Expatriate Payroll
Expatriate PayrollBDO USA, LLPRonii Rizzo, (Managing Director – Expatriate Services)October 6, 2016BDO USA, LLP, a Delaware limited liability partnership, is the U.S.member of BDO International Limited, a UK company limited byguarantee, and forms part of the international BDO network ofindependent member firms. BDO is the brand name for the BDOnetwork and for each of the BDO Member Firms.
Expatriate DefinedExpatriate:A person temporarily orpermanently residing in a countryother than that of the person’sorigin.The term is commonly used in thecontext of professionals or skilledworkers sent abroad by theircompanies.AmericanPayrollAssociationClient name- Event- Presentation titlePage 2
Overview of the Decision Making ProcessThe company should establish the need for an expatriate assignment. Increased activity in emerging marketsRapid globalization of businessMore countries joining mobility trendAttract and retain global talentLength of the Assignment Short-term (6- 12 months?)Long-term (12 months – 5 years?)IndefiniteCost Containment Establish Policy/Benefits (Indices/allowances vs. in-kind)Cost Projection for budgeting and assignment cost trackingPensions/social tax contribution planning (home vs. host country plan)Certificate of Coverage (Totalization Agreement)Secondment Agreement to establish employment arrangementTax Treaty ApplicationDetermination of which company will bear which costsAdditional Considerations Visa requirementsRelocation of familyLanguage barriersAmericanPayrollAssociationClient name- Event- Presentation titlePage 3
Assignment letter Position Home and Host location Base Salary and Possible Incentives Housing Considerations Housing and Utility AllowanceHousing normHome Retention Additional Assignment Benefits Goods and Service DifferentialRelocation AllowanceDependent EducationAutomobileHome VisitsAmericanPayrollAssociationClient name- Event- Presentation titlePage 4
Assignment Letter (Continued) Other Benefits Health CareVacationHolidayImmigration Expenses Taxes and Social Tax Charges Tax EqualizationHypothetical TaxForeign Tax General SignaturesDo you have an assignment template prepared?AmericanPayrollAssociationClient name- Event- Presentation titlePage 5
Let’s discuss why it is important for the payroll specialistto read and understand the assignment letter.AmericanPayrollAssociationClient name- Event- Presentation titlePage 6
Assignment Letter:Determination of applicable policies Tax Equalization(We will use this method for our demonstrations) Tax neutralNo better or worse off for taxes due to the assignment Tax Protection No worse off for taxes due to the assignment Guaranteed Net Salary Localized Employee is responsible for all actual taxes May receive some compensation with a tax gross upIs there a written policy in place?AmericanPayrollAssociationClient name- Event- Presentation titlePage 7
Expatriate Assignment Start - Hypothetical Tax Calculation What is hypothetical tax? “Stay-at-home Tax” The tax the employee would hypothetically have to pay if the assignment had not occurred.The hypothetical tax is not an actual tax that is remitted to a taxing authority as the companytakes responsibility to fund the worldwide actual tax liability for the employee (with someexceptions), and collects the hypothetical tax from the employee, reducing the company’s netglobal tax cost.Alternatively, with a net guaranteed salary the “hypothetical tax” is more figurative. It is notactually retained by the company; rather it is included in the gross salary calculation to arriveat a desired net pay. How is a hypothetical or estimated tax calculation prepared? Company income only vs. Company and Personal income“U Shape Calculation” – Home Gross to Net to New Host Gross What US taxes should be withheld? Federal/State/FICA/FUTA/SUTA What payroll forms should be completed? Form 673 (if applicable)Form W-4 and state withholding form (if applicable)AmericanPayrollAssociationClient name- Event- Presentation titlePage 8
Expatriate Payroll Set-up Implement hypothetical tax withholding Negative earnings code or pre-tax deductionHeld by the company/No remittancePossibly stop federal and state/local/school district withholdingPotential recharge/credit to the foreign entityAmericanPayrollAssociationClient name- Event- Presentation titlePage 9
Hypothetical Tax – Payroll ImplementationAmericanPayrollAssociationClient name- Event- Presentation titlePage 10
Payroll Form 673AmericanPayrollAssociationClient name- Event- Presentation titlePage 11
Payroll Form W-4AmericanPayrollAssociationClient name- Event- Presentation titlePage 12
Expatriate Payroll Set-up Assignment benefits Imputed or actual cash outlay (Discuss imputed payroll code set-up)AmericanPayrollAssociationClient name- Event- Presentation titlePage 13
Hypothetical Tax – Payroll ImplementationCASH Goods & Service Differential Cost of Living allowance Living Away from homeallowance “per diem” US Tax Gross UpIMPUTED Housing Automobile Dependent EducationAmericanPayrollAssociationClient name- Event- Presentation titlePage 14
