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Global Mobility – Shorter Term Options

January 1, 2011:

In our last issue we examined the environmental assessment which sets the foundation for global mobility policy development. Now we turn to the different types of mobility or combination of types of mobility that your company can use to achieve your business objectives. Given the breadth of this subject we are covering it in two parts. This edition will focus on short-term mobility options, namely business travel, cross border commuters and short term assignments. Our next edition will focus on long-term assignments, permanent relocation and localization.

While on the surface, some of these shorter periods of mobility might seem quite run of the mill, (i.e. John can just quickly do a business trip down in the United States), there are regulatory and compliance issues to each, that you need to consider. So we’ve asked a team of experts to provide compensation, immigration and tax information and advice on each of these options. Our expert panel includes:

  • Compensation Steve White, President and Founder, Thought 2 Finish Consulting Ltd.
  • Immigration – Naumaan Hameed, Senior Associate at Greenberg | Turner
  • Tax Arun (Ernie) Nagratha, CA, CPA, Trowbridge Professional Corporation, Chartered Accountants |Tax Advisors

Why these three areas of expertise?

Quite simply, compliance is fundamental to a successful program. The impact of non-compliance can be enormous with significant repercussions for your globally mobile employees and for your company. So while a particular type of mobility may seem ultimately driven by the business, you may find that the requirements to ensure compliance are not a fit with your organizational structure, corporate mobility policies or are at least difficult to implement and monitor. This article goes hand-in-glove with our last article on Environmental Assessment. Do you have an environment within which HR is able to monitor short-term mobility compliance? Will business needs slow-down if HR puts the brakes on, because of obtaining proper immigration for a short trip, when the project manager says that the employee in question can just tell customs and immigration that he/she is going to meetings. We believe it is important for you to know all of this up front.

Compensation (Steve White)

This one area that often gets less attention than it deserves. In this context, Compensation can include Cash, Pension, Benefits, Social Security, Equity Awards and even vacation or paid time off. It could even include which payroll an individual will be paid from or how compensation will be administered.

While many of the major elements of compensation are often resolved in advance, such as salary increases to reflect new responsibilities, cost of living differentials, relocation incidentals, etc., the details often go unchecked and this can lead to serious and costly repercussions. All too often, commitments are made to the assignee that cannot easily or sometimes even legally be upheld.

Immigration (Naumaan Hameed)

Cross border movement is increasingly being met with challenges that, if not addressed carefully, can hinder the mobility of a skilled workforce. Internally, companies must strive to attain a centralized infrastructure that encourages the integration between an organization’s multiple HR functions, including recruitment, international assignment management, succession planning, and talent development, and other business units. Companies must also align global mobility strategies with external factors, including local immigration laws. Policies must be strategically developed to incorporate amendments, as well as proactively address other mobility challenges.

Tax (Ernie Nagratha)

Careful attention to tax implications is always of concern when paying employee benefits. It becomes more complex when employees are working in multiple jurisdictions.

IMPORTANT NOTE: As you read our experts advice keep in mind that compliance and regulatory requirements will differ with each country to country combination and will change from time to time. To be absolutely sure you are in legal and regulatory compliance you should consult with the appropriate expert in advance.

Business Travelers

Business travelers usually stay in a country for a few days or a few weeks to look for new business opportunities, to invest or to advance existing business relationships. The business traveler must comply with all host country visa and tax regulations.

Compensation (Steve White)

Business travelers time in a foreign location is limited, so generally speaking, they can be maintained on home country arrangements, however common pitfalls can include:

  • Exceeding the allowed number of travel days permitted under the Group Insurance contract.
  • Entering into an area deemed by the insurer to be high risk or war risk and therefore excluded from coverage. Coverage for the entire trip can be denied even if the travel to the risk zone is only a stop over.
  • Assuming coverage will be the same in host country location as in the home location. For example, employer provided hospital coverage in Canada generally picks up the difference between what the province pays and the cost of private or semi-private coverage. This typically represents a few hundred dollars per day. However, most provincial plans limit the amount they will pay for out-of-country claims, leaving several thousands of dollars per day at the employee’s, or employer’s expense.

Immigration (Naumaan Hameed)

Often, HR professionals are unable to monitor rapid business movement of employees across national and international borders. The result, business travelers frequently enter Canada with improper status, leading to immigration non-compliance or in some cases, are refused entry.

To ensure compliance a travel initiation strategy should be implemented whereby HR is contacted by prior to any international travel to determine whether proposed travel is classified as an activity requiring work authorization.

In making the determination, various factors need to be considered, including the exact activity of the traveler, source(s) of remuneration, principal place of employer’s business and accrual of profits, as well as duration of activity.

In some instances, what begins as international business activity can quickly become activity that is deemed to be work and requires work authorization. Risk mitigation mechanisms should be in place to ensure that such change in activity is captured and addressed.

Tax (Ernie Nagratha)

It is important to ensure that the employee is properly submitting expense reports on a timely basis and ensuring personal travel for a spouse or meals for a spouse are not included as these are clearly non-deductible expenses. The CRA requires that original receipts be maintained so these should be submitted with the expense reports. Business travelers entering Canada without the proper immigration status can lead to tax non-compliance.

