Simplifying Split Payroll Delivery – A Tactical Analysis

Splitting payroll delivery for international assignments is a tactic used in payroll administration that allows for a portion of pay to be delivered from the home country payroll system and a portion from the host country payroll system.  Why do companies choose to administer these arrangements?  What are the benefits?

For employees:

• Offers exchange rate protection
• Facilitates personal cash flow management while on assignment, especially in host countries where the transfer of funds outside the country is highly regulated

For employers:

• Simplifies tax withholding and pension administration
• Complies with local pay delivery regulations (Russia and Brazil, for example) 

Before setting up your split payroll program, map the process from end to end.  What sounds simple in theory may require more attention to detail than you anticipated.

Sample Scenario:
The head of your global mobility program would like to allow assignees to choose an amount of their pay to be delivered in the host country.  You considered using a “split delivery” model – utilizing an outside banking service to move the requested funds to the assignee’s host country bank account for you – but decided to administer this internally instead with both the home and host country payrolls delivering their portions of pay.  So the planning begins …

1.  Decide who will receive assignee requests, who will confirm the requested split complies with local pay delivery regulations, and who will be responsible for communicating the requests to local home and host payrolls. 
2. Decide who will be the single point of contact,  answering any queries related to this process.
3. Decide how often assignees may change the host delivery amount, at what frequency you will re-perform the exchange rate calculation on this amount, and where will you store the details of these calculations for audit purposes.
4. In the home country payroll system, create an after tax deduction to accommodate the Split Payroll request. 

Example:
A U.S. home paid assignee on a biweekly payroll who requests that 2000 GBP be delivered through the monthly UK payroll system.

Calculation of the US payroll deduction:
Split Payroll Deduction = (GBP 2000 *12)/26 * Current Exchange Rate

5. In the host country payroll system, set up an earnings to deliver 2000 GBP in each monthly pay run.
6. Create general ledger accounts for the U.S. deduction and the UK earnings that will offset each other.
7. At the assignee level, audit amounts deducted in U.S. versus amounts delivered in UK on a monthly basis to confirm that special pay runs or manual pay check calculations have not adversely impacted the split delivery.

As you can see, the planning must involve home and host country HR, Payroll and Finance teams in order for the program to be effective.  And this is a relatively simple scenario!  Here are some other possible arrangements for your consideration.

Split Payroll Method

Sample Home Delivery

Sample Host Delivery

1

Amounts pre-determined by employer

Base salary + bonus minus required deductions

Housing allowance

2

Enforced split

Base salary minus Russia local minimum wage

Russia local minimum wage

3

Amounts pre-determined by assignee

Base salary minus required deductions

Housing allowance + bonus

4

Percents pre-determined by employer or assignee

75% of net pay

25% of net pay

Choosing a Direction:
When considering your split payroll options, methods that deliver static amounts pre-determined by policy are simplest to administer.  If you plan to allow split delivery using the percentage method, be prepared to re-calculate payroll net delivery each pay period. 

If you will not allow split delivery, consider establishing an exchange rate “protection plan” for your assignees – a method of comparing the value of compensation in the home country to the equivalent value in the host country. This will help assess whether an assignee has suffered a loss due to exchange rate fluctuations.  This value comparison should be repeated month by month and the calculated gains/losses tabulated so at the end of the protection period, you are in position to reimburse the assignee, if needed. 

Simplifying This Process – For You and Your Assignees:
Whether you introduce a split payroll program or an exchange rate protection plan, you will need to identify a global owner for these processes. Either direction introduces its own unique complexities – which is why many companies use an outside provider. Outsourcing payroll and compensation administration to an expert will simplify the process for you, ensuring:

• all international assignments are administered consistently
• payroll split deliveries (both home and host) are monitored for accuracy each pay period
• employees do not experience gains/losses while on assignment
• proper accounting entries are made for home and host countries’ cost centers
• your business practices comply with local pay delivery legislation
• enhanced global oversight for you and your company.

At SIRVA, we take a complex process and make it feel simple for you. SIRVA Global Compensation and Payroll Services will work with you to build best practice solutions for your organization. 

Interested in learning more about your options? Need more detail on executing split payroll delivery or exchange rate protection plans for assignees?

Contact sue.wines@sirva.com today!

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