SESSION 1.1 Implementing a Payroll Process for Globally Mobile Employees: General Electric Case Study Theodore Sadlouskos Tax Lead, GE Theodore.Sadlouskos@ge.com Michael Bussa Partner, Ernst & Young LLP michael.bussa@ey.com Ann Glackin Exec. Comp. Team, GE Ann.Glackin@ge.com Amit Banker Senior Manager, Ernst & Young LLP amit.banker@ey.com
SESSION 1.5 Implementing a Payroll Process for Globally Mobile Employees: General Electric Case Study Theodore Sadlouskos Michael Bussa Tax Lead, GE Partner, Ernst & Young LLP Theodore.Sadlouskos@ge.com michael.bussa@ey.com Ann Glackin Amit Banker Exec. Comp. Team, GE Senior Manager, Ernst & Young LLP Ann.Glackin@ge.com amit.banker@ey.com Discussion Overview of Global Equity Issues for Cross-border Employees GE Equity Programs Key Considerations Designing and implementing a process to achieve global payroll compliance Stakeholders, Team Resources Implementation Timeline Data Challenges and Approach Tax Technical Issues Communication Global Payroll and Employees Automated Process Lessons learned Current/Future State Initiatives Questions Page 2
Overview of Global Equity Issues for Cross-border Employees: Current Tax and Regulatory Environment There has been a convergence of significant factors and developments which have resulted in increased risk to organizations and their equity program participants. Significant factors Sarbanes-Oxley ASC 718 (Formerly FAS 123 (R)) Taxing authorities increased focus on equity compensation OECD initiatives Depressed equity markets Troubled Asset Relief Program Government intervention and oversight of executive compensation Implications Increased corporate governance and transparency Equity plan design changes Stock option expensing under US GAAP Renewed focus on corporate tax minimization strategies (e.g., cross-charges to non-us subsidiaries; deferred tax asset optimization) Increased payroll compliance requirements around equity compensation for cross-border employees Increased taxing authority audits and payroll examinations Increased equity program administration Organizational risk Tax compliance risk to organizations and their employees Significant consequences for non-compliance; fines, penalties, interest, imprisonment Reputational risk Increased tax and operational costs Possible negative impact on employee morale Page 3 Overview of Global Equity Issues for Cross-border Employees: Potential Tax and Payroll Implications Potential tax implications Determining taxable income attributable to multiple jurisdictions Income sourcing practices/requirements Potential double taxation and relief available (e.g., income tax treaties, foreign tax credits, tax concessions) Effect of company s intercompany cross-charge process Page 4
Overview of Global Equity Issues for Cross-border Employees: Potential Tax and Payroll Implications Potential payroll implications Identifying payroll reporting and tax withholding requirements associated with equity compensation Interface/considerations of ASC 718 (formerly FAS 123(R)) and accounting in general Selecting appropriate tax withholding rates Additional, reporting/disclosure required specific to equity compensation at grant and/or vesting of RSUs Payroll reporting and tax withholding for former employees Page 5 Overview of Global Equity Issues for Cross-border Employees: Challenges in Managing Tax Withholding Identification of tax implications and compliance requirements Timing and amount subject to tax in multiple countries Income sourcing between jurisdictions Multiple country payroll reporting and tax withholding compliance requirements Plan qualification application for cross-border employees Impact of corporate tax position Departure taxes Trailing tax liabilities Data privacy International assignment policy considerations Tax equalization/ protection/ other Limits on tax equalized/ protected income? Collection of estimated hypothetical tax on equity awards Ongoing accruals for tax equalization expense Special considerations for post assignment vesting/ exercises Effect of recharge process Page 6 Company data tracking requirements and capabilities Identifying information to be tracked Applicable periods for tracking Cross border movement Identifying former expatriates, direct localizations Local payroll information required at HQ to complete a tax withholding calculation Sources of information Data integrity/quality Does a company require advance notice of pending exercise?
