optimizing your social security mobility program€¦ · 21 contents page 1 introduction 1 2 the...

Optimizing your social security mobility program

21

ContentsPage

1 Introduction 1

2 The evolving global landscape 2

3 Managing compliance risks 5

4 Short-term business travelers 10

5 Social security mobility policy 14

6 Cost management and reduction 18

7 Summary and action plan 22

A Appendix: respondent demographics 24

1

2

O p t i m i z i n g y o u r s o c i a l s e c u r i t y m o b i l i t y p r o g r a m

1 I n t r o d u c t i o n

I n c r e a s i n g g l o b a l i z a t i o n a n d c h a n g i n g w o r k i n g p r a c t i c e s a r e c o n t i n u i n g t o d r i v e a significant increase in the number of cross-border working arrangements. This has resulted in an enhanced focus from both tax and social security authorities on the compliance position of organizations with internationally mobile populations.

E Y invited some of the world’ s most recognizable organizations across 1 6 industry sectors to share the challenges and concerns they face when managing their international social security obligations.

T he survey reveals several key trends, particularly the need to establish clear internal ownership over compliance responsibilities, accurately assess policy e ecti eness n to un erst n con ictin home and host req uirements in relation to short-term business traveler populations.

I t also highlights j ust how many organizations are inadvertently missing opportunities to access strategies that

ou si nific nt y re uce t eir o er mobility program costs.

T o help you gauge the health of your organization’ s compliance and to navigate these issues better, we have also included practical nex t steps to assist you in moving toward a fully optimized social security operation.

T hank you to each of our participating organizations.

M i k e K e n y o n

Global Leader I nternational Social Security

+ 4 4 2 0 7 9 5 1 2 5 8 3 mkenyon@ uk. ey. com

G a r y C h a n d l e r

Executive Director I nternational Social Security

+ 4 4 2 0 7 9 5 1 1 2 8 0 gchandler@ uk. ey. com

G i l l R e a y

Executive Director I nternational Social Security

+ 4 4 2 0 7 9 5 1 7 9 4 0 greay@ uk. ey. com

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2 2

A s part of this greater awareness, organizations that have reviewed the suitability of policies and supporting processes have found that many are not fit or purpose p rticu r y t ose re tin to short-term business travelers and cost management.

A lthough social security contributions ( SSC s)ry si nific nt y cross oc tions n o ten

ex ceed income tax costs, compliance has, for many organizations, featured lower on the overall priority list.

O ften, this is because the mobility operating model has evolved primarily to focus on income tax req uirements, immigration regulations and to provide relocation assistance support for employees.

T h e e v o l v i n g g l o b a l l a n d s c a p e 2

1

Country specific c en es re so on t e rise. T his is linked to complex regulations, evolving political landscapes and pressure on governments to manage the growing

eficit in retire ent enefits un in i an ageing workforce.

T he increased focus on compliance can be attributed to developments across three main areas:

1. M o r e a u d i t s a n d h i g h e r s e t t l e m e n t s A udits are being undertaken more freq uently and some authorities are adopting a more aggressive approach,

ic c n resu t in si nific nt y i er fin nci sett e ents per u it

1 South A merica

► H eightened audit activity focusing on global compensation reporting and the application of social security to total compensation packages

► I nability to obtain social security certific tion un ess t e pp ic tion is fi e prior to departure from the home country, impacting speed to deployment and the costs incurred

2. E x c e s s i v e , y e t a v o i d a b l e , s o c i a l s e c u r i t y p r o g r a m c o s t s ‘ M oney left on the table’ by organizations who are unaware of the actual assignment costs and the opportunities available to proactively reduce these costs.

3. I n c r e a s e d l i t i g a t i o n a n d r e p u t a t i o n a l r i s k s M ore employees are seeking compensation for detrimental impacts to t eir st te enefit e i i i ity s resu t of their social security treatment during periods of assignment overseas.

T h e s u r v e y h i g h l i g h t s a shift in attitudes toward s t r e n g t h e n i n g s o c i a l s e c u r i t y c o m p l i a n c e a m o n g g l o b a l mobility professionals. This is symptomatic of the impact of a more complex regulatory e n v i r o n m e n t a n d g r e a t e r scrutiny from local authorities.

2

3

4

2

3

4 A frica

► I ncreasing “ policing” and enforcement of domestic social security legislation for inbound assignees

► I ncreasing focus on global compensation reporting and application of social security to total compensation package, in light of domestic liability assessment

2 E uropean E conomic A rea and Switzerland

► I ncreasing focus on the level of business commuter and short-term business traveler compliance in audits

► i nific nt e ys in ny countries issuing social security certific tion creating uncertainty for employers in relation to withholding req uirements

► I nconsistent application of social security regulations across E uropean countries

3 si cific

► Drive to ex pedite negotiation of social security totalization agreements, making it more challenging to estimate accurately social security costs incurred during the assignment period

► M any newly negotiated totalizations do not allow for full host country liability ex emption, withholding liabilities continue to rise in home and host locations creating cost and administrative challenges


5

23 M a n a g i n g c o m p l i a n c e r i s k s

S o c i a l s e c u r i t y r e g u l a t i o n i s b e c o m i n g i n c r e a s i n g l y c o m p l e x a n d e m p l o y e r s are facing additional obligations to remain compliant with international and d o m e s t i c s o c i a l s e c u r i t y l e g i s l a t i o n .

i nific nt ris s ssoci te it non co p i nce inc u e

► C riminal charges brought against senior corporate stakeholders

► L egal action brought against organizations by past and present employees who wish to recover percei e osses in retire ent enefits

► F inancial penalties and reputational damage

ners ip o er t e o soci security pro r ries si nific nt y cross or ni tions n erst n in ic re o t e usiness s responsi i ity or soci security co p i nce is t e first

step to ensuring clear accountability ex ists.

