A globally active non-governmental organization (NGO) needs support: expiring contracts and future new contracts are to be reviewed for possible cost savings and the changes incorporated into a revised global assignment guideline.
First and foremost, the NGO's HR employees needed practical support in assignment management. This primarily involved acute challenges in the support of employees who have been working for the NGO on multiple assignments abroad for years. The employees were threatened with considerable initial tax payments and very high back payments if the current posting practice was maintained.
Tax problems due to unclear posting guidelines and lack of review processes
The posted employees had not submitted tax returns in host countries for years: A not uncommon problem with European employees posted abroad for many years - including in the Africa global region. The HR head office saw the responsibility as lying with the employees, while the employees saw it as lying with the NGO. This was also due to unclear posting guidelines and a lack of review processes. The assignment guidelines were therefore in urgent need of updating: the existing guidelines dealt with taxes and social security superficially. For example, there were no specific guidelines for the tax treatment of salary components in terms of amount, time of payment, or registration and deregistration with the authorities in the host country or at the NGO's headquarters. As a rule, the supervisors made their decisions on a case-by-case basis. For example, the highest cost drivers (in this case housing and school costs) were tolerated as insoluble.
At the time of the interim mandate, a controller was in charge of the Compensation and Benefits department. However, there was virtually no exchange with the specialists in specialist areas such as finance or compliance. There was no binding link in the function of a global mobility specialist. There was a consensus at the parent company that employees knew or should have known about the urgency of tax obligations in their respective countries of origin, places of work or residence. However, nowhere in the contracts was the issue clearly clarified.
Old contracts and conditions continued to run year after year, and there seemed to be no provision for updating or adapting them to changing circumstances (discontinuation or gradual reduction of privileges).
Cost savings through gradual "melting down" of old contracts
The interim manager was therefore faced with multiple challenges. She had to take due account of the interests of the NGO and the seconded employees. She drew up a detailed project plan that defined all activities with milestones. The core element was the revision of the secondment conditions. A further focus was on phasing out old contracts and reducing privileges from old contracts. New contracts were to be rigorously based on the new guidelines.
Consequentially, all contract types (long-term, short-term, multiple assignments) and guidelines were revised in English.
Treatment of tax issues formulated in the new secondment guidelines
In the dispute over the old tax liabilities of the seconded employees, the interim manager drew up a decision template that provides for cost sharing between the NGO and employees or tax equalization for the employees. This approach had also previously been recommended by an independent, internationally active audit management firm. The background to the recommendation was that it was no longer possible to clarify whether the failures were due to a lack of HR advice or excessive demands on the otherwise experienced seconded employees (managers). In addition, the NGO did not want to lose the often valuable specialists. Cost sharing also fits in with the corporate identity of the organization, which is committed to a special ethical responsibility.
Developing a mutually acceptable model for tax equalization reserves
With her draft for the new secondment directive, the interim manager developed new principles for dealing with tax issues. The regulation stipulates that the HR NGO determines the minimum contribution to deductions that can reasonably be expected of the posted employees. These minimum contributions are then used to create reserves for tax equalization.
The interim manager modelled initial prototypes in collaboration with the NGO's specialist departments. This showed that the tax equalization shadow calculation method, which was to be used until the employee debts were completely eliminated, relieved the burden on employees. Even the most serious cases resulted in acceptable deductions per month per employee and slightly higher contributions for the organization.
Applications for tax exemptions or special tax treatments recommended
In order to further reduce the costs of secondment assignments for the NGO and further reduce the tax burden on employees, the interim manager suggested applying to local governments in Africa for tax exemptions or special tax treatments. The chances of success for this are good as, on the one hand, low-income countries (such as the NGO areas of operation in Africa) use all available revenue options - and NGOs, those with their headquarters in Europe and North America, are considered good taxpayers. On the other hand, NGOs have a bonus due to their humanitarian profile, which makes it easier for states to make concessions.
Responsible and fairly balanced posting policy implemented
The responsible and fairly balanced posting policy also creates added value for the employer brand. The NGO purpose (improving health worldwide) and the chosen tax instrument (employee-friendly tax compensation) enhance the organization's humanitarian profile and are suitable, for example, for generating advantages in the recruitment of specialists.
The interim mandate also promoted further improvements. These include:
- In the very international HR department with a strong centralized focus, there has been a shift in responsibilities to where they were solved better and faster thanks to the knowledge of local authorities: in the countries of assignment of the secondment cases.
- Streamlining and transparency of the responsibilities of HR, which is still undergoing reorganization, with more efficient involvement of foreign HR employees
- A communication paper on the new concept (more transparent remuneration policy and revision of employment contracts for stakeholders and management)
