By Raul Fajardo. When employees are transferred to a new location, they are probably thinking about packing, selling their house, and finding their way around a new city. Meanwhile, their stock plan administrators are thinking about the complicated world of stock plan taxation they have just entered.
Different jurisdictions have different tax laws. As a stock plan administrator, you are responsible for tracking where participants live throughout the life cycle of their stock awards – from grant through exercise/release – and properly withholding taxes in each jurisdiction.
In thinking about mobility tracking, most people focus on the implications of international moves, as that’s where some of the largest impacts are felt. However, many states have stock plan taxation requirements as well, and domestic mobility tracking is a topic of increasing interest. The results from our recent stock administration operational benchmark survey, Raising the Bar: Best Practices in Stock Plan Operations, reveal discrepancies in the way that companies approach international and domestic mobility tracking.
60% of those who responded to the survey have employees who are domestically or internationally mobile.
And, in encouraging news, as compared to 2014, more companies have instituted procedures to track, report and withhold for mobile employees. However, there is a meaningful gap between those who have established procedures for international employees (54%), and those who have done so for domestic employees (43%).
Similarly, when it comes to notifying employees that they may be subject to withholding and reporting in multiple locations, 27% of companies say that they “don’t but should” do this for domestic employees, while only 18% say the same for international employees.
19% offer tax planning assistance for domestically mobile employees, as compared to 33% for those who are internationally mobile. And 34% provide employees with a statement that breaks out taxable income and withholding by jurisdiction if they are domestically mobile, while almost half (47%) do this for internationally mobile employees.
Clearly, there’s room for increased support of mobile employees, whether they are moving domestically or globally. Even a savvy stock plan participant may be surprised to learn how complex withholding can be for those who move from one jurisdiction to another. Educating employees in advance of a move will avoid surprises, which should help sustain morale and minimize phone calls to your stock plan team.
Finally, it’s time to close the gap. Companies need to be aware of their requirements for managing domestic mobility, and give them the same attention that they give to international movement. When reviewing existing global mobility procedures, or implementing new ones, companies should ask themselves if the same or similar guidelines could help them manage domestic mobility as well. Over time, this should bring the two categories to parity – and help reduce the risk of failing to properly track and report mobility.
Raul Fajardo is a Customer Support Manager for Certent, Inc. with more than twenty years’ experience in equity compensation. He speaks at various equity compensation conferences on topics such as valuation, accounting, forecasting, tax accounting, and mergers and acquisitions.