Tis the season for US compensation reconciliation
INSIGHT ARTICLE |
As the end of the year approaches, most global mobility professionals turn their attention to year-end payroll reconciliation and reporting. Ideally, they will have collected, reported and paid any income and social taxes on a timely basis during the year. Doing this monthly or quarterly generally makes for an easier year-end review. However, many companies find themselves doing this at the end of the year instead.
For those who have been part of the global compensation collection and review process, they know it can be one of the most painstaking and arduous processes related to assignments. Given that accurate compensation collection and reporting for payroll purposes is a required task we’ve put together a quick start guide below to help you get the process underway.
Getting it done
- Find out what the payroll reporting cutoffs are by contacting your payroll department. Cutoffs are generally Dec. 31 each year but your company may have an earlier due date.
- Contact your foreign counterparts and various vendors to request information you need to complete your payroll review and provide a due date for them to provide the information. Ask for them to report in the currency used for the payment so that you can apply the correct exchange rates upon receipt of the amounts from them.
- Ask your assignees to provide you with their updated calendars. These will be used to help source income to various states.
- Check to see that your assignee list contains each employee’s host country, state of residence, visa type and assignment begin and end date. You will need this information to help you complete your review.
- Divide your group of assignees between long-term and short-term since you will require this information to decide which section of your tax liability matrix you will be using. If you are new to this, we strongly encourage you to ask your tax provider to put together a taxability matrix for you.
- Instruct your payroll professional regarding what taxable items to include and possibly gross-up once you have completed your review. We recommend that you provide specific compensation items and amounts for each item rather than lumping all items together as “expat allowances”. Certain items are sourced and taxed in various ways in each country; thus, having a summary of the items in Box 1 of the W-2 will aid in the tax preparation process globally as well as help the assignee understand what’s included in their W-2.