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Temporary (Short Term) Domestic Assignments

Domestic Relocation , Employee Relocation , U.S. Relocation

With more and more companies looking for creative ways to save money, many have turned to their relocation policies for areas in which to cut costs.  One trend that has gained in popularity recently is the temporary domestic assignment (TDA).

The IRS defines a short-term assignment as one that lasts for less than one year.  This is a very important distinction because the benefits change from non-taxable or deductible to taxable at the one-year mark. Companies that provide relocation tax assistance can save a considerable amount of money by not having to pay taxes on the benefits.

According to Worldwide ERC (Employee Relocation Council), home sale assistance costs average nearly $45,000 per transferee.  On the surface, it might appear that opting for short-term assignments rather than relocation would save companies a bundle, but it’s not so simple.

As a rudimentary example, National Corporate Housing states that the average daily rate for a corporate apartment in the U.S. is approximately $145.  Multiply this by 365 days and you get a cost of $52,925. And that doesn’t even account for other short-term assignment costs, like T&E. Of course, there are significant savings equated with a short-term assignment: no homefinding trip, little or no household goods to ship and no home purchase benefit.

As a practical matter, a stay of this length would usually qualify for a larger daily discount, which could essentially make the cost of a short-term assignment and a permanent move similar.

Technological advances and more liberal policies toward remote work arrangements are other factors that have facilitated the rise in TDAs.  The face to face working dynamic that is initially created through the TDA can then be carried back to the home office or remote working location and fostered through technology.  This allows companies to meet their needs for a specific skill set, build teams and transfer knowledge without having to bear the cost of a permanent relocation, and employees to avoid the some of the stress that comes with relocating their families.

Of course, the family issue is complex and while a TDA does reduce some of the stress, it cannot eliminate it. Most short-term assignments are unaccompanied and some employees and their families struggle when apart for extended periods. This can also be a significant challenge for single parents who might find that they have to turn down an offered assignment.

It is important for companies to keep in mind that TDAs require separate, formal policies, letters of assignment, and defined processes. By having these in place, companies can reduce the risk of tax exposure and increase the odds of a successful, productive assignment for the company and the employee.

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Debunking the Myths of Domestic Temporary Assignments 10.8.2014 | Jennifer Connell

• Domestic Assignments
• Short Term Assignment
• Workforce Mobility

As companies strive for greater flexibility to respond to the increasing speed of business and broader range of opportunities, temporary domestic assignments have grown in popularity.

In fact, according to the results of our 2014 Workforce Mobility Survey , more than half of companies now offer such assignments.

As their usage becomes more widespread, so have some myths concerning temporary domestic assignments. In this article, I’ll address and debunk them.

Myth: Temporary assignments only help us complete project work.

While the majority of organizations use domestic temporary assignments for project work-based needs, our survey revealed that a growing number of companies in the U.S. and Canada use them to develop future leaders and high potentials. In fact, high growth companies (companies with revenue growth of more than 5% over the past year) tend to use fewer short term assignments for “project work” and instead rely on these programs for career development purposes.

Myth: It’s less expensive to send my employee on a temporary assignment than a permanent move.

This is a common misconception. For short-term assignments, the vast majority of costs are typically covered by the company, including housing. While there is a favorable tax impact, companies are experiencing an increase among assignments that extend beyond one year. Not only does this increase the costs, it may affect the taxability of the provisions.

Prolonged family separation and other personal issues that arise over time could lead to more return trips home, dependent visits or time away from the project or assignment to tend to family issues. The costs involved in a permanent move may be comparable to the costs of a long-term assignment (greater than 12 months) when tax consequences are taken into account.

Myth: Temporary assignments are easier to administer than permanent moves because we only have to worry about the employee on the assignment.

Separation from family was cited as one of the top obstacles in using temporary assignments and can have a negative impact on productivity as the employee attempts to manage their home from the assignment location and connect with family. This can ultimately lead to higher turnover and retention issues and subsequently increasing recruiting and staffing costs.

