Dual system of payment for the same job position

6th April 2021 0 By indiafreenotes

One of the approaches for structuring payroll and employment for assignments overseas is through running a dual payroll. This method offers the greatest flexibility for preserving and enhancing employee benefits and tax advantages between the home and host country. Dual payroll can be more complex to manage for human resources, but for longer assignments or high-value employees it may be worth the effort of implementation.

Dual employment works by using split payroll methods for both taxation and pension contribution reasons. In dual employment, two contracts are used, where the employee has a contract in both the home and host country. The home country agreement will preserve the existing employment relationship, effectively ‘suspending’ employment for the duration of the foreign assignment.

Two-Tier Wage System Essentials

In a two-tier wage system, the business owner negotiates with the union to install two separate wage structures for existing and new workers. Existing members of the union continue to receive pay, wage increases and benefits as defined by the previous agreement. New workers who join the union receive a lower starting wage, lower peak wage and often a less-substantive benefits package.

Employee Division

Two-tiered wage systems also provide the business with the advantage of a more divided work force. While workers receiving wages and benefits under the old agreement probably remain more or less satisfied, new workers receiving reduced pay and benefits for equivalent work often resent their better paid coworkers. This internal conflict among union members makes it more difficult for the union to bargain collectively, as new and senior workers view the situation in different terms. For example, when new workers want to push for wage renegotiation, senior union members maintain a vested interest in protecting their existing wages and benefits. The business, on the other hand, gets to avoid the issue while the union tries to sort out its internal strife.

Long-Term Cost Reductions

The business also stands to see long-term labor cost reductions. As older, higher-paid union members retire, the business can replace them with less-expensive workers.

Short-Term Cost Reduction

One of the advantages of a two-tier wage system is that the business enjoys a short-term cost reduction for all new workers that join the union. The total budget for wages and benefits the business must allocate goes down, while production remains consistent. The reduction in labor costs also lowers unit costs for each product. Lower unit costs allow the business to enjoy a larger profit margin on products by maintaining current pricing or to reduce prices to improve their competitiveness.

Benefits of Dual Payroll

  • Ensures that local employee contract and labor laws are adhered to, and are made part of the host country employment agreement.
  • The original employment agreement in the home country, (or an amendment drafted for the purpose of the assignment) will preserve home country employment benefits for the employee.
  • Offers continuity and stability to the employee while on assignment, adding attraction to the overseas position.
  • Maintains specific time related employee benefits at home such as accrued leave, seniority, salary rates and pension contributions.

How to Set Up a Dual Payroll

  • Draft a home country employment agreement (or amendment) that preserves the employment relationship for the length of the assignment.
  • Draft a host country employment agreement that reflects that jurisdiction’s employment laws, as well as compensation and benefits in kind.
  • Establish a local payroll through a service provider to administer the host country payroll, tax withholding and statutory contributions.
  • Continue to make necessary withholdings and contributions through the home country payroll.
  • Review applicable tax treaties that would grant relief from making tax and statutory contributions in both countries.
  • Termination upon conclusion of the assignment should adhere to host country laws to avoid unlawful termination claims.