Who holds primary responsibility for your global social security program?

48%

2 0 %

15 %

8%

5 %4%

G lobal mobility

T ax

H R

P ayroll

F inance

Do not know

Penalties for non-compliant e m p l o y e r s c a n b e u p t o three hundred percent of t h e c o m b i n e d u n d e r p a i d e m p l o y e e a n d e m p l o y e r s o c i a l s e c u r i t y c o n t r i b u t i o n s .

3 0 0 %O p t i m i z i n g y o u r s o c i a l s e c u r i t y m o b i l i t y p r o g r a m

6

M a n a g i n g c o m p l i a n c e r i s k s ( continued)

T o p f o u r c o m p l i a n c e c h a l l e n g e s f o r o r g a n i z a t i o n sRespondents highlighted four key challenges when attempting to manage their social security program:

1 . Understanding payroll obligations in the home and host locations for social security withholding

2 . Understanding and ex ecuting relevant compliance req uirements across all locations

3 . E stablishing effective global social security compliance processes

4 . Understanding the impact of a move on n e p oyee s st te enefit entit e ent

What are the main challenges you face when managing social security compliance?

28%

18%

4 %

P ayroll obligations inhome and host locations

for social securitywithholding

1%

12%

3%

Understanding theimpact of a move onan employee’ s state

enefit entit e ent

7%

10 %

18%

E stablishing effectiveglobal social security compliance processes

21%

16%

12%

Understanding andex ecuting relevant

compliance req uirementsin all locations

M ost challenging Second-most challenging T hird-most challenging

Fifty-nine percent of o r g a n i z a t i o n s d o n o t h a v e a n effective communication process t o e n s u r e t i m e l y a n d a c c u r a t e s o c i a l s e c u r i t y w i t h h o l d i n g .

5 9 %Only thirty-six percent of organizations are confident they h a v e a g l o b a l l y a p p l i e d p r o c e s s t o u p d a t e h o m e a n d h o s t p a y r o l l s i n r e a l - t i m e o n c h a n g e s t o i n d i v i d u a l s o c i a l s e c u r i t y p o s i t i o n s , m i d a s s i g n m e n t .

3 6 %

7

M a n a g i n g t h e c h a l l e n g e s I mplementing processes and controls that enable effective communication between the global mobility function and global payroll teams is essential. T his is particularly important in relation to SSC compliance. Unlike income tax , global SSC liabilities are almost ex clusively paid through payroll withholding arrangements and there is generally no ability to amend payments in case of prior error through an eq uivalent of a tax return. C onseq uently, payrolls have only one opportunity to apply relevant social security correctly on a real-time basis in home and host locations. Req uired changes can include the ex piry o certific tes o co er e or o estic ex emption periods.

I neffective processes to enable real-time communication can often result in compliance failures, yet only 4 1 % of organizations have these processes in place. F ailures can be divided into two broad categories:

1. Processes enabling identification or i n s t r u c t i o n o f n e w p a y r o l l w i t h h o l d i n g r e q u i r e m e n t s

C ommunication of new req uirements can include:

► entific tion o n in i i u employee move

► Confir tion o n ctu ssi n ent start date

► V alidation of any pending or outstanding application for a home country certific te o co er e

► V alidation of any potential social security ex emption

W here this relatively basic information ex change does not ex ist, payrolls may not be able to meet appropriate withholding req uirements. C urrently, only 3 6 % of or ni tions re confi ent t ey c n identify and report on changes in real time. Non-adherence with payroll withholding req uirements can adversely affect the eligibility of the employee and their family

e ers to ccess si nific nt st te un e enefits suc s retire ent e t c re

child allowance and unemployment.

E Y has noticed an increase in the number of cases brought against corporate organizations by individual employees seeking to redress perceived losses in their st te enefit entit e ents

2. P r o c e s s e s e n a b l i n g t i m e l y r e p o r t i n g o f t o t a l a s s i g n m e n t c o m p e n s a t i o n i n f o r m a t i o n

Req uired information to be ex changed can include:

► A mounts of compensation paid through another payroll via a split salary arrangement

► Share-related compensation, e. g. , gains or awards received

► O ther non-payroll compensation, e. g. , housing or education costs that are reimbursed, cost of living or other assignment allowances

► T ax payments made by the employer on behalf of the employee under a tax eq ualization program

E Y is ex periencing increasing cooperation and information sharing between global social security authorities. I nitiatives, such as the E lectronic E x change of Social Security I nformation ( E E SSI ) system in

urope i incre se t e o o et i e information to facilitate a targeted cross-border compliance campaign by domestic and international authorities.