Many companies structure temporary assignments based on the duration of the assignment and the family status (accompanied or unaccompanied). These aspects are closely aligned because not many families are willing to be separated for long-term assignments (more than 12 months). In addition, the longer the anticipated assignment length, it’s more common to develop a long-term policy that addresses accompanying family costs or the costs of property management.

Myth: Assignments that extend beyond a year are still not taxable.

Our survey indicates that more companies are extending the length of temporary assignments or transitioning them into permanent moves. This is not without tax consequences.

Therefore, when planning a temporary move, certain things need to be considered:

• Time limit. In the United States, under federal tax law, certain reimbursed expenses incurred while on a short-term assignment (or “temporary assignment” in tax parlance) of up to 12 months could potentially be considered non-taxable to the employee.
• Types of expenses. Expenses that may be considered non-taxable include travel between the home and the assignment location, accommodations at the assignment location, and meals or per diems while at the assignment location.
• Intended length of the assignment. Consider the timeframe anticipated for the assignment and when the decision was made to extend the assignment past 12 months, if applicable.

For example, if your company has an employee nine months into a 12 month assignment and a decision is made to extend that assignment beyond the 12 month limit, any reimbursements made after that nine month point are considered taxable income to the employee. Likewise, if an assignment has not surpassed the one-year limitation, yet the assignment was expected to last one year or more, the IRS considers this a taxable event. At the point that an assignment is believed to be greater than one year, the taxability of the reimbursed expenses begins.

Myth: A lump sum should cover all of the living costs incurred on the temporary assignment.

Lump sums can be difficult for employees to manage for a temporary assignment, particularly if their attention is divided among their family/home residence and the demands of their position in the new location. If the funds are not managed closely, this can negatively impact the employee’s productivity and can lead to subsequent requests for additional funds. If using a lump sum, the simple (but costly) solution is to consider all lump sum allowances as income and tax protect those payments.

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North America Domestic Temporary Assignment Policies & Practices Survey

Finding solutions for your temporary assignments.

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The North America Domestic Temporary Assignment Policies & Practices survey is a new survey dedicated to domestic assignments that are temporary in nature. Covering multiple industries, data collected will be focused on policies and practices surrounding your temporary assignment programs. If you transfer employees within the US or Canada temporarily, this survey is designed for you.

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When thinking about domestic relocation, temporary assignments can look different than long-term permanent moves. What are challenges you face with temporary assignments in your organization? How do your policies for these moves differ from those of permanent moves? Get the solutions you need when approaching assignments for a temporary relocation.

The North America Domestic Temporary Assignment Policies & Practices survey is a new survey dedicated to domestic assignments that are temporary in nature. Covering multiple industries, data collected will be focused on policies and practices surrounding your temporary assignment programs. If you transfer employees within the US or Canada temporarily, this survey is designed for you.

Results from this survey will provide you with an opportunity to gain better insight into your workforce, the ability to compare your policies and practices data with peers and competitors across markets, and allows you to secure a significant savings on your purchase of the survey results.

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Temporary Domestic Assignments in the US: Part 1

• Are looking to fill a position for temporary project work
• Need a specialized skill at a particular location for a certain period of time
• Want to train an employee at a certain location
• Are reluctant to offer a full relocation package in order to control costs

Temporary Domestic Assignments

Pulse Survey

The most recent Aires Pulse Survey takes a closer look at temporary domestic assignments. This report includes benchmark data for the types of support provided by employers and identifies the common reasons why employees are sent on short term domestic assignments. Domestic mobility is constantly evolving and growing to meet businesses’ and transferees’ needs. This is evident through notable trends such an increase in both policy tiers and types of relocations. Traditionally, domestic relocation implied a permanent move and often involved selling and purchasing real estate. The recession brought about change, reflection, and efficiencies. Hence, the temporary domestic assignment (which potentially eliminates or reduces costly permanent relocation expenses) caught the attention of several companies.

