub-country levels.
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Year-end Reporting
•Calendar Year-end Reporting
•Compensation data is reviewed
•Reasonableness
•Completeness
•Reconcile reports to US W-2 Box 1 (Total Income Taxable Wages)
•Coordinate with the Global Companies Contacts (Payroll, AP, Travel,
Benefits, etc.)
•Missing data
•Validation of amounts and adjustments
•Coordinate with the Tax Firm
•Format of reports sent to Tax Firm annually for their efficient
importing of data
•Posting of reports per Tax Firm schedule
Year-end Reporting
(continued)
•Fiscal Year-end Reporting (some IA’s require 2 different report
periods)
•Compensation data is reviewed
•Reasonableness
•Completeness
•Coordinate with the Global Companies Contacts (Payroll, AP, Travel,
Benefits, etc.)
•Missing data
•Validation of amounts and adjustments
•Coordinate with the Tax Firm
•Posting of reports per Tax Firm schedule
Key Take-Away Messages
Cost Projections
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Cost Projection tool must meet the business philosophy and objectives
•
The utilization of the tool must be worth the investment of resources to create it
•
Reexamine Cost Projection once a year to see if estimated costs still applicable/
appropriate – update for forecasting/accrual purposes
Compensation Sheet/Balance Sheet
•
Should be helpful to the business operations and informative to the employee
Shadow Payrolls
•
Determine if you need a shadow payroll (home and/or host) for each location
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Ensure you include all appropriate costs in your host tax calculations
•
Review your tax policies and practices at least once a year
Key Take-Away Messages
(continued)
Compensation Accumulation
•
Need to collect worldwide compensation for compliance reasons
•
Work with tax provider to make format easier for them to utilize in tax return process,
thus saves out of scope costs
Questions?
THANK YOU!