E Y i n s i g h t # 1 Many local payrolls can find the complexity of international a s s i g n m e n t s c h a l l e n g i n g . M a i n t a i n i n g c o m p l i a n c e w i t h e v o l v i n g h o m e a n d h o s t r u l e s , a n d o b t a i n i n g a c c u r a t e compensation data from all l o c a t i o n s , c a n b e i n c r e d i b l y t i m e - c o n s u m i n g , e s p e c i a l l y c o n s i d e r i n g t h e a s s i g n e e p o p u l a t i o n i s a s m a l l c o m p o n e n t of the overall payroll population. These factors increase the risk of incorrect social security r e p o r t i n g a n d w i t h h o l d i n g , w i t h the responsibility for resolving issues often falling to the m o b i l i t y t e a m . H o w e v e r , u n l i k e i n c o m e t a x , i t i s g e n e r a l l y m o r e difficult to amend incorrect social security payments after the fact. A process to instruct a c c u r a t e l y l o c a l p a y r o l l s a n d r e g u l a r l y v a l i d a t e t h e r e p o r t i n g c a n a s s i s t i n r e d u c i n g t h i s r i s k .

M a t t h e w B l a k e r E Y G lobal C ompensation Services L eader


8

M a n a g i n g c o m p l i a n c e r i s k s ( continued)

E s t a b l i s h i n g e f f e c t i v e p r o c e s s e s t o m i n i m i z e a u d i t r i s k

n y o respon ents cou confir that their organizations had effective processes in place to track and report accurately additional income streams for their employee population. H owever, ensuring the timely reporting of employee total gross compensation is fundamental to ensuring effective compliance, thereby minimizing associated social security audit risks.

A ccurate reporting is particularly important in j urisdictions where:

1 . T here is no compensation ceiling for social security payments

2 . T he employee is on a split salary arrangement

3 . T he employee receives non-payroll payments

Social security authorities that have increased audit activity in light of this include the UK , I taly, B razil and B elgium. T hose responsible for social security compliance should review reporting process to avoid gaps in coverage.

Do you have a process in place to capture non-cash and off-payroll items regularly in each of your global locations subject to SSCs?

34 %

31%

30 %

2%3%

Yes

No formal process

Yes, but concerns with accuracy

Unaware

O ther

C h e c k p o i n t

S t e p s t o a d d r e s s c o m p l i a n c e r i s k sI n order to manage the multiple layers of international and domestic compliance req uirements associated with social security effectively, the steps below may provide a practical starting point for organizations seeking to understand and minimize these risks.

► E stablish who is responsible for social security compliance within your organization, e. g. , tax , global mobility, H R or a combination of stakeholders, and ensure each party understands its role, including ex ternal service providers

► E nsure your global mobility program contains standardized global processes to provide:

► E ffective communication to relevant payrolls in advance of, and during, an assignment regarding all withholding information for each cross-border move

► G overnance and real-time visibility of all employee-related compliance req uirements, including the status of each assignee, on a worldwide basis via a global tracking system

► P roactive tracking and management of future req uirements, e. g. , ex tensions to certific tes o co er e co ence ent o p yro it o in ter t e conclusion of relevant initial domestic ex emption periods

► I mplement an effective global compensation management program to ensure that total compensation is reported and analyzed, and includes reporting for social security purposes in each j urisdiction

► C onsult with a dedicated social security specialist service to ensure you remain aware of regulatory changes as they occur, and to understand the impact of these changes on ex isting and future employees


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T a x a n d s o c i a l s e c u r i t y a u t h o r i t i e s a r e i n c r e a s i n g t h e i r focus on short-term business t r a v e l e r ( S T B T ) c o m p l i a n c e , a n d a p p l y i n g a m o r e s o p h i s t i c a t e d a p p r o a c h t o d a t a s h a r i n g t o enforce regulations.

O rganizations are under pressure to navigate a changing compliance landscape while meeting the req uirements of a growth in ST B T s.

i ty ei t percent re not confi ent t ey are globally compliant, and 4 8 % do not

e specific po icy in ic tin need for more robust internal governance around the social security implications on ST B T s.

O wnership of the implementation and enforcement of the policy varies across organizations, often falling outside of the remit of those responsible for the overall global mobility program. F ragmented ownership can contribute to non-alignment of social security positions being taken in t e o e n ost oc tions insu ficient transparency, task duplication and therefore increased risk.

S h o r t - t e r m b u s i n e s s t r a v e l e r s

Who holds primary responsibility for the global social security compliance program for your STBT population?

28%

19 %

14 %

11%

6%

8%

6%

8%T here is currently no processfor ST B T s

T ax

G lobal mobility

H R

F inance

O ther

P ayroll

Do not know

Forty-eight percent of o r g a n i z a t i o n s d o n o t h a v e a specific STBT policy.