When first researched and surveyed in 2012, Aires found only 48% of companies offering temporary domestic assignments. Today, three-quarters of survey participants confirm that temporary domestic assignments are part of their domestic mobility program, yet more than a quarter of them are sending employees on temporary domestic assignments with no formal policy.

Below is a sneak peek of the Temporary Domestic Assignments survey.

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Domestic Short Term Assignments: What You Should Know

By: Sam Hoey | CRP, GMS

November 13, 2019

Many companies are using domestic short term assignments to strategically respond to corporate growth initiatives. Some business opportunities may only require a limited focus for a specific length of time. Often companies have current employees with knowledge and experience who can effectively contribute in various capacities. The IRS defines a temporary assignment or job as lasting for one year or less .

For example, the healthcare industry increasingly uses domestic short term assignments. These roles help the industry meet the challenge of hiring and keeping talent with high levels of skills. Many of these employees enjoy going to new locations on a regular basis and thrive in the excitement and adventure of domestic short term assignments.

By leveraging its current pool of talent, a company can quickly respond to changing priorities. Also, it can place a greater focus on growth initiatives rather than recruiting for new hires.

What are the Benefits?

Company benefits of domestic short term assignments.

There are many benefits for companies that can leverage domestic short term assignments. Issues relating to skills, training, and costs can be effectively addressed, often without having to incur significant costs:

• Easier to Attract Talent Interested in Challenging Assignments
• Gap in Skills is Effectively Closed as Employee Fills Role and Provides Training
• Productivity Increases
• Talent Acquisition Costs are Reduced or Eliminated

Employee Benefits of Domestic Short Term Assignments

An employee who fills a short term assignment also benefits in several ways. Often, the employee gains problem-solving skills and they will increase their ability to communicate across the organization. From a teamwork standpoint, the employee may inspire others to participate in finding solutions:

• Experience Increases
• Leadership Potential Rises
• Morale Increases with Recognition for Assignment and Achievement
• Network of Mentors and Peers Expands

What Does This Mean?

Companies that offer domestic short term assignments often gain a significant number of benefits. They can respond quickly and effectively to changing business priorities. Additionally, they can save talent acquisition costs and close skills gaps with placement and training.

Employees also gain many benefits by taking these positions. Their skill levels increase, and they can expand their network of mentors and peers in the organization. As a result, their leadership potential rises and their productivity increases.

What Should Employers do About Domestic Short Term Assignments?

Employers with transferees that fill domestic short term assignments should work with a qualified and experienced Relocation Management Company (RMC) . Often the company’s relocation policy focuses on benefits and programs for employees and family members moving to a new location.

However, employees that fill domestic short term assignments will need a different range of benefits and support, since they will return to their home after the assignment is complete. They may need assistance with travel , temporary housing options, or transportation solutions while at the new location.

Companies should review their relocation policy to ensure it follows industry best practices for relocation benefits provided to employees who take domestic short term assignments . GMS tailors each client’s program based on specific budgets, needs, and compliance. As a result, clients can offer an industry-leading relocation program designed to fully meet the needs of these employees. This helps ensure successful assignments and increases employee satisfaction.

Industry Benchmarking Studies Help Employers Compare Their Relocation Program

GMS has recently published several Industry Benchmarking Studies to help employers learn whether their company’s relocation program is designed following industry-specific best practices. There are many benefits to a corporate relocation policy benchmarking. For example, employers can learn how benefits provided for domestic short term assignments in their relocation program compare to those offered by competitors in their specific industry.

Industry best practice is to schedule a relocation program and policy review every 12 to 18 months to ensure your company maintains its competitive position . This review will also help your company learn about how the relocation industry is evolving to meet increased employee demands, especially with regard to domestic short term assignments.

GMS’ team of corporate relocation experts has helped thousands of our clients understand how to leverage domestic short term assignments to meet corporate objectives. Our team can help your company design a relocation policy that provides the best experience for employees during their temporary assignments.

