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Global Tips

Expatriate Payroll Tips—Skills and Competencies

By David Leboff, CPA

1472630784_74910You probably know two things if, like me, you work in the payroll profession:

  1. If everything is working perfectly, no one will say thank you.
  2. If a single transaction among thousands goes bad, it will surely ruin your week.

Some say we are in a thankless business altogether. However, all the professionals I know in this space are responsible, hard-working folks who are passionate about their profession, take responsibility for their programs, and train constantly to stay on top of changes that are sometimes next to impossible to execute. Think about all the changes to federal and state legislation and then layer the Affordable Care Act on top. Somehow, we get it done, and get it done right.

So why is it that we can deal nearly perfectly with thousands of employee paychecks week to week but struggle to get a single expatriate’s paycheck right once out of four periods? In the middle of the standard complexities of operating a domestic payroll, how does a single expatriate paycheck seem to suck hours out of an already airtight week? Why is it that expatriate payroll errors seem to be less fixable than others? With all of the training and experience we have, what is missing here that will help us?

There are many difficulties associated with administering an expatriate payroll. Over the course of a few short articles, I will share some tips for the payroll community that I have developed during more than 35 years of dealing with expatriate program and payroll management. These tips will arm you with ways to overcome some of your most pressing challenges.

Payrolls are transactions that operate consistently by applying rules (law and policy) to the compensation and benefits received by employees. The law is consistent among your paid population. Policy is used to either address questions of employer practice in how to apply the law, which may differ from employer to employer, and how to execute company programs that are employer-specific.

For example, if your company employs salespeople who travel constantly among states, there are state laws that apply to withholding. Your company may decide to set a policy about how long an employee must spend in a state before withholding must be taken, as well as a process by which that data is captured and passed to the payroll department.

An example of policy around a company program might be a program that pays a bonus for employees at a set percentage determined by level at a particular point of tenure. To execute this program, the payroll manager must know the general rules of the program and the means by which the affected employees will be identified to payroll, so the correct amounts can be determined and paid in a timely manner.

To effectively execute these types of policies for expatriate programs requires that your payroll resources have certain skills and competencies that are not required for operating a traditional domestic payroll program. These skills and competencies are not addressed as part of formal training, such as your CPP certification.

Some specific expatriate-related concepts to understand include:

  • The expatriate “Balance Sheet” model
  • Foreign exchange as part of payroll transactions
  • How does “Tax Equalization” work and how does it show up in payroll?
  • What are the differences between Tax Equalization and Tax Protection?
  • What is Totalization and what are certificates of coverage? When are they used?
  • How does my company want payroll to deal with “Claim of Right” transactions (return of tax equalization payments or tax refunds to the company in years after they were included in employee compensation)?
  • What and how to gross up for states
  • What payroll forms are unique to expatriates
  • How does a U.S. payroll ensure that it does not duplicate a payment for an expatriate that may have been paid by a local payroll for an item of compensation or benefit that is reportable on both payrolls?
  • How do I know if a tax treaty applies and what are the treaty rules to be expressed in payroll?
  • What is a shadow payroll?

 

1473181237_81816Specific training in expatriate payroll matters helps. There are programs run by the American Payroll Association and other networks that cover these concepts. I will cover some of these topics in future briefs.