October 1, 2010:
Canadian corporations are using more and more temporary secondments to meet their staffing needs. Domestic business strategies have always employed the use of short-term secondments, but it appears that they are increasing in frequency. This should not come as a surprise for three reasons. First, companies have used international assignments as a strategic way to get key staff to deliver important value to needful areas for short periods of time (1-3 years) for many years now. It was only a matter of time before this strategy played an increasingly larger role in the domestic business context. Second, there is a continued labour and specifically a skill-set shortage in Canada. While the recession did ease the worst of the labour shortage issues experienced in 2008, Canadian companies still are having a difficult time finding the skilled professionals to meet their needs. Part of the reason for this is due to what some economists are describing as structural unemployment. A structural unemployment situation results from a mismatch between the sufficiently skilled workers seeking employment and demand in the labour market. Even though the number of vacancies may be equal to the number of the unemployed, the unemployed workers may lack the skills needed for the jobs or may not live in the part of the country where the jobs are available. Third, and finally, companies hiring practices are still relatively cautious. Where possible, they would prefer to second a current employee with a particular skill-set and work experience to a location that has these needs, than add headcount. Furthermore, the newly hired employee would cost more in training and integration compared with the seconded employee that knows the company and how it does business already.
That being said, Canadian companies rarely have a formal secondment relocation policy. Companies should address this growing need by writing formal secondment policies that are congruent with its current relocation policies. Policies should be written to create consistency, and also to fall within CRA guidelines to make these programs their most tax efficient.
If the transferred employee maintains their principal residence, reimbursed expenses are generally considered taxable compensation to the employee. However, the tax law provides an exception to the general rule for reasonable board, lodging and transportation allowances paid in connection with temporary employment at a special work site. To qualify for the exemption, the employee must have his/her principal residence at another location, which is not within reasonable daily commuting distance. The principal residence must not be rented and must be available for the employee’s use throughout the temporary assignment. Furthermore, the employee must be required to be away from the principal residence for at least 36 hours.
CRA considers an assignment to be temporary, if it can reasonably be expected that the work will not provide continuous employment. The determination of the expected duration of employment must be made on the basis of the facts known at the commencement of the assignment.
The employer can exclude the reimbursements from the employee’s T4 slip if the requirements are met and the employee provides the employer with a complete form TD4 Declaration of Exemption-Employment at Special Work Site.
So, it is important for the company to specifically note in its Secondment policy that employees must not rent out their principal residence, and must have that residence available for their own personal use. The company can note that if employees choose to either rent out or otherwise dispose of their principal residence, that housing support payments will convert to pay and will be taxed at source. In addition, the policy could provide disincentives to these actions such as specifically noting that rental penalties and origin home sale costs will not be covered.
In addition, the company may want to consider if it wants to cover costs associated with the vacant management of the origin properties during the secondment. Vacant apartments are relatively easy for the employee to manage, but houses are more difficult and can prove to be a distraction for the employee. In addition, the employee should check with their insurance provider if they will provide insurance for a vacant home for the secondment period.
Two types of rentals at destination
When it comes to primary cities in Canada, furnished accommodation is a market that is well handled by the temporary accommodation industry. These companies are in the business of renting furnished properties for long period of times. They are fully equipped with kitchen equipment, sheets, television, internet, Wi-Fi, etc, so employees do not have to move their personal effects. These types of properties can easily meet the objectives of housing a secondee in a new location.
There are a few things that need to be considered before deciding if this type of property is right for the secondment strategy of your company. First locations. You should first find out if these types of properties are available in the locations that are most likely to see secondments. While the temporary accommodation industry has a great deal of product in primary centers, if your company’s secondments are in secondary or tertiary centers, then these properties are not likely to be there at all. Second cost. In general terms, these apartments are quite inexpensive. For example, a typical one bedroom temporary accommodation apartment can be found in large Canadian cities for long-term periods, such as 5-6 months for approximately $105 – $115/night, depending on location and duration. If you think about the average cost of a hotel room in a typical Canadian city, you would say that this is a very good price. However, once aggregated for 30 days, it is amazing how quickly the cost of $3,150, seems very expensive to a hiring manager. You should be aware of your company’s cost tolerance.
It may be a better idea to provide your employee with a proper rental home finding search and rent unfurnished properties, and then rent furnishings for the property. Most furnishings can be rented, and the overall cost is likely to be lower than the cost of formal temporary living. The reduced cost will vary, but can be as little as one-half to two-thirds of the cost of temporary living. However, if the secondment is less than one year, this may not be an option, as most landlords of unfurnished properties want their rental periods to be a minimum of one year.
Transportation and Movement of Goods/Storage
CRA does allow an employer to exclude from income the value of free or subsidized transportation between the employee’s principal place of residence and the special work site. This can be interpreted as trips home during the secondment
Your secondment policy should be written carefully to exclude certain actions on the part of the employee. It is quite reasonable for an employee on a long secondment to reduce their overall costs so that they can maximize their earnings during the secondment. As mentioned above, one such action might be ceasing the tenancy in the origin city. As noted, this would make any coverage of destination lodging become a taxable benefit. It should also be noted that movement of household goods and storage of household goods during the secondment would also be deemed taxable benefits.
Ending the secondment
Finally, the policy should consider the end of the secondment. It is possible that the secondee will be asked to extend the secondment or take the position permanently. You will want to write your policy with this ending anticipated and referenced.
In conclusion, it is time for secondment policies to be formalized and put within the regular planning and relocation functions of Human Resources. Look at the benefits you would like to provide that are consistent with the quality of your benefits in the relocation policy. This will ensure a seamless and attractive secondment strategy in your company.