GMS was the first relocation company to register as a .com, created the first online interactive tools and calculators, and revolutionized the entire relocation industry. GMS continues to set the industry pace as the pioneer in innovation and technology solutions with its proprietary MyRelocation™ technology platform .

Global Mobility Solutions is proud to be named and ranked #1 Overall, and #1 in Quality of Service by HRO Today’s 2019 Baker’s Dozen Customer Satisfaction Survey.

Contact our experts online to discuss how your company can leverage domestic short term assignments to meet corporate objectives, or give us a call at 800.617.1904 or 480.922.0700 today.

Sam Hoey | CRP, GMS

Senior Vice President, Global Account Management Sam joined Global Mobility Solutions in 1996 and has a unique perspective with her 25 years of industry experience. Samantha offers her clients relocation expertise and a commitment to excellence in her. Her proficiency in orchestrating the BVO and GPO Programs, as well as relocation policy design and implementation, are invaluable assets to the accounts she manages. Her experience in administering Pre-Decision Relocation services to enhance the recruiting process further demonstrates her unique abilities to service her clients. Samantha’s diverse experience, leadership, and outstanding communication skills enable her to manage the relocation process for her clients with finesse and polished professionalism.

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Temporary Assignments Policy

[Company Name] may periodically re-assign employees to other work locations for temporary duty based on business need. The purpose of this policy is to complement [Company Name]'s relocation policy and its business travel policy. Under this policy, temporary assignments are not less than 60 days and not more than 180 days.

Temporary assignments are subject to a written agreement detailing the terms of the assignment and the approximate duration. The distance of the new work location must be greater than 50 miles from the employee's regular work location. If the distance is less than 50 miles, the assignment is handled under the business travel policy.

Allowances during Temporary Assignment

Travel costs to and from the temporary work location by public transportation, personal vehicle or rental car will be reimbursed by [Company Name]. For public transportation, travel arrangements must be made through [Company Name]'s contracted travel service and costs will be paid directly by [Company Name]. For personal vehicle use, reimbursement will be made based on the standard mileage rate of [current IRS rate] per mile. All rental vehicles should be reserved through our contracted travel service.

Costs for return visits to the employee's home location every two weeks during the temporary assignment will be covered.

Per Diem and Lodging

The employee will receive per diem and lodging allowances during the temporary assignment. If known in advance that the duration of the assignment will be for more than three months, arrangements with a corporate apartment provider will be handled through our travel service. If the duration is unknown, the employee will be required to stay at a hotel scheduled through our travel service.

Payment of Expenses

Any expense that is authorized by [Company Name] will be paid through accounts payable. Expenses for lodging, meals and incidental expenses paid by the employee should be submitted weekly to the accounting department for reimbursement.

Tax Considerations

Reasonable expenses incurred due to temporary assignments are considered proper business expenses that can be deducted by the company and are not considered taxable income to the employee. Thus, actual expenses reimbursed to an employee are not subject to federal or state withholding.

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While on TDOA all reimbursable charges are based on what is written in the MOU.

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FCP-HR-TR-08 Short-Term & Long-Term Temporary Domestic Off-Site Assignment

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Short-Term Assignments: Key Considerations and Essential Information

By Tracy Langlois, CRP, GMS

Short-term work assignments have been steadily increasing over the years and certain factors like the pandemic have shined a light on vulnerabilities within numerous industries. For instance, the demand for travel nurses has never been higher, as certain staffing agencies need to fill voids and provide additional support at hospitals all over the US. Other companies are asking employees to train new hires at different locations or attend workshop programs and conferences out of state. Those working in media may need to spend days, weeks, or months in different locations covering news stories. HR representatives are focusing on talent mobility, which may require employees to take on short-term work assignments for specialized training and upward growth within a company.

No matter the industry or reason, employers are recognizing the value of short-term assignments, as well as the logistical steps required to smoothly transition their employees from point A to B. With that in mind, CapRelo put together an overview of short-term assignments, so your company knows what is needed to assist your employee during the hectic transition of a short-term assignment.

