Payroll for Expatriates – How Hard Can This Be?

Dave Leboff – Expaticore Services LLC

Why does it seem that expat payroll administration is so hard to get right? Why is it so hard to deliver pay correctly and timely to this class of 50 or 150 important employees when it seems so smooth for the other 10,000 or 100,000? The answer lies in the reality that payroll for expatriates often seems to be the second job of those involved.

Expat policies are developed with care and designed to compensate the employee fairly, facilitate mobility, be competitive with peer companies and are sensible economically. Policy development usually sits within the HR function. Executing that policy always requires the involvement of your payroll function which has to deliver and record expat compensation and benefits correctly and compliantly, in one or two countries concurrently – and often multiple two-country permutations.

Payroll professionals are talented, hardworking experts who handle thousands upon thousands of domestic pay transactions with 99+% accuracy. But their success is dependent upon the efficient application of rules to situations – many of them coded in the software they use. For example, limits for FICA or 401(k) contributions in the US require no effort by the payroll professional. They correct limits and computations are part of the tools they rely on.

With expatriates, the rules are not built in. For example, a US employee working on assignment in Mexico may have US payroll running every two weeks. In Mexico it may run every month. In Mexico there may be requirements to deliver 13th month and vacation pay as well as other legislated perquisites. How should this be reflected on the US payroll? Should the expat receive the extra Mexican benefits or should the payroll delivery be manipulated to eliminate them from the gross deliverable? There are foreign exchange interplays. Splitting pay is often involved. Paycodes and general ledger coding relevant to expat benefits need to be organized so that the underlying accounting gets done correctly.

As you can see from this simple example, payroll professionals must not only clearly understand how the company wants to address compensation and benefits for expats, they need to drive many decisions relating to how the compensation and benefits are delivered, how they are accounted for, how changes will be authorized and instructions presented to them. They need to ensure that there are proper codes set up so that items that may be exempt from tax in another jurisdiction show up as taxable in theirs if appropriate. They must understand when and how to “gross up” for taxes, which is not a simple process in many cases and software managing payroll around the world does not often have grossup capability built in.

So the next time you ask “why can’t the payroll department get the expats right?” understand that they are handling expat concepts that are unusual and complex. There are ways to reduce the burden on payroll professionals who deal with expatriates. We will continue to address these issues over time within this International HR blog.

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