Cross-border compensation gathering

Transcription

1 Cross-border compensation gathering Real-world challenges, solutions and value October 2014

2 Disclaimer EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. This presentation is 2014 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party. Views expressed in this presentation are those of the speakers and do not necessarily represent the views of Ernst & Young LLP. This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer s facts and circumstances. These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice. Page 2

3 Contents Overview of cross-border compensation reporting Why companies are looking at this Challenges organizations face with cross-border compensation reporting Real-world challenges Real-world solutions: Gather Analyze Tax Report Real-world value Future opportunities Page 3

4 The reporting challenge Cross-border compensation reporting exposes an organization to risk if a robust compensation reporting solution is not implemented and administered. The complexity of the process and the risk associated with the issues is increased due to: Multiple data sources with inconsistent outputs Differences in country taxation and reporting rules Inaccurate data sources Lack of qualified resources Significant volume of data Page 4

5 Common areas of risk Non-compliance through failure to report all taxable compensation to local payroll Penalties and interest from under-reporting and withholding Excess taxes due to over reporting compensation due to incorrect data, taxability determination or wage code mapping High incidence of corrections to employee wage statements could increase audit risk Employee dissatisfaction with process Inability to report total program costs to the business Inefficient and redundant processes which increase cost of mobility support team Lack of expertise internally Page 5

6 Why companies are looking at this Driving change: Establishing effective global processes and controls (34% of respondents) Ensuring compliance with country payroll regulations (31% of respondents) Reducing or eliminating unnecessary costs of compliance failures (16% respondents) Only 25% of organizations surveyed are confident in the controls and processes they have implemented Only 50% of organizations surveyed feel they provide clear instructions to payroll for reporting purposes Page 6

7 Why companies are looking at this 53% of respondents feel they have inadequate internal controls to ensure items are reported to payroll correctly 59% of respondents feel internal teams do not have the expertise to manage this process internally Page 7

8 Real-world challenges Risk/opportunity Significant time spent gathering compensation and creating compensation summaries during peak resource demand periods Risk/opportunity driver Non-standardized templates and data sources for each country result in inefficient processes for reporting worldwide compensation Significant time spent responding to payroll and tax queries related to global compensation Non-centralized escalation and response protocols/team available to respond to questions Differing reporting deadlines create multiple redundant processes Due to differing reporting deadlines and noncentralized approach, reports were required to be completed multiple times for the same data Page 8

9 Real-world challenges Risk/opportunity Penalties and interest due to delayed filing of tax returns Delayed collection of equalization balances due to the company Inefficiency in tax compliance and equalization processes Data sources do not share a common data dictionary Risk/opportunity driver Due to potentially inefficient processes, compensation was often not provided on a timely basis The compensation data provided to the home and host local teams was not necessarily derived from the same source data No detailed definitions of global pay codes existed resulting in inefficient and/or inaccurate compensation reporting Page 9

10 Real-world challenges Risk/opportunity Improved accuracy of payment reporting Inconsistent assignment data and payment reporting Risk/opportunity driver Non-standardized approach required personnel to search through payroll source files for reportable compensation Lack of a consistent process and underlying data results in incorrect inclusion/exclusion of non-taxable/ taxable compensation Page 10

11 Real-world solutions Page 11

12 Data Gather the process of accumulating compensation data from all sources Risk mitigation/process improvement Automate feeds to increase data quality Standardize import templates Implement global payroll calendar Create a single data repository Implementation considerations Ask payroll to create payroll glossaries for each of your payroll thus setting the basis for your mapping and taxability determination with an English translation and definition of earnings Validate format of raw data to help ensure usability Review mapping of payroll items to help ensure you have consolidated correctly (e.g., employer deduction vs. employee contribution) Page 12

13 Validation and Controls testing to validate accuracy of collected compensation Risk mitigation/process improvement Reduce internal audit responsibility Increase data quality Enable remedial action during current run Minimize risk Facilitate accuracy and satisfaction Implementation considerations Maintaining a data repository of policy components, cost estimates, assignment letters is key to implementing a robust validation process Automated feeds to and from payroll enhance this process Clearly identify escalation process and owners of variances Page 13

14 Tax and Social Security reporting taxability for tax and social security Risk mitigation/process improvement Taxability positions embedded in repository Individual tax and social security positions feed into withholding Improved timely global compliance Realize cost savings through reduced penalties and fines Early consideration of risks across jurisdictions Implementation considerations Payroll codes will change over time; it is key to create and maintain a global payroll code dictionary, mapping and maintaining a taxability workbook Assignment demographics including policy type and assignment details are key to determining tax and social security reporting requirements Page 14

15 EY Pay Instructions providing taxability reports for wage inclusion Risk mitigation/process improvement Automated feeds to include cash payments and shadow reporting Standardize interfacing formats across platforms Embed tax and social security treatment in payroll feeds Include withholding where required Implementation considerations Creation of standardized feed which can be used across payroll platforms and countries Payroll systems have evolved and have much more flexibility than before Maintenance of payroll code mapping is equally important for feeds back into payroll Page 15

16 Deliver Payroll producing monthly and annual wage statements Risk mitigation/process improvement Consistent standard processes enabled by technology solution Integrate gathering with payroll delivery processing Deliver compensation report to tax preparer in home and host countries Implementation considerations Review payroll platforms, process and vendors to identify opportunities for consolidation Now is a good time to review global payroll delivery environment and partner with payroll to adjust as necessary Develop global reporting identifying inputs and outputs and country priorities Page 16

17 Post Payroll Analysis validating payroll process instructions accurately Risk mitigation/process improvement Variance reporting to identify inconsistencies or errors Policy check to create better control over policy exceptions Improved adherence to agreed policy Implementation considerations Maintaining a data repository of policy components, cost estimates and assignment letters is key to implementing a robust validation process Automated feeds to and from payroll enhance this process Clearly identify escalation process and owners of variances Page 17

18 Reporting and Analytics utilizing consolidated data for business decisions Risk mitigation/process improvement Improved assignee satisfaction through accurate timely reporting Better compliance through provision of data Reporting to aid in identifying cost efficiencies Reporting to aid in policy review or other modelling to drive better business decisions Normalized data provides a global view of all assignee payroll and cost data Implementation considerations You now have a significant amount of normalized data; look for other opportunities to leverage this data to enhance other processes and solve other reporting challenges Page 18

19 Savings/value delivered Page 19

20 Real-world results 63 countries payroll codes (9,800 codes) were defined and mapped in payroll glossaries 15,000 compensation reports produced for countries Reports included base payroll data, assignment allowances, expense report submissions and destination services cost data Acceleration of tax compliance filings was achieved through early data provision and tax return ready data Faster recovery of tax equalization Faster recapture of foreign tax credits Early removal of participants from eligibility list Page 20

21 Real-world results Estimated 2,000 hours removed from processing redundancy to allow focus on value-adding strategic initiatives and controls Estimated US$2075 per assignee in cost reductions Penalties and interest Taxes Estimated value of other byproducts from process US$300,000 (e.g., payroll glossaries and taxability matrix) Page 21

22 Future considerations Page 22

23 Future considerations/opportunities Compliance Accrual analysis and true-ups Prevailing wage compliance Policy reviews and modeling Compliance is the number one driver for implementing compensation reporting solutions. However, this is the tip of the iceberg. There are numerous by-products from a well-designed process You now have access to large amounts of normalized data that can be utilized to solve many other business issues. Cross-charge reporting Data analytics Page 23