What is a Short-Term Assignment?

A temporary assignment is defined as a work stint lasting for one year or less. A short-term assignment can be a series of shorter rotational assignments or an assignment that requires an employee to stay in one place for the entire duration. Similar to temporary duty assignments in the military, short-term assignments are not permanent and are meant to carry out a specific purpose. Companies may send one employee or a whole team out on temporary assignments, depending on the industry and work goal.

What is the Purpose of a Short-Term Assignment?

There are plenty of different reasons why companies would send their staff out on short-term assignments. For instance, an employee may need to assist a branch that’s struggling to perform and help them to increase their sales numbers. It’s also not uncommon for staff to oversee different departments during a company merger, requiring temporary assignments to ensure company policies are being carried out consistently across the board. Perhaps limited resources have prevented staff at different locations from being properly cross-trained, necessitating the need for temporary work trips.

Whether three weeks or three months long, short-term assignments typically require companies to cover lodging, food, transportation, and other travel-related expenses with stipends.

Benefits and Challenges of Short-Term Assignments

While short-term assignments sound like a breeze, they can pose some serious challenges for both the employee and the company itself. International short-term assignments can pose tax and immigration issues if companies don’t comply with the laws and regulations in each country. Secondly, some countries have turbulent landscapes, which could potentially put staff at risk. Employees may also get stranded in the assignment country due to canceled flights or COVID-related concerns, further implicating the company when temporary assignments do not go according to plan.

On the flip side, a company can create a robust talent mobility strategy with initiatives that reward current and new hires willing to take on short-term assignments. For instance, paying employees during travel time can lead to higher retention rates. Companies can also train staff across locations to improve their skills, eliminating any consistency errors. A change of scenery might help employees to improve productivity as well, especially in locations that offer plenty of sunshine and warm weather for post-work relaxation.

Short-Term Assignment FAQs

• Are Short-Term Assignments International? Short-term assignments can be either domestic (within a country) or international (across country borders). Certain companies like Amazon, FedEx, and Apple are known for leading the way with the most corporate travel, requiring employees to rack up airline miles to fulfill their job duties.
• How Does the IRS Define Short-Term Assignments? The IRS defines short-term assignments as work in one location that can be reasonably completed in one year or less (and is). Employees typically file taxes with their home state. If a work assignment lasts for longer than a year then it is considered an indefinite assignment, prompting an employee’s tax home to change.
• What is Relocation Tax Assistance? Before 2018, any moving-related payments or reimbursements to employees were not included in their annual reportable wages. These expenses did not require withholding taxes and would have been paid by the employee and later deducted. The Tax Cuts and Job Act of 2017 changed the way payroll handled relocation expenses. Nowadays, employers can offer relocation tax assistance or tax gross-ups . A tax gross-up simply means that a company provides a larger payment sum to the employee to compensate for the taxes that will be withheld from their payment if that employee is relocating somewhere new.
• Do Family Members Join Employees on Short-Term Assignments? When it comes to temporary assignments, most companies do not assist families to join the employee in the new location if the assignment is expected to have a duration of six months or less. Assignments greater than six months may include company support for family accompaniment. Some companies will offer to pay for visits home after a certain amount of time has passed for employees who are not accompanied. This could be anywhere from 8 to 12 weeks after the start of the assignment but depends on the company’s unique policies.

How Can Companies Assist Employees?

Companies should have well-defined relocation policies in place before sending employees out on temporary assignments. The policy should include details on the relocation services and benefits which will be provided to employees and who will be assisting them with these services. It is important to note for international cases that proper immigration documentation is required before the start of the assignment. Letters of assignment (LOA)s should also be created for employee and company signature and should include specifics on the location and duration of the assignment and specific benefits. Companies should have a dedicated budget in place to assist with short-term assignment relocation expenditures; a comprehensive cost estimate including tax costs can be prepared in advance to ensure appropriate approvals can be obtained. A survey of HR professionals conducted in partnership with CapRelo found that 33% of participants stated their relocation policies have been updated to accommodate employees’ mental health and well-being, which is another factor that should be taken into consideration to help employees cope better with their new surroundings.

