The Global, 24/7 Worker — Increased Risks Posed by Extended International Business Trips and Short-Term Assignments

by Glen Collins, KPMG LLP, Tyson's Corner and Alison Shipitofsky, KPMG LLP, New York City
(KPMG LLP in the United States is a KPMG International member firm)

International human resources (HR) and tax professionals recognize that extended international business trips (EBTs) and short-term assignments (STAs) have become a hot topic in the global mobility industry. Globalization in the 21st century has resulted in an even higher demand for businesses to send the right resource (human, capital, etc.) to the right place at the right time. As more and more companies compete globally, conducting business in regions all over the world requires that international assignment programs not only have more flexibility in assignment policies and with assignee logistical support, but also have the right internal stakeholders and processes in place to manage the higher corporate and individual risks associated with cross-border EBT and STA activity — risks that are often unrecognized by key business managers and "C-level" executives.

KPMG's International Executive Services practice launched a survey (Short Term Assignment / Extended Business Travelers Survey, henceforth "KPMG Survey") in late 2007 addressing specifically EBT and STA issues and concerns.¹ EBTs were defined as work abroad by employees that lasted for more than 30 days but less than 180 days. STAs were defined as assignments greater than six months but less than 12 months. Overall, the KPMG Survey results revealed that participating companies and their C-level executives are largely unaware of the risks of having a fluid population of employees on EBTs and STAs and that a greater emphasis needs to be placed on formally monitoring the movements of this population of cross-border travelers and assignees. (Henceforth, assignees on EBTs and STAs will be referred to also as EBTs and STAs.)

This article serves as a summary of the KPMG Survey's findings and offers insight into the changing global business world that EBTs, STAs, and other assignees work in, and what organizations can do to better support their global business goals while mitigating the risks associated with a diverse globally mobile workforce.

KPMG Survey Participant Demographics

The KPMG Survey consisted of 23 questions, and 184 organizations participated in the survey. While most of the organizations were U.S.-headquartered (70 percent), the remaining minority was spread across a number of countries around the world with the second highest percentage being Australia (7 percent) and the third highest, the United Kingdom (6 percent). Most of the participants had 1,000 to 10,000 employees (29 percent) or 25,001 to 50,000 (22 percent). As for industry, participants had 25 categories to choose from including "other"; no particular category had an overwhelming percentage. The three categories with the highest percentages were manufacturing (16 percent), high technology (16 percent), and financial services (15 percent). Therefore, given the number and variety of industries, it is safe to say that one industry did not skew the results vis-à-vis any other.

Changing Global Business World

These days, the decision to "go global" entails a new decision-making paradigm for organizations as compared with ten, twenty, and thirty years ago. Gone are the days when a domestic organization decided it was time to expand and expansion meant becoming international; that is, expanding to one new country. Rather, these days, organizations now expand into multiple countries seemingly overnight.

In addition, technological advances in transportation and telecommunications, etc., have transformed the business environment and the way we do business. Advances in road, rail, and air travel and the related infrastructure have made moving across borders quick, less expensive (in relative terms), and relatively easy.

And, even though technology and enhancements to communication have created a near-borderless and so-called "flat" world in global business, the need for doing business overseas (and for travel) has not diminished. In fact, the movement of people across borders continues to amplify rapidly. What modern technological advances have done is to now allow businesses to function globally 24 hours a day, 7 days a week. There is little "down" time between employees working in different time zones; workers are now "leveraged" by hand-held personal devices for monitoring and communicating via e-mail, instant messaging, fax, and phone.

These advances are not reserved for private-sector businesses. The advances in transportation and technology have incited and allowed governments to better monitor the movement of people crossing borders and within their countries' borders. The array of international assignment categories has expanded as well, from traditional long-term and permanent relocations to include (as noted above) short-term assignments and extended business trips. As a result, organizations should regard their personnel in terms of a 'global program' regardless of assignment length.

Growing Use of EBTs and STAs May Entail Risk

An increase in EBTs and STAs is a reflection of the changed world of business and the changing nature of risk. A seemingly routine business trip that becomes extended past the originally intended return date could potentially create risks related to tax, immigration, and employee safety. From a tax perspective, there may be foreign permanent establishment implications for the organization and/or there may be implications for the individual due to the amount of time the person stays in the foreign country.

From an immigration perspective, is the corporation now inadvertently misrepresenting itself based on the visa it originally obtained for the employee? Will the individual be penalized (or, in the worst case, possibly incarcerated) upon leaving the country when immigration officials see that he or she has remained in the country for longer than allowed or performed work that was not authorized? Furthermore, if penalized for violating a visa category, will the employee be allowed to return to the country in the future and if not, could this loss of a key player's involvement jeopardize a crucial business deal or project, as well as hurt the organization's image in the new country (especially in today's environment where the press continues to highlight corporate non-compliance)?

Policy Effects of the Changing Paradigm

When a domestic organization decided to go international, the international assignment policy was a traditional headquarters-based policy for outbound assignees. Now, we see (and often advocate) organizations having more than one policy, with each generally covering the multiple point-to-point and multi-purpose assignments with their various duration "scenarios" depending on an organization's business needs.

Moreover, it is generally recognized that no matter how well planned policies may be, organizations can be faced with executives or line managers that do not follow protocol, whether intentionally or unintentionally. Oftentimes, there is a lack of awareness of and attention to risk and key compliance issues that could affect not only assignees, but the organization as well.

