Magazine article Personnel Journal

Getting through the Global Payroll Maze

Magazine article Personnel Journal

Getting through the Global Payroll Maze

Article excerpt

Imagine a paycheck stub that tries to accommodate some or most of the following elements of international pay, just to reach a number called total adjusted gross compensation (TAGC):

* Base salary

* Incentives

* Foreign-service premium

* Hardship premiums

* Goods and services

* Host-country housing cost

* Home-country housing deduction

* Transportation

* Hypothetical home-country tax deduction

* Education allowance

* Relocation (mobility) allowance

* Language training

* Home-country auto--the loss on sale or storage

* Home-country property management

* Domestic servants allowance

* Wire-transfer allowance

* Home leave

* Rest and recreation allowance

* Repatriation allowance

* Dual-career provision

* Health/social club membership

* Host-country furniture/appliance allowance

* Predeparture expenses

* Enroute navel expenses

* Post-arrival expenses

* Shipment or storage of household goods

* Miscellaneous relocation expenses.

Many of these items constitute the pluses and minuses necessary to develop a "normal" international allowance package, just to reach the total adjusted gross compensation (TAGC). Having achieved that goal. the task of calculating voluntary (e.g., benefit plan contributions, 401(k), 125 Plan) and mandatory (FICA, SDI, and so on) withholdings remains.

For most companies, what payroll system exists--short of creating a separate international computer program and an 8-1/2" x 11" check stub--that can accommodate all these pay elements?

International payrolls are subject regularly to allowance changes. Many international employees feel they never know from one pay period to the next how much they'll receive, let alone why changes have been made. Most companies never have the time or finds necessary to create automated programs that report changes to the international payroll, rather than just make the changes.

If we accept that there are many legitimate reasons to calculate the components of international pay, and that periodic changes to the payroll are inevitable, the real issue becomes, "What can we do to streamline and simplify the international payroll, without jeopardizing the integrity of the policy or the allowances?"

DESIGN A CALCULATION PROGRAM. Most companies whose payroll computer systems have limited capabilities are better off not attempting to change the payroll program. Instead, it's best to change the system by which the components of payroll are reported.

Using either mainframe or PC capabilities, you can create the computer program that's necessary to collect the base data and calculate the current pay period and year-to-date total adjusted gross compensation for each of your international employees. The result of these calculations (i.e.. a TAGC report), is a total that represents the one-line item on the paycheck stub that the payroll department has been looking for, and provides the itemization of compensation that the international employees have been requesting. This same report of TAGC can be programmed to include a summary of the basis for selected calculations, as well as the basis for mandatory and voluntary withholding.

For example, one of these employees would like to know that the baseline for calculating the hypothetical home-country tax is the base salary reduced by any pretax benefit contributions. The same employee would like to know that the percentage of foreign service premium or hardship premium is based on the employee's unadjusted base salary.

Although the withholding requirements for Social Security tax, Medicare, SUI/SDI, and voluntary withholdings are relatively straightforward, the payroll department needs to know the basis for withholding appropriate state and federal income tax. Specifically, if and when the employee's foreign-earned income exceeds the allowable basic exclusion ($70,000) and any additional housing exclusion, actual home-country income taxes (not the hypothetical tax) normally are withheld and paid into the appropriate home-country government agencies. …

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