Our customers often ask us whether they can provide their employees direct payments or benefits, e.g. in the form of a company credit card or a Christmas gift.
With WorkMotion, it’s possible. This is also for customers who would like to have their remote employees in any kind of employee participation arrangement, e.g. stock options or virtual shares.
However, when a company sends direct payments/benefits to their Employer of Record (EOR) employees, it may increase the risk of talent being considered to be directly employed by the company. To mitigate risks associated with co-employment is to position the EOR as the primary employer for all employees.
If the company sends timely information to their EOR provider, in this case WorkMotion, then risk is minimal. This information needs to include:
when the payment/benefit was provided
what type of payment/benefit it concerned
the value of the payment/benefit
tax-related information of the payment/benefit, e.g. the taxable amount and the way it should be taxed
What’s a third-party paid salary?
Third-party salaries or benefits are any kind of payment or benefits that flow directly from the customer to the talent and they are relevant because they could trigger a direct relationship between the employer and the talent through the provision of these payments/benefits.
From a tax perspective, payments/benefits that are directly provided by companies to their employees are considered third-party paid salaries.
It is third-party paid because it is not the employer who provides the payment/benefit, but the company. The complexity with these payments/benefits is that they may still be considered income from employment, for which the employer has to ensure appropriate taxation for employment taxes purposes.
This means that they in principle need to be included in the payroll if and to the extent they are taxable.
From an employment perspective, this third party paid salary can increase the risk that the company will be considered as an employer of the talent. Employees may file suit seeking additional health benefits, paid time off and other benefits that are identical to those offered to the client company’s permanent employees and in a termination scenario they may file an unfair dismissal claim against the client as “employer”. To mitigate risks associated with co-employment is to position the EOR as the primary employer for all employees and create clear processes between EOR talent and permanent employees of the client which includes avoiding or at least limiting payments/benefits by the client to the talent.
Understanding benefits for your remote team: What you need to know
Offering benefits to your remote team is a great way to keep them motivated and engaged. However, it's important to understand how to navigate the complexities of benefit management, especially when working with an Employer of Record (EoR) like WorkMotion. Here, we'll break down the key conditions to ensure a seamless experience for your:
1. Providing essential information
First and foremost, communication is key. Our customers need to share comprehensive information with WorkMotion regarding any benefits or payments provided to their EoR talents. Without this information, it's challenging to ensure a smooth process. Remember, we can only take responsibility for what we know, so timely and complete sharing of information is essential.
2. Handling taxation
When it comes to taxation, the details matter. This includes specifying when your talent receives taxable payments or benefits and the exact amounts involved. While this may seem straightforward, it can get intricate, especially when dealing with employee participation arrangements. For these cases, it's solely the responsibility of the customer to determine taxation details. If needed, WorkMotion can connect customers with local tax professionals or even collaborate with these experts on the customer's behalf.
3. Ensuring financial liquidity
Maintaining sufficient funds to cover payroll taxes is crucial. Typically, in the case of a net third-party benefit, the employer takes on employment taxes. However, in other scenarios, such as gross third-party payments, taxes must be withheld from the talent's salary. It's rare, but there may be instances where the employer can't cover the entire tax burden due to insufficient net salary. In such cases, it's the customer's responsibility to ensure the talent provides the necessary funds before the payroll runs. Remember, if the customer decides to cover these costs, it becomes a taxable benefit for the talent.
4. Accepting liability
Customers must be aware that if they fail to meet the obligations outlined above promptly and completely, they accept liability for employment taxes, interest, penalties, and any professional support costs incurred by WorkMotion and/or our partner organisations.
Employee Participation Arrangements
Employee participation arrangements can add complexity to benefit management, with various types like stock options, RSUs, and virtual shares. Employers might handle these arrangements differently, and taxation can vary significantly by country. Here's what customers need to consider:
Recommended payment route
We recommend payments from participation arrangements flow through WorkMotion. This allows us to handle gross benefits through payroll, withhold and remit employment taxes, and transfer the net amount to the talent.
Alternative payment handling
In some cases, customers may choose to manage payments directly. If this happens, customers must inform WorkMotion of the gross benefit amount for proper payroll processing and withhold employment taxes from the talent's net salary.
Handling insufficient income
While rare, there may be situations where the talent's net salary can't cover the owed taxes. In such cases, it's the customer's responsibility to ensure the talent provides sufficient funds to WorkMotion before the payroll runs. Again, if the customer provides these funds instead of the talent, it becomes a taxable benefit.
Cross-border tax considerations
If a talent has worked in multiple countries during a participation arrangement, taxes may be applicable in multiple jurisdictions. WorkMotion handles payroll in the country where the talent is employed by us during the taxable event. However, taxes in other jurisdictions remain the customer's responsibility, including determining the exact split of taxable amounts.
Outstanding benefits at employment End
For benefits outstanding at the end of employment, the employer remains responsible for settling employment taxes. If the customer or talent reports a taxable benefit after employment ends, WorkMotion will reactivate payroll to process it accordingly.
Liability for damages
Customers should note that they accept liability for damages incurred by WorkMotion if they fail to enable us to meet tax obligations in a timely and correct manner. This includes employment taxes, penalties, interest, WorkMotion fees, and professional support costs.In summary, effective benefit management for remote teams requires clear communication, attention to tax details, financial readiness, and a shared understanding of liability. We're here to support our customers every step of the way, ensuring smooth benefit operations for their valued remote talent.
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