Payroll Challenges For Short-Term Assignments

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In today's globalized workforce, companies frequently assign employees on short-term international assignments to meet project needs, transfer knowledge, or support market expansion. While these assignments—typically lasting from a few weeks to under a year—offer flexibility and cost efficiency, they present significant payroll challenges that organizations must address to ensure compliance, accuracy, and employee satisfaction.

One of the most critical challenges is determining the correct payroll location. Employers must decide whether to process pay through the home country, the host country, or via a split payroll. In addition tax, social security, and reporting implications have to be considered. For example, paying solely from the home country may simplify administration but there could be still tax withholding or social insurance contributions to be paid in the host country.

A second challenge involves tax and social security obligations. Short-term assignees may trigger income tax liability or social security coverage in both jurisdictions, requiring careful coordination to avoid double taxation as well as double contributions. Employers must understand applicable tax treaties and totalization agreements to ensure correct deductions and reporting.

Another key issue is currency and exchange rate management. Paying employees in the wrong currency or at volatile rates can lead to dissatisfaction and inequity. Payroll teams must also handle per diems, allowances, and reimbursements in a way that aligns with both company policy and home-country as well as host-country regulations.

Compliance and reporting create additional complexity. Local employment laws, minimum wage rules, and registration requirements often apply even to short stays. Failure to comply can result in penalties, reputational risk, or restrictions on future mobility.

Lastly, communication and data management between global HR, tax, and finance functions are essential. Disconnected systems or inconsistent employee data frequently cause payroll errors and compliance gaps.

To mitigate these risks, organizations should establish clear global mobility policies, engage with specialized payroll providers, and implement centralized tracking systems for short-term assignments. Regular audits and collaboration between payroll, tax, and legal teams help ensure accurate payments and full compliance in both jurisdictions.

Sample:

GlobalTech AG sent Maria from Zurich to Munich for a six-month project to support a new product launch at the affiliated legal entity in Germany. Because the assignment is under 12 months, it qualifies as a short-term assignment (STA) under company policy.

Payroll

The main challenge was how to handle payroll and tax compliance for Maria:

• She continued to hold her Swiss employment contract and remained paid in CHF.
• However, her work was physically performed in Germany, creating a German tax exposure and remaining in Switzerland social security system.

There is not just one payroll solution, there are several, such as having the salary payments through the Swiss payroll (home payroll) and have a Shadow payroll in Germany (host payroll) or vice versa or a split payroll.

The firm decided to go for the following set-up:

a. Payroll Setup

• Her salary was processed in Switzerland (home payroll) with the deduction of social security contributions and the German taxes
• Shadow payroll was processed in Germany for calculating the German income taxation as well paying and reporting it; the payroll was run from the affiliated legal entity.
• Exchange rates were fixed monthly for consistency.
• Expenses were paid by the home payroll.

b. Tax Equalization

• Maria's net pay remained equal to what she would have earned in Switzerland.
• Any additional host-country tax costs were borne by GlobalTech.

c. Social Security Agreement

• The A1 form was obtained under the EU-Switzerland agreement in Switzerland through ALPS, keeping her in the Swiss social security system.

This will result in:

• Full compliance with Swiss and German tax and reporting rules
• No double taxation or missed social contributions
• Assignee's net pay remained stable
• Transparent cost tracking for the company

Conclusion

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.