If you're setting up an expatriate assignment, you need to consider the best way to manage your assignee's payroll. A dual payroll can help deal with tax and legal restrictions, and can also protect employees from unwanted fees and exchange rate costs. Human resources departments often have a number of dual payroll options to consider, so it's vital that you set the employee up in the right way. Learn more about the different types of dual payroll, and how you can choose the right option.
What is a dual payroll?
A dual payroll exists when a company sets up an employee in two countries. For example, an American employee seconded to the United Kingdom could have an employee number, payroll and tax return in both countries. When you set up this type of arrangement the employee's total income doesn't normally change, but salary contributions may come from the payroll departments in both the home and host countries.
Types of dual payroll
There are four main ways to manage a dual payroll. These include:
- Recommended split – In this case, an employer deducts the cost of certain expenses from the home salary, and then delivers these goods in the host country. Employers will fix the value of costs deducted in the home salary, and then provide those goods at whatever cost the local economy demands. This protects the employee from exchange rate fluctuations in the host country.
- Flexible split – This approach works in a similar way to a recommended split, but the value of costs changes according to the employee's needs. A flexible split gives employees more control, but is more complex to manage.
- Enforced split – An enforced split means that the employer has to pay a certain amount of the salary in the host country, normally due to legal reasons. For example, in Brazil, employers must pay the Piso Salarial or minimum salary in full, in the local currency.
- Shadow payroll – With a shadow payroll, the employee receives all his or her salary in the host country, but the home country manages a second, shadow payroll to make sure the expatriate meets local tax and pension plan requirements.
Things to consider
The right type of dual payroll will vary from one assignment to another, and you should consider a number of important issues. These include:
- Tax withholding requirements in the host or home country
- Labor law requirements
- Determination of pensionable earnings
- Employee convenience
- Exchange rate protection
HR and mobility professionals can rarely decide which option to use without specialist advice. For example, the tax implications from a dual payroll are often complicated, so you may need to speak to an experienced tax consultant.
It's important to make sure that you protect an employee's salary and benefits when you set up an overseas assignment. Consider the different available options, and seek the advice of a tax specialist or accountant before you confirm the details. To learn more or if you have other questions, contact a company like Bildner and Company to learn more.