4 8 %

E Y i n s i g h t # 2 To respond to an increasing focus on STBT non-compliance by g o v e r n m e n t s a n d a u t h o r i t i e s , E Y i s h e l p i n g o r g a n i z a t i o n s m a n a g e c o m p l i a n c e r e q u i r e m e n t s b y o p t i m i z i n g t h e i r d a t a , s y s t e m s a n d p r o c e s s e s . Accurate data, such as immigration and employee information, is key, and having the technology in place to use this data effectively can make t h e c o m p l i a n c e p r o c e s s e a s i e r t o m a n a g e . E Y h a s d e v e l o p e d i n t e l l i g e n t t e c h n o l o g y t h a t c o m b i n e s a v a i l a b l e t a x , s o c i a l s e c u r i t y a n d i m m i g r a t i o n data in one place to help track STBTs in real time, making it simpler for organizations to identify and navigate potential risks.

D a v i d C h a n d l e r E Y Short-term B usiness T ravelers L ead, E M E I A

11

2

E f f e c t i v e l y m a n a g i n g y o u r S T B T c o m p l i a n c eT he shift toward ST B T working arrangements and growing ex pectations of authorities relating to reporting and payment of contributions, makes it all the more important for organizations to be able to track and monitor their ST B T population on a real-time basis. H owever, only 1 5 % of respondents have a process or technology to support ST B T social security compliance.

pecific t n soci security req uirements vary depending on the home and host country combination. O rganizations should consider the compliance needs of ST B T s separately from the broader assignee population for a number of reasons, including:

► Social security totalization agreements may offer less protection for ST B T s than income tax treaties and will impact compliance req uirements differently.

► Domestic withholding req uirements in both the home and host location vary considerably for tax and social security, therefore any minimum period of work acceptable for tax reporting purposes may not be effective for social security.

► Several countries have practical guidelines on income tax compliance for ST B T s; however, these guidelines are not applicable to social security.

► Social security liabilities for ST B T s working in the E U can be determined

y set o specific re u tions or multistate workers that can lead to social security withholding in a country other than home and host locations.

Do you have a process or technology in place to track and monitor STBT moves?

38% 21% 17% 15% 9 %

No

Yes, but have concerns that the process does not capture all short-term business trips

Yes, but this data is not used for social security compliance processes

Yes, and this data is used for social security compliance processes

Do not know

no=38yes but concerns=21yes but this data (blue)=17yes but this data (green)=15dont know=9

Fifty-eight percent of o r g a n i z a t i o n s a r e n o t confident they are globally c o m p l i a n t w i t h s o c i a l s e c u r i t y requirements for their S T B T p o p u l a t i o n .

5 8 %


12

S h o r t - t e r m b u s i n e s s t r a v e l e r s ( continued)

A lack of awareness of ST B T -related compliance issues is evident in the results, with only 2 % of organizations being very confi ent in t eir co p i nce e e s C oupled with unsuitable compliance processes, this lack of awareness can result in numerous risks including:

► F inancial penalties, particularly “ per failure” penalties based on the potential number of ST B T compliance breaches per employee within each location

► A dverse impact on immigration clearance in countries req uiring particular social security compliance

ocu ent tion e certific tes of coverage

► I nability to access state health care in the host locations

► V iolation of associated local country employee registration req uirements, e. g. , “ L imosa” in B elgium

C o n s i d e r i n g t h e p o t e n t i a l financial risks, it’s concerning that only two percent of o r g a n i z a t i o n s a r e v e r y confident about their level of S T B T c o m p l i a n c e .

2 %

C h e c k p o i n t

S t e p s t o a d d r e s s S T B T c o m p l i a n c eE mployers wishing to minimize the social security compliance risks related to ST B T s should consider the following:

► A nalyze the freq uency and duration of business trips, particularly for ST B T s working within the E U, as this may impact compliance req uirements.

► E nsure acceptable workday thresholds meet both income tax and social security req uirements, e. g. , how many days must ST B T s be e pecte to or in t e ost country prior to o t inin certific te of coverage, as these req uirements can change regularly and differ depending on the location.

► e u r y re ie soci security specific ssu ptions n t res o s to improve ongoing compliance with req uirements of home and host authorities.

► Consi er t e i i ity o sin e certific te o co er e to co er future trips to one or more locations; for ex ample, for those traveling within the E U.

► A nticipate how receptive authorities are to applications for retrospecti e certific tes o co er e in c ses ere t ese e not been made prior to the business travel.


E Y i n s i g h t # 3 An increasing number of host countries now require evidence of social security registration and coverage in order to grant complete and lawful status coverage for international employees. F a i l u r e t o s e c u r e a n d r e p o r t c o v e r a g e c a n r e s u l t i n t h e e m p l o y e e being deemed an ‘unlawful presence,’ exposing the delinquent host country employer to a range of sanctions, including fines a n d p e r s o n a l p e n a l t i e s .

J a m e s E g a n E Y I mmigration Senior A dviser

14

25 S o c i a l s e c u r i t y m o b i l i t y p o l i c y

U n d e r t a k i n g a n i n t e r n a t i o n a l assignment can significantly impact the current and future state benefit entitlements of employees and their d e p e n d e n t s — t h e m o s t important often being eligibility to retirement benefits, followed b y c h i l d a l l o w a n c e s a n d s t a t e h e a l t h c a r e . E m p l o y e r s face ongoing pressure to quantify if, and how, an e m p l o y e e m a y b e i m p a c t e d , and the most effective way of protecting against a p o t e n t i a l l o s s .

