As digitally enabled workforces continue to go global, businesses are discovering the need for innovative new solutions that will help them manage compliance, mitigate risk and meet heightened expectations for fair wages, pay equity and transparency. Identifying and meeting new, evolving or unfamiliar wage, tax and transparency regulations in foreign jurisdictions is critical – and driving the quest for timely data that delivers precise, real-time reporting on mobile employees, wherever in the world they are operating.
Businesses failing to train a sharper global lens on where their mobile workers are at any given moment, how appropriately they are being paid and how local labor laws and tax regulations are being met can result in costly fines and tax penalties – plus the potential for legal sanctions, border detainment, licensing issues and corporate reputation damage.
Minimum wage, maximum challenge
Meeting minimum-wage requirements can be a complex challenge for businesses whose employees are constantly on the move to foreign assignments. Minimum-wage rates vary widely around the world and are updated regularly – creating a ‘moving target’ for global firms. The top 10 global minimum wage rates, converted to US currency, currently vary from a high of USD14.14 per hour in Australia to USD9.06 per hour in Canada. Luxembourg has the highest minimum wage in the EU at the equivalent of USD13.14 per hour – vastly higher than the EU’s lowest minimum wage of about USD1.79 per hour in Bulgaria. The US federal minimum wage, by comparison, is USD7.25 per hour.1
Many businesses are struggling to keep up with the bewildering array of evolving minimum-wage requirements they face as employees traverse borders around the clock. KPMG member firm research shows that among 31 countries we survey annually, only 21 have a minimum wage set at the national level – versus regional or even collective-bargaining rates that employers need to comply with.
The European Union’s (EU) Posted Workers Directive is a legal framework designed to guide companies operating in a foreign jurisdiction within the EU. The European Commission (EC) in 2018 officially revised its Directive and the updated framework must be transposed into national laws by 30 July of this year. The revised Directive aims to enhance protection of posted workers’ rights, articulating core employment conditions that must be met for employees working in a host country, including:
- Minimum rates of pay
- Maximum work periods and minimum rest periods
- Minimum paid annual leave
- Conditions for hiring workers through temporary work agencies
- Workplace health, safety and hygiene requirements
- Equal workplace treatment between men and women.
We expect even more guidance in the future as each EU member state works to more clearly define domestic remuneration and employee rights – ultimately making various workplace requirements fully transparent to employers, their employees and the public. On that front, we recently saw the new European Labor Authority became operational. Its mandate includes facilitating employee and employer access to information on rights and obligations, and supporting co-operation between EU countries in cross-border enforcement of relevant EU laws.
Meanwhile, the EC’s 2014 Enforcement Directive on Posted Workers continues to raise awareness on the rights and obligations of employees and employers concerning employment terms and conditions, while reinforcing the responsibilities of EU nations to comply with regulations. The Enforcement Directive essentially strengthens enforcement of the Posted Workers Directive by addressing issues related to:
- Circumvention of rules
- Inspections and monitoring
- Joint liability in subcontracting chains
- Exchange of information between authorities in EU member states.
‘War stories’ from the labor front
To illustrate how things can go wrong as firms deploy employees to international assignments – and reinforcing the need for accurate and timely data – consider the case of a Romanian company whose mobile workers provided services to EU clients operating outside of Romania. The employees were paid ‘assignment allowances’ in order to comply with minimum wage rates of the host country to which they were posted.
In Romania, an assignment allowance is usually deemed tax free and the employer therefore treated the assignment allowances as non-taxable. Unfortunately, in the course of a tax audit, Romanian authorities challenged the employer’s interpretation. Since the assignment allowance was paid for the purpose of reaching the minimum wage in the host country, it did not qualify as tax free but instead was deemed to be taxable as employee income. The company faced significant tax liability charges plus penalties and interest for late tax payments.
In another instructive case for global employers, a UK business assigned staff from India to work on a significant IT project in the UK for about 6 months. The employer chose to maintain each employee’s Indian salary level but paid an allowance linked to the higher cost of living in the UK during the assignment. But such allowances do not necessarily count as part of a salary or wage in the UK. As it turned out, the Indian salary that the workers continued to receive while in the UK failed to meet – due to the number of hours worked – the UK’s minimum-wage requirements.
