Develop a Plan for Tax Compliance for Mobile Employees

By Kathy Biddle. Tax compliance is a challenge for equity compensation issuers, especially when tracking a mobile employee. Whether they live in one state and work in another or are on foreign assignment, mobility creates significant tax issues for the organization. Factors such as regulation, risk tolerance and jurisdictional revenue are just a few of the hurdles a company must navigate when maintaining a compliant equity compensation plan. The environment is consistently evolving, making it difficult to stay compliant in a fluid, dynamic atmosphere.

First, let’s take a step back to Plan3understand the environmental factors and driving behavior. In a number of countries around the world, certainly the United States being one of them, government spending exceeds revenues. These budget shortfalls and decreased revenue bases can drive increasingly aggressive behavior by tax authorities and legislators to carve out their piece of each equity award. Every jurisdiction wants their piece of your participant’s equity pie.

Ensuring compliance with tax regulations is particularly confounding when it comes to mobile employees. Expats, permanent transfers, cross border commuters, and business travelers can create tax consequence in a number of countries, states or jurisdictions. Here is a basic example to help illustrate the point. An employee who lives and works in California is granted an equity award. During the award period, the employee moves to New York and then moves again, but this time out of the country. In order to stay compliant, it is essential to be able to answer the following questions: Where was she? What time period was she there? What division did she work for? What am I required to withhold? At what rate? And when? The takeaway is clear – establishing a plan to track and manage movement will help you to address compliance head-on.

The first step is to know the tax laws that impact equity in each jurisdiction. Certain regulations differ from one place to another including:

  • What is considered a taxable event
  • Appropriate withholding rates
  • Reporting requirements

When the time comes to answer these questions, accurate and timely record keeping can make all the difference. Clearly define and document a process to address where the recipient was at each time of grant, as well as their movement throughout the lifecycle of the award. How do you track changes to employee work location? Develop a process for equity participants to notify your team of these types of changes. Keeping track of this information is difficult enough for one employee, but with a high number of mobile participants this data quickly becomes unwieldy. Evaluate what tools are available to help you automate this process.

Learn about other factors you must consider when managing equity compensation plans for mobile employees by downloading Best Practices for Equity Taxation for Mobile Employees. How do you track your mobile employees? Share your experiences and tips in the comment section below!

Kathy Biddle