T his is due to:

► G rowing numbers of cross-border employees, coupled with a higher number of assignment ex tensions, increasing the likelihood of employees falling outside home country schemes

► A greater awareness of social security cost optimization opportunities, that can protect the individual while max imizing corporate savings

A n i n t e r n a t i o n a l a s s i g n m e n t c a n a d v e r s e l y i m p a c t :

D o o r g a n i z a t i o n s h a v e a f o r m a l s o c i a l s e c u r i t y p o l i c y ?A lthough organizations with internationally mobile employees should have a well-established mobility policy, almost half of respondents did not have a formal policy specific to soci security or pr ctic purposes, social security is often contained within the overall tax mobility policy, with the contents viewed as general non-binding guidance.

F orty-nine percent of organizations do not have policies to protect employees that drop out of their home country scheme while on assignment. Unfortunately, solely re yin on non specific ui nce to ress social security issues can inadvertently increase an organization’ s compliance risks. I deally, policies should provide either

State pension H ealth careC hild allowances

income tax protection or tax eq ualization to e p oyees n specific ui nce on o to resolve social security issues.

F or those organizations that do have specific soci security po icy t e

traditional home-based approach remains the most prevalent. T his approach is often preferred as it enables simple communication with employees, and provides a level of comfort by maintaining the status q uo in relation to payment contributions, e. g. , the company attempts to ensure there will be no change to the e p oyee s st te soci security enefit position. M ore organizations are also incre sin y e in po icies et een certain country combinations to facilitate cost-optimization opportunities.

o icies t t re fit or purpose cont in t e saving opportunities for businesses.

Forty-nine percent of o r g a n i z a t i o n s d o n o t h a v e p o l i c i e s t h a t p r o t e c t t h e s o c i a l security benefit coverage of individuals that drop out of their h o m e c o u n t r y s c h e m e d u r i n g a n i n t e r n a t i o n a l a s s i g n m e n t .

4 9 %

1 2 3

E Y i n s i g h t # 4 Policies that are fit for purpose contain the right level of guidance to resolve issues and minimize risk, and provide flexibility to support potential cost-saving opportunities for the business.

S i o b h a n C u m m i n s E Y M obility P erformance I mprovement L eader

15

2

► L egal action brought against the organization by repatriated employees to redress perceived mismanagement o t eir st te enefit entit e ents

► A n inability to implement controls accurately and proactively that may protect against potential losses in nner t t is ot e ficient n

tax effective

Q u a l i f y i n g a n d q u a n t i f y i n g t h e i m p a c t o n e m p l o y e e sT he challenge for many organizations is how to q ualify accurately and q uantify if, and how, an employee might be negatively impacted by undertaking an international assignment. L imited visibility over potenti i p cts c n resu t in si nific nt risks including:

► A n inability to manage accurately the impact on employee retirement

enefits n e ecti e y co unic te this with the employee — poor transparency and communication can be a deal-breaker for employees considering international assignments

Do you have a global policy for social security?

2 5 % 5 8%

17 %

YesNoDo not know

What type of social security policy do you have in place?

11%

9 %

7 1%

6%

H ome-based social security

H ost-based social security

Country specific

F lex ible

O ther

3 %

C a s e s t u d y

P o l i c y o p t i m i z a t i o n i n p r a c t i c eE Y’ s I nternational Social Security P ractice and P ension A dvisory T eams recently delivered an integrated solution to assist a client struggling to manage employees who had fallen outside of their home social security scheme.

B y using the E Y P ension A nalysis Solution, the client was provided with a full actuarial analysis of the potential impact on each individual in both the home and host locations, tailored to their personal contribution records and future ex pectations.

T he analysis provided several differing cost-effective strategies for each set of employee scenarios resulting in:

► Z ero overall loss in state pensions for all US outbound employees, factoring in the resultant eligibility that the individuals would accrue in the host location

► A cash compensation payment ein ore e ficient n cost

effective than voluntary payments to non-US employees with a detrimental impact forecast, due to specific o e country enefit schemes under consideration


16

P r o t e c t i n g e m p l o y e e e n t i t l e m e n t sW hen an employee’ s entitlements are impacted as a result of undertaking an international assignment, the organization must decide whether any loss should be protected against. C urrently, only 5 2 % of organizations operating under a social security po icy confir t t t ey ou attempt to “ protect” employees against any detrimental impact resulting from an international assignment. E Y is seeing a growing number of instances where repatriated employees have chosen to fi e e c i s inst p st or present employers that have failed to make them aware of any detrimental impacts to their entitlements prior to deployment.

F or those that do implement measures to protect against entitlement losses, 6 3 % prefer to make voluntary payments to employee home country schemes where possible.

H owever, more organizations are discovering that voluntary contributions into home country schemes may not be the most effective option due to associated costs, and because the level of home country enefit t t c n e protecte against is minimal.

A lternative strategies to voluntary contributions include:

► Removal of the home hypothetical social security deduction — this involves increasing the net pay and enabling the individual to make a decision on their investment priorities while on assignment

► E nhanced contributions into a corporate pension plan

► E nrolment into international pension plans ( I P P )

► C ash compensatory payments

S o c i a l s e c u r i t y m o b i l i t y p o l i c y ( continued)

What processes do you follow to protect against losses?

