When discussing the intricacies of expat tax, there’s always a lone voice who will let out a cry of “……AND social security”.
In the expat world, social security can be seen as something peripheral, a nuisance – tax’s misunderstood little brother.
While payroll tax requirements have become more stringent, there is often scope for small adjustments and balances to be dealt with via tax returns. Arguably, social security compliance poses a greater challenge for organisations. Why?
It’s the employer’s responsibility to ensure both employers and employees contributions are correct, and the process can only be managed via payroll. This means you must get it right in the payroll, the first time.
A traditional international assignment results in employees becoming taxable in the assignment destination, but often remaining in home country social security programmes, allowing assignees to continue contributing towards their home country state benefits, including retirement. So, the trick is to make sure that all assignment compensation – no matter where it is paid / received – is reported correctly for social security in the home country.
When you do get it wrong, there is no standard route to course correct. The complexity means that misreporting is often undetected for years. Sorting out a misstep can mean making disclosures to the tax and social security authorities. This can mean arduous administrative efforts, spending more with vendors to correct the submissions and secondly to negotiate with authorities on your behalf to minimise the fines and penalties due. This can also increase your risk of audit by alerting the authorities to gaps in your organisation’s compliance processes.
Additionally for the employee, gaps in social security contributions can impact their home country benefit entitlements.
The root cause of social security compliance failure is typically a data failure. This means compensation data is either not being collected properly and/or not being instructed to the payroll correctly. If the data is wrong, your social security reporting won’t be right.
Even if you are getting it right, you may be employing labour intensive processes to fix the data or/and paying vendors a lot of money to manage the data cleansing on your behalf.
Maybe it’s time to think differently about managing the root causes of your social security challenges – by streamlining, organizing, and automating your data processes.
Start today with our diagnostic tool: Diagnostic Tool – Global Expat Pay