Payroll across the pond

Staying on top of foreign tax rules part of the job’s challenges

Those in payroll know how head-scratchingly complex it can be to get people paid across 10 provinces. Not many would attempt doing so across international borders.

But that’s not to say that there are none. Frank Lilley, senior co-ordinator of international payroll at Petro-Canada, has just taken on the job of handling payroll for the 500-some employees outside of Canada. Petro-Canada employs about 5,500 people altogether.

It has been a challenging year. Not only does he have to manage a handful of service providers, he also had to learn about the general tax rules of various countries around the world and learn how to deal with different working styles.

“It’s having to understand how different payroll is in another country,” said Lilley. “So different that it sometimes doesn’t make sense. But if you spend time and talk to other folks, you start to see where they’re coming from.”

Lilley has had a long career building up to this role. Two years after he first entered the payroll world in 1991, he joined Petro-Canada and has done domestic, expatriate and, now, international payroll.

At Petro-Canada, Lilley and a team of two payroll analysts are in charge of payroll for non-Canadian and expatriate employees. The Calgary-based oil-and-gas company has employees in more than 10 countries: the United States, the United Kingdom, the Netherlands, Germany, Norway, Russia, Trinidad and Tobago, Venezuela, Syria, Lybia, Algeria and a few others.

U.K. payroll in Calgary

In most of these countries, payroll is processed locally. But for payroll in the U.K. and Norway, it’s Lilley and his team who run the show. They co-ordinate employee data, income taxes, social security and benefit remittances. Then, the files get transferred to PricewaterhouseCoopers in Norway for remittances of taxes and direct deposits.

In April, the team brought the entire payroll processing for 230 U.K. employees to Calgary, made possible by the enterprise resource planning software SAP.

“I have a staff here who maintains employee data in SAP. Once it’s time for the pay to be run, the person generates the direct deposit file, determines how much tax and social security needs to be remitted, how much pension needs to be remitted, and we co-ordinate with our U.K. office to have the deposits done,” he said.

The team takes a more hands-off approach to payroll in the United States, where Petro-Canada has about 120 employees. In the U.S., ADP does the gross-to-net calculations and pays all the required taxes to federal and state governments.

Working with vendors

Part of Lilley’s job is to stay on top of the vendor management strategy, with an eye on whether a vendor change is required or whether it’s time to bring a country onto the SAP system.

“Our general experience with the payroll service bureaus is they’re a little more difficult to deal with when you’re trying to make changes,” said Lilley. “When you try to create a new deduction or a new earning or the way something is calculated, it’s generally a painful process.

“It requires communications. You never get the same person; it’s always somebody different. You have to test the results. It takes two to three times before we get the end result you want. But that’s the case with any service bureau.”

Doing it yourself, however, means staying on top of countless variances. In Canada, taxable benefits are reported every pay and tax is paid on them every pay period. In the U.K., however, benefits are reported after the end of the year and are reported separately. “The report goes to the Department of Inland Revenue, and they send you back the equivalent of the TD1 form that says, here’s this person’s tax code,” he said.

And that tax code may change if the employee gets some other income and hasn’t been paying enough taxes, added Lilley.

“So in the U.K., the government tells the employer what the tax code is, whereas in Canada and the U.S., the employee tells you what the tax code is,” he said. “That’s the level of understanding you need to have.”

Stock options

Where things get really complicated for Lilley’s international payroll team is around stock options. When employees in the Netherlands exercise their stock options, the shares are issued and sold in Canada and there are net proceeds to be paid to the employee.

“And there’s a whole process for how to get those funds to the employee in the home country. What kind of tax is to be paid on that? How is it to be reported? That’s different with every country,” he said.

Cultural differences

The job also requires having a sense of the different attitudes people have towards certain issues. In Trinidad and Tobago, for example, the government keeps a keen eye on whether things are reported properly and on time — “any sort of delay would be a big concern,” said Lilley. Even within the same company, the differing mindsets could create problems. For example, the U.K. tax people might call up Lilley to request certain information.

“We’ll say, ‘Why do you need that? That’s kind of confidential.’ And they’ll say they need it to do this and that billing,” he said. “We need to figure out what the right thing to do is, to make sure we meet all obligations.”

Lilley’s team is also in charge of payroll for Petro-Canada’s expatriate workforce.

“Expatriates take a lot of work because you pay them in two countries so you have to deal with tax issues in both countries.

“You run the pay in Canada but you have to pay them in the U.K. or somewhere else. You have to get the funds wherever they are.”

To read the full story, login below.

Not a subscriber?

Start your subscription today!