Discuss Assignment Allowance Payroll EntriesWhy are we recording the imputed benefits? Proper payroll reporting Timely reportingReality: Imputed benefits are not always consistent.Recommendations: Know how the benefits are being paid (payroll, accounts payable, third party vendor,expense reimbursement, company AMEX, etc.) Set-up data sharing from the start Set-up pay codes for the benefit components Pay benefits through a separate pay run for the US tax gross up calculationWhat is the US tax gross up? US taxes paid on behalf of the employee as the benefit is meant to be delivered netof taxes.AmericanPayrollAssociationClient name- Event- Presentation titlePage 15
US Tax Gross Up CalculationGross Up Formula: Benefits/(1-tax rates)-Benefits Tax Gross UpCalculation: 3,200/(1-.0145-.062-.04)-3,200 421.96*Some payroll systems have automatic gross up functionsAmericanPayrollAssociationClient name- Event- Presentation titlePage 16
Shadow PayrollAmericanPayrollAssociationClient name- Event- Presentation titlePage 17
What is shadow payroll?(mirror payroll, ghost payroll)Shadow Payroll:A key component of maintaining compliance for anexpatriate employee inbound or working abroad.1.) Employee is paid from home country payroll andshadowed through the host country for proper payrollcompliance.2.)Employee is paid from the host country and shadowedthrough the home country likely for pension contributionsand home country benefit participation.AmericanPayrollAssociationClient name- Event- Presentation titlePage 18
Shadow Payroll ExampleAmericanPayrollAssociationClient name- Event- Presentation titlePage 19
Shadow Payroll ExampleAmericanPayrollAssociationClient name- Event- Presentation titlePage 20
Split PayrollAmericanPayrollAssociationClient name- Event- Presentation titlePage 21
What is split payroll?Split Payroll:A key component of maintaining compliance for anexpatriate employee inbound or working abroadwhile delivering money through both payrolls.Benefits: Reduce currency fluctuation Delivers cash in both host and home country Compliance with tax withholding requirements Allow employee to maintain eligibility for homecountry benefitsAmericanPayrollAssociationClient name- Event- Presentation titlePage 22
Split Payroll ExampleAmericanPayrollAssociationClient name- Event- Presentation titlePage 23
Income Tax Treaty PositionThe United States has tax treaties with a number of foreign countries.Under these treaties, residents (not necessarily citizens) of foreigncountries are taxed at a reduced rate, or are exempt from U.S. taxes oncertain items of income they receive from sources within the United States.These reduced rates and exemptions vary among countries and specificitems of income. Under these same treaties, residents or citizens of theUnited States are taxed at a reduced rate, or are exempt from foreigntaxes, on certain items of income they receive from sources within foreigncountries.Please note that not all states accept/recognize the federal income taxtreaty.Pennsylvania does not accept the federal tax treaty.AmericanPayrollAssociationClient name- Event- Presentation titlePage 24
Income Tax Treaty PositionDependent Personal Services Article (varies slightly by countrycombination):General Language remuneration derived by an individual who is a resident ofone of the Contracting States in respect of an employmentexercised in the other Contracting State shall be taxable onlyin the first-mentioned State if:a.) the recipient is present in that other State for a period orperiods not exceeding in the aggregate 183 days in the taxableyear or the year of income of that state (may be stated as arolling year)b.)the remuneration is paid by, or on behalf of, an employer orcompany who is not a resident of that State; andc.) the remuneration is not deductible in determining taxableprofits of a permanent establishment, a fixed base or a tradeor business which the employer or company has in that State.AmericanPayrollAssociationClient name- Event- Presentation titlePage 25
Income Tax Treaty Position If the employee qualifies for the income tax treaty position then aForm 8233 should be completed and submitted to the IRS in advanceof the work period. Please note that the employee will need to acquire a US socialsecurity number or an individual tax identification number. The Form 8233 may exempt federal and possibly state/local/schooldistrict wage reporting and tax withholding, but it does not exemptsocial security and Medicare wage reporting and tax withholding. A Form 1042-S should be submitted with the exemption code at theend of the year.AmericanPayrollAssociationClient name- Event- Presentation titlePage 26
Totalization Agreements – Certificate of CoverageCertificate of Coverage: Intended to eliminate dual social taxation and toprovide additional benefit protection for workerswho have worked both in the US and anothercountry. (24 countries currently have totalizationagreements with the ciationClient name- Event- Presentation titlePage 27