63 %

15 %

11%

11% P ayment of voluntary homeSSC s

Removal of hypotheticalsocial security deduction

E nhanced contribution into a corporate pension scheme orinternational pension plan

O ther

C h e c k p o i n t

S t e p s t o o p t i m i z e s o c i a l s e c u r i t y m o b i l i t y p o l i c yA s employees become more aware of their eligibility re r in retire ent enefits or ni tions t t i to manage this process effectively will do so in the face of increasing reputational risks. A dditionally, failing to determine if, and how, an employee will be impacted can delay speed to deployment, disrupting both the employee and the business.

T he practical steps below are a starting point to help your organization understand and reduce these risks:

► Revisit and refresh the social security elements of your global mobility policy

► nsure po icy is fit or purpose rticu tes t e preferred degree of social security protection ( where

pp ic e n is ppropri te y e i e to en e effective use of cost-optimization strategies

► C onsider your current ability to q ualify and q uantify the i p ct on e p oyee enefits

► C onsult with a dedicated social security specialist to establish the level of support req uired to manage co p i nce it st te enefit re u tions re ie your assignee population to identify employees who have fallen outside of their home country schemes; and review additional compliance risks in the contex t of the issues raised


18

26

There is a huge diversity of S S C c o s t s t h r o u g h o u t t h e w o r l d w i t h l i a b i l i t i e s t y p i c a l l y l e v i e d o n b o t h t h e e m p l o y e e a n d e m p l o y e r t h r o u g h a l o c a l p a y r o l l w i t h h o l d i n g p r o c e s s . C o n t r i b u t i o n c o s t s c a n v a r y from a complete exemption to a c o m b i n e d c o n t r i b u t i o n r a t e of over 65% of total income, d e p e n d i n g o n t h e l o c a t i o n .

C o s t m a n a g e m e n t a n d r e d u c t i o n

O f those organizations that do conduct cost esti tions confir t t t e actual social security costs ex perienced during the assignment far outweigh the initial estimates undertaken. H owever, only 8 % of organizations calculate costs post assignment.

Are costs generally found to be:

2 0 %

2 0 %

60 %

a) I n line with budget?

b) I n ex cess of budget?

A combination of a) and b) ?

R i s k s o f i n a d e q u a t e cost qualificationI nability to validate likely SSC s prior to deployment can inadvertently ex pose organizations to unnecessary risks such as:

► A lack of visibility over one of the ost si nific nt ssi n ent costs or

the organization

► A n inability to take advantage of potential cost reductions available to the business

► A n inability to develop and implement accurately a plan to reduce future assignment costs

► T hose relating to the ability to manage and communicate any impact on an in i i u s st te enefit e i i i ity e. g. , retirement, health care and child allowance

Eight percent of organizations calculate SSC costs after t h e a s s i g n m e n t h a s e n d e d to identify overspend or opportunities for cost o p t i m i z a t i o n s .

8 %

E Y i n s i g h t # 5 The calculation of a cost estimate can support global mobility a s s i g n m e n t p o l i c y a n d p r o v i d e t h e b u s i n e s s w i t h a c o m p r e h e n s i v e c o s t breakdown of each assignment prior to deployment. This can identify p o t e n t i a l c o s t s a v i n g s , o v e r s p e n d a n d m o b i l i t y t r e n d s . T h i s d a t a a l s o facilitates budget management, policy and exception management, r e t u r n o n i n v e s t m e n t a n d s t r a t e g i c s u c c e s s i o n p l a n n i n g .

T h o m a s E f k e m a n n E Y G lobal A ssignment Services L eader

26

19

O p t i m i z i n g s o c i a l s e c u r i t y c o s t sP rocess optimization and policy optimization are two areas organizations can review to manage and realize potential SSC cost reductions effectively.

P r o c e s s o p t i m i z a t i o n

P rocess optimization focuses on ensuring the right processes are in place to take advantage of home country social security ex emptions, or to obtain refunds of contributions paid during an assignment once the employee has returned to the home country.

L ost “ savings” to an organization can be si nific nt s t ey inc u e e p oyee n employer contributions, plus additional tax savings potentially applicable if a tax eq ualization policy is in place. A systematic social security withholding validation process and real-time communication between global payrolls and the organization are essential in ensuring withholdings are fully optimized.

Do you actively manage or review any of the following two opportunities?

T he eligibility to claim hostcountry social security ex emptions

in each of your global locations

T he eligibility to claim refunds of hostsocial security available in each of your

global locations post repatriation

48%

8%

44%

66%

16% 18%

Yes

No

Do not know

Sixty-six percent of organizations fail to apply for contribution refunds and less than half take advantage of a v a i l a b l e e x e m p t i o n s .

6 6 %

C a s e s t u d y

E f f e c t i v e p r o c e s s i n p r a c t i c e During a recent transition of global social security compliance services into E Y, we enabled the client to receive over US$ 9 million in refunds of incorrectly paid SSC s, in ition to si nific nt on oin annuity savings.