GE Equity Programs Equity awards in over 70 countries and thousands of participants Stock Options RSUs Globally Mobile Employees (GMEs) Current expatriates Former expatriates Cross-border employees (non-expatriates) Approximately 10% of all equity holders have mobility in their demographic history Page 7 Key Considerations GE goal to be globally tax compliant Need for centralized and consistent approach Data requirements and need for quick large volume processing Increased complexity and focus on trailing tax liabilities RSUs vesting events Page 8
Stakeholders, Team Resources Stakeholders buy in is critical! HR Advisors Expatriate Administration HR Independent Auditors Equity Compensation Accounting Stock Administrator IT General Counsel Payroll Tax Tax Advisors Legal Counsel Payroll Vendors Page 9 Stakeholders, Team Resources (cont d) GE Core Team (Full Time) 1 Project Manager 1 Tax Manager 1-2 Executive Compensation Managers 1 IT Manager (Peaked at over 20 IT resources) GE Internal Support Team Global Mobility Team Equity Team Corporate Tax PeopleSoft Team State Tax In-country Payroll Contacts Page 10
Implementation Timeline Implementation and Continuation of Existing Process With Manual Calculations Automated Process NOV 2007 JAN 2008 October 2008 JAN 2009 APR 2009 JUL 2009 Project Kickoff Jan 2008: Implementation and Manual Calculations Jan-December 2008 Identify initial population; audit of payroll processing Modifications to support PeopleSoft output requirements Jan-June Testing Jan 2009 Data scrubbing; Identify/ train pilot countries APR JUL Go Live JUL + Ongoing Automated Process Page 11 Data Challenges and Approach Sources of data to prepare a tax calculation Identify employees subject to multiple jurisdictional tax consequences Availability of historical data, accuracy Employee mobility Equity awards and transaction information PeopleSoft (real time year to date) information Single source of combined data Identification of new moves, update process Process to address incorrect data Page 12
Data Challenges and Approach (cont d) Other country information Regional allocation and move information Integration of calculation result Distribution of information Page 13 Data Challenges and Approach (cont d) Demographic/ Payroll Data Expat database Accounting/ Finance Oracle database Peoplesoft Data repository Local Payrolls Transactional Data Equity Administrator EOWin EY Global Tax Calculator Page 14
Tax Technical Issues International assignment policy considerations Corporate recharge position Country specific tax treatment Calculation of composite gross-up as part of tax calculations Regional allocations (state to state, other) US Payroll processing requirements (PeopleSoft) and Year-to-date income In-country payroll processing Page 15 Communication Global Payroll and Employees Global payroll training sessions Data flow In-country payroll processing Gross-up and reconciliation Communication Tax return preparation assistance for post assignment transactions Any assistance to non-expat population? Page 16
Automated Process Employee Employee vests/ makes trade (through broker) Vest Date/Trade Date +1 Vest Date/Trade Date +2 Employee receives net proceeds GE EOWin Expat, PES Oracle Trade, mobility & payroll data for all transactions Update participant tax information and distribute net proceeds GE In- Country Payrolls EY EY Global Tax Calculator Finalized calculations Page 17 Automated Process (cont d) Vesting and exercises are handled through the same process Turnaround is targeted for T+3 and US remittance Page 18
Lessons Learned Secure senior leadership support of project early on Perform high level risk quantification analysis Build project team and budget accordingly Internal and external sources Time allotted Communicate Amongst the many disciplines Globally (payrolls, etc.) To impacted individuals (new process and answer questions) Determine Risk adversity Perfect process vs. serviceable approach Challenges of non-integrated payrolls outside of US Page 19 Lessons Learned (cont d) Data drives the calculations and results Assumptions are needed if data is not available Need for in-country payroll process and reconciliation Testing Build adequate time for end to end testing Testing challenges - accounting for every scenario when the majority of the scenarios are unique Settlement of taxes for RSUs - challenges of STC vs WTC Multiple generational approach Pilot high risk populations and jurisdictions Flexibility in approach and systems Build a sustainable process in a dynamic international tax environment Update and maintain process Page 20
Current/Future State Initiatives Page 21 Questions Page 22