A word of caution on business travel
Tracking compliance with the moving target of wage requirements during foreign assignments is presenting its own immediate challenges but what about business travel involving excursions that can be as brief as a single day? How are today’s business travelers affected by local wage requirements and the Posted Workers Directive?
There is no clearly defined answer, unfortunately, because the Posted Workers Directive defines postings in the context of the provision of services. Business travelers are on the move for a wide variety of reasons – some providing paid services or work in another country, others traveling for training or to attend meetings and conferences. Compliance can quickly become a complex challenge given the number of employees in transit at any time, their specific roles and timelines, and what the immediate employee entitlements and employer obligations are amid varied or changing rules and laws.
Beyond posted workers, it’s crucial for businesses to know exactly when and how the Posted Workers Directive and its wage requirements apply to business travelers. Forward-looking businesses are tapping into innovative technology solutions such as business-travel management systems that are designed to help manage compliance with minimum wage rules and other host-country requirements.
Addressing the global gender gap
While the array of minimum wage rates and employment rules has businesses seeking innovative solutions that will require timely data, addressing and narrowing the global gender gap is posing significant challenges as well.
The World Economic Forum’s (WEF) Global Gender Gap Report 2019 measures among 153 nations the relative gaps between women and men across four factors:
- Economic Participation and Opportunity
- Health and Survival
- Educational Attainment
- Political Empowerment
The WEF report aims to enhance global awareness of gender gaps and the opportunities that can be created by reducing or eliminating them. Political empowerment reflects the widest gender gap at 75 percent, followed by economic participation and opportunity at 42 percent. The narrowest gaps are in educational attainment and health and survival at about 4 percent each.
The report clearly emphasizes that the economic participation and opportunity is the only factor where we have gone backwards. The WEF warns, it will take an estimated 257 years to close the gap and achieve economic parity between women and men.
The European Commission, meanwhile, is continuing to encourage member states to adopt pay transparency recommendations that include:
- The right of an employee to ask for information about pay levels, broken down by gender, for employees doing the same work or work of equal value
- Company reporting of average remuneration by employee category or position, broken down by gender
- Conducting pay audits in large companies and making them available to worker representatives upon request
- Inclusion of equal-pay issues and pay audits in collective bargaining.
Companies and nations intent on addressing inequality are making progress on gender pay gap and transparency issues, some now providing public access to reports, broken down by gender, on average remuneration paid for various job categories and positions. UK firms, for example, have been publishing their gender pay gap percentages over the last few years. Australia has adopted similar changes. Finland, Sweden and Norway have gone as far as to make individual tax liability publicly available.
We are also seeing greater focus by businesses on:
- Environmental, Social and Governance (ESG) investing, which addresses the sustainability and ethical impact of investing in a business based on ESG factors, including gender parity and pay gap transparency. We are seeing ESG investing move from the sidelines to the forefront of decision-making for investors
- Shareholder activism and public awareness of business practices and ethics. KPMG International’s global CEO survey revealed that a third of leaders polled have actually increased transparency amid pressure from the public and factors related to ESG investing
- The need to make progress on gender parity amid fierce competition for critical new skills in the digital age. Today’s younger workers are increasingly mindful of what companies stand for and their employer ‘brand’ as a desirable workplace. Companies are thus being challenged to make rapid and measurable progress on the gender pay gap and related wage and workplace issues.
There is an increased transparency on employee issues due to availability of data. There are complex rules for calculating minimum wage and equal pay reporting, which are different in each country. There is also an unintended consequence (e.g. to gender pay gap) when a senior assignee moves from one country to another.
Our advice to global businesses and leaders is to generate and tap deeply into workforce data. Timely data will reveal in real time what employees are doing, where they are operating and what requirements need to be met amid various jurisdictions and diverse interpretations.
Workforce data can drive dramatic advances toward accurately identifying and effectively managing the ‘moving target’ of minimum wage rates, while enhancing transparency and enabling real progress on the gender pay gap. The key in our view is not to underestimate the complexity of managing and meeting rules and evolving expectations related to these two issues. Timely and precise data can also influence and enhance the selection process for posted workers in terms of allowances, duration of assignments, compliance, reporting and avoidance of potential discrimination.
KPMG in the UK
KPMG in Romania
KPMG in the UK
© 2020 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.