Cross Border Commuters

These are employees that routinely go back and forth between their home country and the host country to complete a specific project or business need. The primary residence and family remain in the home location. Cross Border Commuters must comply with all host country visa and tax regulations.

Compensation (Steve White)

Cross border commuters face the same concerns as business travelers above, but in addition employers should ensure:

  • The insurer is aware employees are crossing the border regularly for work activity. Many contracts exclude coverage for work performed outside the country.
  • Short and Long Term Disability protection may be at risk if an employee cannot travel to the international work site.

Immigration (Naumaan Hameed)

Cross border commuting is becoming a popular alternative to formal short and long-term international assignments. Although cross border commuters often require and obtain work authorization, most companies do not have a formal process to track commuters and ensure that related tax or immigration requirements are being met. As the trend in cross border commuting increases, organizations have an immediate need to include them in their international mobility programs.

Many organizations have a decentralized approach with respect to commuter workers. Typically, such workers are not managed through international mobility programs, although more companies are leaning towards including formal commuter policies within their global mobility process. This allows for better tracking of employees time out of the country, given the tax and immigration implications such travel can have. It is imperative that the commuter diligently tracks the number of days (s)he is physically in Canada over the term of his/her assignment. This is particularly important where the assignee is on a Labour Market Opinion (LMO) based work permit as it may be possible to recapture any time the individual did not work in Canada.

Similarly, it will become increasingly important for the traveler to identify the purpose of his/her travel to Canada. Instances where the assignee is entering Canada for an activity that does not require work authorization should be tracked so that these days can be recaptured on his/her work permit.

Tax (Ernie Nagratha)

There must be some mechanism for the tracking of workdays by country, and in the case of the US by State, as it will help to determine the sourcing of income where an individual may not be working in the same location. The employee may be eligible for employment expense deductions for home office and other costs not being reimbursed so this should be tracked by the employee for tax filing purposes. Cross border commuters often have specific tax rules related to pension contributions or incur tax obligations depending on the length of their stay in Canada over the year.

Short Term Assignments

Short Term Assignments are often regarded as those that exceed 30-90 days but generally less than 1-2 years.

Compensation (Steve White)

It is often with assignments of this duration (or longer) that problems with compensation will arise. Given the dramatic increase in the use of such assignments by Canadian employers, careful examination in this area is warranted.

Key pitfalls to be aware of include:

  • Ensuring assignees remain covered under CPP/QPP and EI. This is a legal requirement from a Canadian perspective. A Certificate of Coverage from CRA may be required to confirm coverage in Canada and eliminate payment into the host country system.
  • Avoid duplicate payments (e.g. providing per diems while also covering direct expense reimbursements, or providing cost of living allowances while also paying local market compensation levels).
  • Ensuring any compensation adjustments reflect true cost differentials (e.g. not paying for the increased cost of housing in locations where company housing is provided).
  • Do not assume the payroll from which an employee is paid dictates which coverage they should be eligible for or that the employer is legally responsible for providing.
  • If the employment relationship has in fact shifted from the home country to the host country, be careful not to continue the assignee under the home country pension or benefit plans this could result in the registered pension plan being de-registered by CRA for all employees, not just those on international assignment.

Immigration (Naumaan Hameed)

A common misconception is that such assignments do not require work authorization, either due to the short duration of stay in the host country or because employees are remaining on home payroll. In some instances, companies choose to bypass the immigration process after concluding that the risk of entering and working illegally is low in comparison to revenue opportunities that are available if work is performed without authorization. As the Canadian immigration system becomes increasingly strict, companies can face heavy fines and reputational damage if found to be non-compliant.

Determinations for the appropriate work authorization for employees on short-term assignments will be made on a case-by-case basis. Depending on the specific assignment and the employees personal and professional history, individuals may or may not be eligible for work authorization. In others, work authorization may be possible but only after a lengthy process which may run counter to the urgency of the engagement.

In some instances, it may be possible to avoid lengthy processing times associated with obtaining work authorization. For instance, citizens of certain countries are exempt from visa requirements and are permitted to apply for their work permit upon entry to Canada. Business units and HRs should be cognizant of such strategy so as to identify the best resources for immediate business needs.

Tax (Ernie Nagratha)

There are certain benefits considered non-taxable. Host location housing and transportation back to the home location if the assignee maintains a home available for their use in the home location are considered non-taxable benefits. The benefit can be provided as an allowance or as a reimbursement of expenses. This benefit does become taxable if the home is not available for use. For more information refer to our Secondments article in Volume 16 of Navigating Relocation.

Conclusion

If there is one overriding theme to the legal and regulatory compliance issues noted above, it is to have a centralized management or approval process for all international travel. This holds true for all options as the best way to avoid stealth expats and non-compliance. Stay tuned for long-term global mobility options in our next issue.

Posted on January 11, 2011 in Newsletter

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