What’s Next for Long-Term Incentives and Equity with a Globally Remote Workforce?

October 2021

BY

Jason BrooksManaging Director, Global Employer Services

Jessica PancamoManaging Director, Global Employer Services

Ronii RizzoManaging Director, Global Employer Services

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As we move into the era of a globally remote workforce, companies will need to review and potentially reconsider how they incentivize and compensate their employees.
 
Key Employer Considerations Key Employee Considerations
Tracking of employee location to ensure proper withholding and tax remittance Different tax rates in different locations
Registration requirements in new jurisdictions Different tax timing in different locations
Different regulatory standards Increased tax return complexity
Foreign exchange controls requirements Holding equity in different jurisdictions creates property transfer risk
  Exchange rate risk

With this in mind, companies should evaluate their long-term incentive and compensation plans to ensure that the motivational and economic value of having a mobile workforce outweighs the added administrative, compliance and tax implications for the company. Based on our experience, there are a range of actions companies can take to address these concerns, ranging from doing nothing to completely eliminating equity compensation:


Do nothing and accept the added complexity or eliminate equity and use only cash compensation

Generally, companies operate somewhere in the middle of the spectrum. After doing an assessment of the tax and legal implications of living and working in each location in which an employee might be located, companies can understand the range of issues that may arise and design a long-term incentive program that aligns with the company’s compensation philosophy, while limiting the potentially adverse impact to both the company and the participants. For example, nil cost stock options may be prevalent outside of the United States, while incentive stock options and Internal Revenue Code Section 83(b) elections exist only under United States tax law. Understanding these differences can help companies optimize their long-term incentive program for the jurisdictions in which they operate.

Taking a proactive look at the implications of having a remote workforce can save everyone a lot of headaches when it comes to long-term incentives. Even relatively minor upfront changes to the grant and administrative processes can have an outsize impact on minimizing negative effects later on.

Many companies are no longer taking a one-size-fits-all approach. Rather, they are adopting a more strategic approach based on local tax and regulatory environments by jurisdiction as related to the global and remote workforce. BDO can help navigate the considerations of specific equity plans and the applicability by jurisdiction to support a strategic global long-term incentive plan that aligns with the overarching compensation philosophy of your company, while also considering administrative burden and compliance risk.
 

Payroll Considerations

Generally speaking, compensation is sourced based on where an employee physically works. If an employee works in more than one tax jurisdiction, they may become taxable in all jurisdictions in which they physically work (subject to specific local tax regulations, thresholds and treaties). For long-term incentives, and more specifically for equity compensation, the sourcing obligation can become complex as the applicable sourcing period will span longer periods of time. Often this will require employers to piece together a history of travel to support a proper review of reporting and tax withholding/remittance obligations. Furthermore, if these issues are not addressed proactively, the company and the employee may experience undesirable tax and penalty consequences.

As companies review and redesign their long-term incentive plans, payroll reporting and tax withholding obligations should be considered as part of the overall package. Processes should be put in place for tracking employees’ location, reviewing obligations and complying with local payroll and employment tax regulations. BDO can provide a holistic service offering to help review and revise long-term incentive plans while also designing payroll process instructions on how to comply in the pertinent local jurisdictions.