Corporate Risk and Compliance and Effective Controls

Given the risks highlighted above, which are of greatest concern to organizations? According to KPMG's Survey, 93 percent of survey respondents chose tax risks, and immigration risks were the second highest chosen, at 73 percent. The remaining risks were as follows: 55 percent risks to the individual, 45 percent financial risks, and 43 percent for reputational risks.

Compliance risks appear to concern organizations the most. This comes as no surprise given the aftermath of the Sarbanes-Oxley legislation (SOX) of 2002 and the compliance requirements of section 404. Financial reporting and the material impact of tax and total assignment costs are important components of a company's financial statement. With outside organizations and internal groups increasing their audit scrutiny, such activity should give organizations an incentive to put in place and exercise tighter controls over identifying and tracking their cross-border populations and related international assignment costs. These audits will require advance identification of total projected assignment costs, which include assignment allowances and benefits, individual and payroll taxes, and costs for external vendor support for booking cost accruals in proper periods. Proper cost projecting attributable to EBTs and STAs is further critical to support cost accruals and payroll reporting in home and host country locations.

Controls Related to EBTs and STAs

Do organizations have a process for identifying EBTs? While a majority of the organizations surveyed in the KPMG Survey had a process, they were evenly split between a "formal" process (35 percent) versus an "informal" process (34 percent). For those that do not have formal process, the informal processes were as follows, in order from highest to lowest:

• When the EBT is being made a formal international assignee (22 percent)
• When the EBT requests money or services (20 percent)
• When international jurisdictions contact us regarding immigration or tax issues related to the EBT (15 percent)
• A review of Time and Expense reports (14 percent)
• Through the company's travel provider (10 percent)
• Through payroll (8 percent)
• When the EBT needs security clearance (8 percent), and
• When the EBT has an accident (3 percent).

These results (and the choices underlying them) are interesting — and most notably the one with the highest percentage of participants (when the EBT is being made a formal international assignee — 22 percent) — because both the formal and informal processes occur, generally, either during or after the EBTs. Even with an informal process for identifying the EBTs, the organization may already be non-compliant. It is advisable that organizations strive to get their EBTs identified as soon as possible. It is clear that organizations need to do more to be proactive (and less reactive) in identifying and properly managing this population.

When asked who in the company had the greatest awareness of the potential risks EBTs pose to an organization, it often comes down to those stakeholders who are the closest to and most knowledgeable of these employees, according to the KPMG Survey: the HR department (77 percent) and the tax department (56 percent). It is disconcerting that C-level awareness was quite low (CEO at 13 percent and CFO at 22 percent).

Education (so that awareness is enhanced and informed decision-making facilitated) and adherence to processes and protocols requires the support provided by upper-management buy-in when it comes to making policy or even affecting behaviors. In the case of corporate exposure around EBTs, HR and corporate tax professionals, who frequently understand the risks, need to go straight to the top of any organization and advocate the enhancement global compliance. No one wants to be the business manager who sent an employee on an extended business trip that results in costly exposure and bad press. However, until a directive comes from the C-level executive, business managers may overlook the severity (potential or actual) of a situation.

The same holds true for STAs. Of the companies surveyed in the KPMG Survey, 33 percent said they had no formal process for tracking STAs. Some used employee time-sheets (9 percent); others used work-day calendars (17 percent); and lastly, some used assignee tracking software (20 percent). With the exception of those that used the tracking software, the overwhelming majority learn about STAs after the assignment has begun or upon assignment completion.

The good news is that 95 percent of the respondents, when asked in the KPMG Survey if their company was concerned about compliance issues surrounding STAs, said that they were. However, the 95 percent differed with regard to having a framework in place for ensuring compliance: 48 percent had a framework; 28 percent were starting to develop one; and 19 percent said they had not begun the process for monitoring STAs. Nonetheless, regardless at what stage an organization is in building a framework for monitoring these types of assignments a framework cannot support proper pre-departure planning and advisement, if mandated processes and protocols are not being followed throughout the organization.

Conclusion: Globalization Imposing New Paradigm for International Assignment Management

With EBTs or STAs, organizations cannot overlook the potential risks globally mobile employees can impose on the entire organization. A framework consisting of adequate processes and protocols for identifying and monitoring these EBTs and STAs is imperative for all organizations to mitigate potential risks and exposure in the home and host countries. Key to the viability of this framework is communicating with the highest-level executives in the organization who can help ensure that all business units understand the proper protocols (for pre-planning, support, etc.) required to properly manage the EBTs and STAs, as well as the other assignees, that are part of the organization's globally mobile workforce.

Globalization is forcing companies to re-examine their international assignment programs to better fulfill the business needs required for doing business overseas in a variety of contexts and circumstances. Organizations will be challenged to review their legacy operating models to determine that they can properly support the demands of cross-border workers spanning the spectrum of multiple assignment and relocation types.

To emphasize the point, the continuing increase in EBTs and STAs creates the need for a solid program framework, supported by detailed processes and procedures which are ideally leveraged by technology. In addition, more integrated collaboration of cross-functional teams comprised of key operational stakeholders from the organization's international HR, corporate tax, finance, payroll, legal and security departments will be critical to supporting global business goals and properly managing cross-border assignments, while mitigating risks to the organization and its employees.

Footnote:

1 All data in this article relates to KPMG LLP's Short Term Assignment / Extended Business Travelers Survey hosted and published by the IES practice. This Web-based survey is based on data provided by more than 180 companies. To participate in the survey, please feel free to register at http://www.kpmglink.com. After completing at least 70 percent of the questions, you can receive instant results.

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