Other Expatriate Payroll ConsiderationsCurrency Exchange Rates: Currency fluctuation must be considered whetheran employee will be on home or host countrypayroll. Home country payroll: Employee will needmoney in host currency for spending. Host Country Payroll: Employee will needmoney in home country currency to pay billsand save.AmericanPayrollAssociationClient name- Event- Presentation titlePage 28
Year-End Payroll Forms The final US Form W-2 should includeworldwide employment income and benefits. Gather all compensation components and exchange rateadjustmentsYear-end review of payroll and taxesAdd any additional non US payroll compensation not previously“shadowed” Reconcile the foreign payroll forms to the USpayroll form. Discrepancies will exist as taxability and deductibility differ bycountry. Provide an explanation of the payroll formsto the employee.AmericanPayrollAssociationClient name- Event- Presentation titlePage 29
Payroll AuditsAmericanPayrollAssociationClient name- Event- Presentation titlePage 30
Payroll AuditsAmericanPayrollAssociationClient name- Event- Presentation titlePage 31
Possible Interest and Penalties Failure to Make Deposit of Taxes – IRC 6656 (Up to 15% ofamounts unpaid) Failure to Collect and Remit Taxes – IRC 6672 (Up to a 100%penalty of the amount not collected) Failure to Furnish Correct Payee Statement – IRC 6722 (Greaterof 100 per statement or 5-10% of the amount required to bereported) Negligence or Fraud – IRC 6662 and 6663 Criminal Penalties – IRC 7207AmericanPayrollAssociationClient name- Event- Presentation titlePage 32
Discussion – Specific Scenario QuestionsAmericanPayrollAssociationClient name- Event- Presentation titlePage 33
Thank you for your time!Ronii Rizzo is a Managing Director in the BDO Charlottetax practice. Ronii specializes in the taxation andpayroll reporting of U.S. nationals working abroad andforeign nationals working in the U.S. Ronii’s experienceincludes payroll consulting, preparation and review ofU.S. income tax returns, tax equalization calculations,and general expatriate assignment consulting. Ronii isalso experienced in the transfer and set-up of newlyacquired expatriate programs.B.S. Accounting, University of North Carolina-CharlotteEnrolled AgentEmail: rrizzo@bdo.comPhone: (704) 887-4266AmericanPayrollAssociationClient name- Event- Presentation titlePage 34
BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. Expatriate Payroll BDO USA, LLP
Payroll flows are used for many of your payroll tasks. If you load data, calculate payroll and payments, run reports, or calculate and distribute cost results, you submit payroll flows. Monitor and manage each task and overall payroll flow in Payroll. Verify Your Readiness A good payroll run depends on many accurate and completed tasks.
Payroll/DM Lockout . 14 Payroll Confirmed. Payroll/DM Lockout . 15 Departments review Payroll Register Dashboard . Resume normal . 16 17 PAYDAY . 18 19 20 Martin Luther King. Jr. Day - Holiday . 21 22 23 PAR/DMX Deadline at 9am . PTR Deadline. 24 Payroll/DM Lockout . 25 Payroll/DM Lockout 26 Pay Period Ends: 1/13 – 1/26 Payroll/DM Lockout 27 .
master file data to the outside payroll service provider should not be involved in recording the payroll entries in the general ledger, preparing payroll reconciliations or distributing payroll checks. This employee should also not receive the copies of the final payroll reports (e.g., payroll registers) from the outside payroll service.
Glossary Term Definition DTPR - Department of the Treasury of Puerto Rico also referred to as "Hacienda". Net Payroll - Net payroll is equal to gross payroll less tax withholdings and other deductions. Payroll is paid twice per month on the 15th and 30th (or last day of the month, whichever comes sooner). Other payroll - Other payroll expenses relate to employee withholdings, social security .
HR & Payroll - Staffing L6 to L11 2. HR & Payroll - Hire Personnel 3. HR & Payroll - Terminate Employees 4. HR & Payroll - Time Recording 5. Performance Management 6. PMP - Salary Increase 7. PMP - Bonus 8. C&B Process - Job Evaluations (JE) 9. Vacation Processing 10. HR & Payroll - Payroll Data Maintenance 11.
Payroll Hotline: 817-299-6357 Payroll Email: payroll@misdmail.org . Mansfield Independent School District (MISD) Payroll Manual 6 of 37 September 2, 2020 SECTION 11.2 PAYROLL RUNS The Payroll Department is responsible for three types of payrolls each month: bi-weekly, semi-
Payroll Issues (cont'd) Checking your payroll - Payroll reports -Monthly, supplemental, CJIP, "RDS reports" are all listed on your payroll calendar - Rate Reports -From Andy each month - Pay statements -Available on the DFS/EIC website (In your handout & upcoming slide) - You only have to check your payroll changes (recurring payroll)
expatriate by not having to relocate for extended periods or become engrossed in the foreign culture. Although many studies have been conducted exploring expatriate adjustment, (Peltokorpi & Froese 2012; Lee, Veasna and Wu 2013;
