Navigating Global Equity Compliance: Lessons for Payroll and Equity Teams

Managing equity awards for a globally mobile workforce is an ongoing challenge, which grows more complex every year. With tax laws, local regulations and compliance requirements in constant flux, payroll and equity administration teams must be proactive and adaptable to stay ahead of the curve.

Global stock plan expert Marlene Zobayan, partner at Rutlen Associates LLC, provides her perspective on how employee mobility can complicate even the best-designed equity programs, what teams need to do to succeed in this ever-changing environment and shares helpful tips based on her experience.

Mobility in the U.S.: the state tax challenge

While few states are as assertive as California and New York, when it comes to taxing equity-based gains, many states have published guidelines on the taxation of mobile employees. Marlene highlights the importance of starting with your largest exposures, typically executives and employees who have moved permanently. It’s important to be aware that equity has a trailing tax liability across all states the employee has worked in since the grant date.

“Individuals who made a lot of money on IPOs were suddenly going to Texas, then exercising their options and making a lot of money that (the state) felt was California sourced,” she explains, pointing out that California’s focus on sourcing equity gains goes back to the dot-com era.

Her advice:

• Track employee movements meticulously, especially for those with significant equity awards.
• Use the strictest jurisdictions, like California, as your benchmark for compliance standards.
• Ensure your reporting and processes can evidence where and when equity was earned and exercised.

International mobility: UK, Germany, and Canada

Cross-border moves add another layer of complexity. The UK, for example, requires annual filings of equity compensation activity that make it easy for tax authorities to spot mobile employees.

“I am not aware of any UK payroll audit that doesn’t ask about people that have moved. It’s very easy for the UK tax authorities to track this because companies have an annual filing where they have to report all grants made,” Marlene says. “If you can’t show that an employee forfeited their grants after leaving then expect questions.”

Germany is generally less aggressive than the U.K. but she is aware of clients who, following a German tax authority payroll audit, have started focusing on their mobility compliance.

Canada’s compliance structure is robust and even if enforcement has been light so far, companies should be aware this may not always be the case.

“The enforcement structure is there, the compliance structure is there. They haven’t been very aggressive pursuing it,” Marlene warns. “But whenever a country or a state introduces compliance regulations and says this is the way we want you to do it, then it’s very easy for them to say now it’s time to audit.”

Harnessing technology and the data protection complication

Technology has transformed how tax authorities audit companies. In the past, an audit meant sifting through boxes of paper, now it’s a matter of running a query on digital records.

Her key points:

• Tax authorities might request travel and expense data, hotel stays and or obtain passport records from customs & immigration to track employee locations.
• Payroll and stock plan teams must ensure their data is accurate and up-to-date before an audit.
• Data protection is critical; know what information you can collect, store and process, especially when it comes to employee travel, log-in/log-out screens and activity logs.

Best practices: Start small, build strong

Marlene’s advice for companies: don’t try to solve everything at once or you’ll risk getting overwhelmed.

“Take it in steps, refine what you’re doing and then build on your success as time goes by,” she says.

Some tips include focusing on the biggest risks first, building out robust processes and never underestimating the power of good data, because if you’re not prepared for the pace of regulatory change, you’ll always be playing catch-up.

Marlene’s top takeaways

• Prioritize your biggest risks: start with executives and high-exposure employees.
• Use stricter jurisdictions as your compliance benchmark.
• Never underestimate the power of good data
• Take a phased approach, refine, then expand.
• Stay alert: regulatory enforcement can change quickly.

Marlene Zobayan appears on our Prosperity at Work podcast, streaming now wherever you get your podcasts.

What next?

If you’d like to discuss employee equity compensation or learn more about how J.P. Morgan Workplace Solutions can support your business, contact us today.