How Do Companies Manage Mobility Compliance?
May 10, 2023
Most companies that have mobile employees track these employees and use this data when calculating tax withholding due on stock options and awards. This is especially true for globally mobile employees, but tax compliance is also high even for domestic mobility in the United States.
In a recent episode of the NASPP Equity Expert podcast, I discuss these trends and more with Paul Gladman of Deloitte Tax. Here is a summary of our conversation.
Global vs. US Domestic Mobility
A trend that is immediately apparent in the NASPP/Deloitte Tax 2022 Equity Administration Survey is that compliance is higher for globally mobile employees than it is for US domestic employees. In the global arena, more than 80% of companies track permanent transfers, formal assignees, and employees who have repatriated back to their home country. The percentage of companies tracking US mobile employees drops considerably, with only 62% tracking permanent transfers and less than 40% tracking other types of mobile employees.
I usually think of global compliance as being harder than complying with US laws, particularly for US-based companies, which are the majority of respondents to the survey, so a higher level of global compliance feels a little counterintuitive. I asked Paul why this discrepancy exists.
Paul notes that global mobility is often fundamentally different from domestic mobility. Employees are often asked to relocate globally because a company has a need in a specific area, for example, perhaps the company might be expanding into a region. Employees taking on these assignments are typically just a small percentage of the company’s workforce, so compliance is more manageable.
Because formal assignments meet a business need, they also tend to receive more support from the company, such as orientation trips, relocation support, immigration assistance, and even tax assistance. This more formalized process lends itself to more compliance, including with respect to the taxation of equity awards.
Remote Workers and State Enforcement
The 2022 survey is our first that asks about mobility compliance for US-based employees who are working remotely. I was a little surprised to learn that only 38% of companies report that they are tracking these employees. One question I had for Paul was whether Deloitte is seeing much tax enforcement at the state level related to remote employees.
Paul says that they aren’t seeing a lot of enforcement yet, but this is because it generally takes around two years for issues like this to surface in audits; the audits in the latter part of this year and next year will be more telling. They are seeing questions about remote workers in audits and some states, such as New York, are training auditors to look for remote workers.
Paul warns that companies likely can’t continue to rely on the excuse that no one else is doing anything to track remote workers:
That would have been maybe the mindset several years ago, but I don't think that's the case now. Ultimately auditors will say, ‘Well, you're the only one that's not doing anything, because every other organization has some level of remote work guardrails in place.’
How Do Companies Know Where Employees Are
One challenge to tracking mobile employees—whether they are global or US-based—is knowing where they are. I’ve heard stories of employees moving to entirely new continents without notifying their employer. I’ve also heard of employers being suspicious of claims by remote workers that they have moved to US states that don’t impose income tax.
About 50% of companies in the survey learn of employee movements through self-reporting by employees. It is also common for stock plan administration to rely on reconciliations to payroll records and notification from HR; in a lot of cases, I suspect that payroll and HR are largely getting their information from employee self-reporting as well.
Paul says that he is seeing a growing interest in using VPN access data for this purpose. Companies used to be able to rely on badge data, but, with the growth of remote work, that’s no longer as reliable as it used to be. But most employees have to log into a VPN for work. This provides quantitative and readily available location data for companies.
Only 1% of survey respondents indicate that they currently use VPN data for this purpose, but perhaps we will see more uptake of this in future surveys.
Use of Third-Party Tax Advisors
The 2022 survey reports an increase in the use of third-party advisors to calculate tax withholding amounts for mobile employees. For US-based mobile employees. 26% of respondents report that they rely on a third-party advisor for the tax calculations, which is up from just 16%, two years ago, and 43% of respondents rely on a third-party advisor for the tax calculations for their globally mobile employees.
Paul attributes some of this growth to changes in policies as a result of the pandemic and also to the expansion of mobility functionality in the various commercially available recordkeeping platforms that are used in stock plan administration. He also expects that they’ll be involved in some “controversy work” related to the audit exposure, as states ramp up their enforcement for mobile employees.
Getting Budget Allocated for Mobility Compliance
Paul noted that sometimes companies have trouble getting budget and resources allocated for mobility compliance. This is something we also hear from NASPP members, so I asked him for some tips on how to secure these resources.
Paul explains that data can be key informing change. There are multiple sources of data that might be useful. First, data showing that other companies have mobility compliance programs in place can be persuasive. Here, the 2022 survey can help.
Your company’s own employee population is another key data point. Paul says:
Knowing where employees are—and actually how much time they're spending—you can then start to build up a picture of your risk profile and you can then compare that to your risk tolerance.
This is just a small sampling of the many topics Paul and I touched on during the podcast. We also talked about business travelers, compliance practices for remote workers, how to approach mobility compliance if you are just getting started, and whether it is okay to take a “head in the sand” approach to this issue if you only have a small population of mobile employees. Check out the full podcast today!