When companies expand into new markets, U.S. payroll compliance becomes a greater concern. Because different countries have their own payroll legislation, businesses can ensure they are compliant in all locations with payroll tax software.
Governments are paying more attention to organizations that relocate in new markets, which adds to the challenges of compliance, Bloomberg reported. Many companies are facing more audits in a larger number of countries, and enforcement actions are targeting employers rather than individuals. As permanent relocation of employees to new countries has become more common, governments have tightened payroll regulations.
As the trend of multinational companies has become more popular, governments have grown more knowledgeable about how companies operate, and they have a better understanding of the structure of compensation packages for international employees. U.S. payroll audits typically focus on whether employers correctly reported all wages, which is a shift away from income tax audits.
Relocation gives employers many new concerns for payroll reporting legislation. For example, if an employee was moved from the U.S. to a new country, the company would need to comply with U.S. payroll legislation, such as standard income payment, reporting and withholding. Additionally, employers need to report in the host country, according to Bloomberg. Payroll audits in other countries can be very different from the U.S. Government agencies will focus on different components of compensation, including equity-based compensation, 401(k) contributions and deferred compensation. There are different tax requirements for 401(k) contributions in other countries.
Implications of expansion for smaller employers
As the economy improves, many small businesses are eyeing international expansion. This can create new opportunities for small companies, but it adds to payroll compliance challenges because employers will need to have an understanding of payroll regulations in all locations.
In addition to standard reporting requirements, employers also need to be aware of other taxable costs, such as tuition, language training and cost of living allowances when they send employees to work in other countries. With the large number of reporting requirements and different taxable items, small businesses can risk noncompliance with regulations. Companies that are considering expansion can benefit from small business payroll tax software. As the trend for multinational organizations continues, small businesses will need solutions to stay in compliance with regulations.