Episode 3: Year-end Payroll

Will:

Hello, and welcome to – Mobility via Podcast – KPMG’s new podcast series focused on global mobility. I’m Will Easton, a Senior Manager in our Global Mobility Services Practice based in New York City.  In today’s episode, we’re speaking with Irma Scott, Managing Director in our GMS Mobility Consulting Services group at KPMG to discuss the year end payroll process.

Irma … thanks for joining us today.

Irma:

Thank you, it’s good to be here.

Will:

Year end is a busy time of year for mobility and payroll professionals all over the world.  Especially in the US, final compensation items are being booked into payroll along with the necessary gross-ups, and reconciliations are being processed to ensure proper wage reporting and tax withholding.  To help ensure a smooth year end process, what are the key considerations for year-end planning?

Irma:

Planning for year end is not just at the end of the year, it truly is a process that is implemented in the beginning of the tax year and is carried out by the mobility and payroll teams through-out the year.  A detailed year end project plan that identifies key stakeholders and establishes internal reporting deadlines, global payroll schedules, as well as tax reporting deadlines is generally recommended.  Communicating the project plan to all stakeholders and meeting regularly to review the status of deliverables is a key to the execution of the plan.  

Will:

That’s a great point.  Now, you mentioned the year end payroll process begins with the new tax year and is a process that continues throughout the year, can you elaborate on that?

Irma:

Sure. Global payroll reporting has many challenges, particularly when considering international assignees may have multiple sources of compensation, such as home and host payrolls, accounts payable, corporate credit card charges, and third party vendors, such as a relocation vendors or equity administrators.   A successful year end requires worldwide compensation sources to be properly identified at the beginning of the year to capture all the income on an ongoing basis.  The frequency of data collection from each compensation source should also be determined at the beginning of each year.  The frequency of that collection may be dependent on specific country reporting requirements, therefore, having a global compensation collection calendar for the tax year helps to ensure all stakeholders are accountable for providing the necessary data timely.  Once the data is collected, the process of reviewing the data for taxability and reporting can be performed.

Will:

Wouldn’t it be easier to collect compensation quarterly or annually for reporting globally?

Irma:

Compliance requirements vary by country.  Some countries require real time reporting, such as Ireland, whereas others may allow quarterly reporting based on the type and number of assignees, such as the UK.  If taxable income is not reported in accordance with local payroll law, this could expose an organization to substantial risk and sizable penalties for non-compliance.  For example, due to the difficulty of accumulating and reflecting foreign-paid compensation back in the U.S., many companies have adopted an annual process (usually at or near year-end) for soliciting this information from the foreign locations to include in the U.S. Form W-2. This practice, while common, is not correct under the law and could give rise to employment tax penalties.  Also, due to the volume of data and payroll adjustments required with an annual process, the risk of misreporting may be increased when done all at once and may result in W2C or equivalent wage statement amendments.  Having a good year-end process in place early can help avert the frustrating W-2C or equivalent process and help avoid unnecessary tax return filing delays.

Will:

Yeah, that’s so true.  From my experience as a mobility professional on the tax and compliance side of things, a well-organized compensation collection process helps make the tax return process so much smoother.  Having clean, correct, and timely compensation information supports an improved employee experience for our clients. 

Well, thank you Irma, you’ve given us a lot to think about and we really appreciate you taking the time to go through it with us.

Irma:

Thank you very much for having me.

Will:

Thanks for joining this episode of – Mobility via Podcast.  In future episodes we’ll spend more time on top-of-mind issues, geopolitics, digitization and changing business models. In the meantime, we’d love to hear from you. If you have thoughts on today’s episode or ideas for future episodes, send us an e-mail at us-taxwatch@kpmg.com. Thanks for listening!