How to effectively manage payroll for internationally based employees.

Your company will soon be assigning employees to overseas offices. What do you need to know to effectively--and legally--manage these workers' pay? According to Sharon Potts, director, PricewaterhouseCoopers LLP Human Resource Solutions (San Jose, Calif.), "from the payroll professional's viewpoint there are two main components to successfully managing international employees: policies and processes."

Establish Clear Policies

"Often, when a company first starts to send employees to work in another country each person is offered an individual arrangement. By spending time defining an international assignment policy, often with the help of professionals, you can save considerable time and money later in the process, particularly if your international population increases," Potts points out. "Understanding the components of an international assignment policy can also ensure that you are able to determine the true cost of sending an employee to work in another country and that you comply with all legal and regulatory requirements."

Compensation for international assignees is made up of many elements that are traditionally not paid to domestic employees. These items are usually intended to ensure that employees are not adversely impacted by the move, and often contain incentives to ensure a successful outcome. Typical categories of compensation include:

* Salary, bonuses, commissions, and incentives;

* Social taxes and benefits such as retirement and health care;

* Transportation and relocation allowances;

* Housing, home leave, living and utilities allowances, including education allowances; and

* Reimbursements or allowances related to the income-tax costs associated with living and working in another country.

Who pays for these items? "Some of these items are paid from the employee's home/sending country and some from the host/receiving country," Potts explains. "Some are paid via payroll and some off payroll. Where each item is paid is a combination of the international assignment policy and the regulations of both the home and host countries."

Setting up Procedures

Work closely with the HR professionals and/or external experts who are helping your company determine how international assignees should …