T o achieve this, we utilized onboarding methodology to highlight 3 5 legacy cases where social security had been incorrectly withheld by host country payrolls. T hese errors had occurred due to a communication breakdown between the home country H R and relevant home and host payrolls, and a lack of integrated validation review processes to ensure withholding determinations had been actioned appropriately.

C o o r d i n a t i n g a n e f f e c t i v e w i t h h o l d i n g p r o c e s s

Unnecessary social security payments are usually made when there is no established withholding process across home and host locations. Refund processes req uired by the various authorities across the world are making it increasingly challenging, in some cases almost impossible, for organizations to obtain retrospective refunds on incorrectly paid SSC .

E x amples of information that will affect withholding in home and host locations include:

► P ending or ex isting applications for o e country certific te o co er e

► P otential applications of domestic social security ex emptions

► T he relevance of certain work permit positions ( which can ex clude an individual from host country withholding req uirements)


2 0

C o s t m a n a g e m e n t a n d r e d u c t i o n ( continued)

P o l i c y o p t i m i z a t i o n

P olicy optimization focuses on structuring assignment arrangements to avoid high-cost social security liabilities. H istorically, many organizations have followed a strict “ stay-at-home” approach in relation to an employee’ s social security position on assignment, e. g. , maintaining an individual in their home country social security scheme whenever possible.

H owever, increasing costs associated with reductions to an employee’ s eligibility for st te retire ent enefits in ny countries has encouraged organizations to review this approach.

t ou si nific nt y ore or ni tions are now beginning to consider the option to e t is st y t o e ppro c dependent on home and host country combinations, many still retain employees in high cost state schemes without considering alternative options.

Do you actively manage or review any of the following cost-saving opportunities?

26%

66%

8%

Strategies to move outof high-cost homecountry liabilities

16%

72%

12%

75%

12% 13%

Use of access to state healthservices to reduce premiums in

respect of private healthinsurance policy

Restructuring delivery ofcompensation to minimize

social security cost

Yes No Do not know

C h e c k p o i n t

S t e p s t o o p t i m i z e s o c i a l s e c u r i t y p r o g r a m c o s t si nific nt opportunities e ist or e p oyers to re uce on oin soci security costs

within their global mobility programs while avoiding any detrimental impact on their employees. O rganizations may wish to consider the following steps when looking to optimize SSC s:

► Review the current employee population to identify refund or ex emption opportunities

► I mplement a strategy where future assignments are structured in a way that can facilitate potential reductions in SSC costs

► Use this strategy to enhance the pre-assignment cost-estimate process, introducing pre-consideration of SSC cost-reduction opportunities

► I ntroduce a withholding validation process to prevent payment of ex cessive social security liabilities during the assignment term


Up to a 65% combined SSC rate can be ex pected in some locations.

O ver 60 % of organizations fail to apply for contribution refunds available to them and over 4 0 % fail to take full advantage of ex emptions available to them.

“ M ost organizations ex perience a lack of visibility over one o t e ost si nific nt ssi n ent costs soci security

i nific nt opportunities e ist to re uce soci security costs within global mobility programs while avoiding detrimental impacts on employees. ”

“ A ccurate cost estimates can provide the business with a comprehensive cost breakdown of each assignment prior to deployment. ”

C o s t m a n a g e m e n t a n d r e d u c t i o n

4

C urrently, 59 % of organizations do not have an effective communication process to ensure timely and accurate social security withholding.

O nly 34 % of organizations have a process in place to capture global non-cash and off-payroll items subj ect to SSC s regularly.

n i e inco e t it is ore i ficu t to en incorrect social security payments. ”

“ I neffective processes to enable real-time communication can often result in compliance failures. ”

“ Understanding which area of the business is responsible or is t e first step to r c ie in ccount i ity

M a n a g i n g c o m p l i a n c e r i s k s

1H owever, 4 8% of organizations do not e specific po icy

O nly 13% of respondents have a process or technology to support ST B T social security compliance.

“ O rganizations must navigate changing compliance req uirements alongside growing ST B T populations. ”

“ H ow receptive are authorities to applications for retrospecti e certific tes o co er e i t e pre ep rture deadline is missed? ”

“ ST B T compliance req uirements should be considered separately from the broader assignee population. ”

S h o r t - t e r m b u s i n e s s t r a v e l e r s

2

2 2

S u m m a r y a n d a c t i o n p l a n

c ie in u y opti i e o soci security pro r is epen ent on t e o o re ti e ccur te cross or er e p oyee in or tion both within the organization and with home and host tax and social security authorities. Survey participants highlight a growing awareness of the need to unify policy and process to facilitate this and address the risks associated with operating in a tougher regulatory environment.

T oday, 4 9 % of organizations do not have policies to protect the social security enefits o e p oyees t t drop out of their home country scheme during an international assignment.

O nly 52% of organizations with a social security policy will attempt to “ protect” employees against any detrimental impact resulting from an international assignment.

“ I nternational assignments can adversely impact employee st te pensions o nces n e t c re enefits

“ P olicies should contain the right level of guidance to reso e issues n ini i e ris n pro i e e i i ity to support potential cost-saving opportunities for the business. ”

“ A s employees become more aware of their eligibility for retire ent enefits or ni tions t t i to n e t is process face reputational risk. ”

S o c i a l s e c u r i t y m o b i l i t y p o l i c y

3

7

A c t i o n p l a nUndertaking a holistic operational review of your global social security program to identify risks and optimization opportunities is t e first step to i pro in t e o er e t o your oper tion ro cti e y ressin issues c n in turn support t e ro er o mobility function to demonstrate value and operational effectiveness.

T o begin the j ourney toward a fully optimized social security program today, organizations should consider the following key obj ectives:

E stablish clear ownership over social security compliance within your organization.0 1

I mplement processes to allow regular communication between internal compliance owners and ex ternal payroll providers. 0 2

T rack and notify internal and ex ternal parties on future payroll req uirements. 0 3

E nsure global compensation reporting accurately captures social security payments in home and host locations.0 4Regularly review your processes in each j urisdiction to ensure operations comply with local authority req uirements, and consult with your specialist service provider to keep up to date with changing compliance req uirements and how these impact your organization.

0 5

Speak with service providers that can demonstrate a robust understanding of local tax and social security authorities in home and host locations, and obtain reporting and proactive insights to inform your program.10

0 6 st is r e or to ress e c co p i nce scen rio or country co in tions e s soci security certific tion relevant and obtainable ( retrospectively or otherwise) , or is E U “ multistate” coverage applicable?

0 7 nsure po icy is fit or purpose ci it tin cost opti i tion opportunities re tin to p y ent options cross oc tions including potential refunds and ex emptions.

0 8 E nsure policy clearly sets out the organization’ s position in relation to protecting individuals that may ex perience a detrimental i p ct on t eir enefits n cont ins e i e co pens tory support or n in osses n to ser e t purposes

0 9 E mbed cost-optimization strategies within operations, e. g. , structure assignments to include detailed pre- and post-assignment cost analysis to support budget management and cost-reduction opportunities.

2 3O p t i m i z i n g y o u r s o c i a l s e c u r i t y m o b i l i t y p r o g r a m

2 4 O p t i m i z i n g y o u r s o c i a l s e c u r i t y m o b i l i t y p r o g r a m

A p p e n d i x : r e s p o n d e n t d e m o g r a p h i c sA

Which of the following best describes your industry sector?

M edia, telecomms or technology 19 %

O ther 2 0 %

A utomotive, engineering or manufacturing 2 4%

Retail and consumer goods 10 %

F inance services 8%

O il, gas, energy or utilities 8%

P harmaceuticals or health care 8%

P rofessional services 3 %

“Other” sectors include chemical, NGOs, transport and logistics, food processing and packaging, IT, insurance and financial services.

How many assignees does your organization have worldwide?

Under 5 0 7 %

1 0 0 – 1 9 9 10 %

5 0 – 9 9 16%

2 0 0 – 2 9 9 16%

3 0 0 – 3 9 9 8%

4 0 0 – 4 9 9 2 %

5 0 0 – 7 4 9 5 %

7 5 0 – 9 9 9 3 %

1 , 0 0 0 – 1 , 4 9 9 5 %

1 , 5 0 0 – 1 , 9 9 9 5 %

O ver 2 , 0 0 0 2 0 %

Do not know 3 %

Where is your organization headquartered?

2 3 %

7 2 %

5 %

E uropeNorth A mericaA sia

What is the average assignment length for your long-term assignees?

11%

L ess than 1 2 months

1 2 to 1 7 months

1 8 to 2 3 months

2 4 to 3 5 months

3 6 to 4 7 months

4 8 or more months

Do not know

0 %

13 %

3 8%

2 2 %

7 %

9 %

A b o u t E YE Y is a global leader in assurance, tax , transaction and advisory services. T he insights and q uality services we deliver help build trust and confidence in the capital markets and in economies the world over. W e develop outstanding leaders who team to deliver on our promises to all of our stakeholders. I n so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

E Y refers to the global organization, and may refer to one or more, of the member firms of E rnst & Young G lobal L imited, each of which is a separate legal entity. E rnst & Young G lobal L imited, a UK company limited by guarantee, does not provide services to clients. F or more information about our organization, please visit ey. com.

© 2 0 1 5 E YG M L imited. A ll Rights Reserved.

E YG No. DL 1 3 8 8

7 7 6 3 . indd ( UK ) 0 8 / 1 5 . A rtwork by C reative Services G roup Design.

E D None

I n line with E Y’ s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content.

T his material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax , or other professional advice. P lease refer to your advisors for specific advice.

e y . c o m

E Y | A ssurance | T ax | T ransactions | A dvisoryA b o u t I S SE Y’ s I nternational Social Security ( I SS) practice is a market-leading provider of global social security services around the world. O ur global I SS service delivery model and our use of dedicated social security subj ect matter resources enable us to provide clients with comfort in relation to their ongoing compliance while facilitating cost control opportunities on a proactive basis.

O ur I SS C enter of E x cellence ( C oE ) is committed to providing clients with unrivaled service and advice through the use of our market-leading methodologies. O ur C oE and network of I SS specialists throughout the world pride themselves on their technical ex perience, having a deep understanding of technical legislation but also being at the forefront of legislative developments to help clients best prepare for ever-changing legislation.

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