Do You Need a Relocation Program?

So, you’re ready to send your employees out on short-term assignments, but don’t know where to start? Whether you need help transferring one employee intra-country, or flying a whole team across the globe for specialized training, we can help.

At CapRelo , we provide relocation solutions for companies that need them, covering a host of services including cost estimate preparation, corporate housing, auto shipment, property management, travel services, immigration coordination, and much more.

Our team specializes in seamless transfer operations and sorts out all of the logistical steps before your employee’s short-term assignment so you can have peace of mind knowing that they are in the best of hands. Allow us to take one more thing off your plate and contact our highly qualified team at CapRelo today to get started.

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Changes to Assignments – Hidden Tax Costs

COVID-19, current travel restrictions, and government and business shutdowns have certainly made it difficult for many mobile employees to carry out “business as usual.” This can be particularly true for employees that were on a short-term or long-term assignment prior to COVID-19. Because of safety considerations or travel restrictions, two common scenarios that have emerged from the COVID-19 pandemic include:

• Scenario 1: Individuals that were on a short-term assignment (i.e., 1 year or less) are having their assignments extended.
• Scenario 2: Individuals that were on a long-term assignment (i.e., more than 1 year) are temporarily returning to their Home location or going to a different location.

In both scenarios, many companies are providing assistance to employees to help with either the additional costs of staying on assignment, such as in Scenario 1, or assistance with the costs of temporarily going back home or to a new location, as in Scenario 2. The additional costs of such assistance may be substantial, but there could be even more hidden costs for the company due to the following:

• Additional tax implications could result due to a change in where the employee was originally expected to be located. For example, an employee who remains in a location longer than anticipated could become subject to tax in that location because an income tax treaty no longer applies and/or because they have become a resident for Host location tax purposes. You can read more on this topic in one of our other recent blog articles .
• Payments made by the company to assist mobile employees that have an unexpected change in location may be considered taxable income if the individual is working in or is a tax resident of the location.

From a US federal income tax perspective, the Internal Revenue Code (IRC) defines taxable wages as all remuneration for services performed by an employee for their employer (both cash payments and non-cash benefits paid in any way other than cash), UNLESS specifically exempted by another IRC section. Here, one of the most well-known IRC sections that exempts payments from taxable compensation is IRC Section 162(a)(2), which is often referred to as the “business traveler exemption.” However, as shown in the following example, it is important to not assume this exemption will always apply, especially if facts change due to COVID-related issues .

Business Traveler Exemption

Under IRC Section 162(a)(2), an employee with a tax home in location A who is on a “temporary” assignment or business trip to location B can receive tax-free reimbursement of certain travel costs (e.g., reasonable housing, per diems) from their employer. Here, a temporary assignment would be defined as one that is expected to last and, in actual terms does last, for one year or less. If the assignment later is expected to go over the one-year mark, it will no longer be considered temporary, such that the travel costs no longer qualify for exemption under IRC Section 162(a)(2).

The following scenario illustrates this concept considering a possible COVID-related assignment extension.

Scenario 1 – Extended US Domestic Assignment

Assume an employee went on a temporary assignment from Florida to Tennessee on May 1, 2019 and was expected to complete their assignment on April 15, 2020. However, due to COVID-19, the employee decided to remain in Tennessee because perhaps their home in Florida was a COVID-19 hotspot or there were travel restrictions limiting their ability to travel back to Florida.

In this scenario, once the intent of the assignment was expected to exceed one year, the “business traveler exemption” would no longer apply (from that point onward), with all payments for housing, meals, and travel in Tennessee now subject to US federal taxation. Due to this factor, the change in taxability for the assignment costs could result in a very unpleasant surprise for the individual or company (if the company policy would cover the incremental tax costs for their employee).

In this example, as Florida state and Tennessee state do not have state income tax, a state income tax event would not be incurred. Although outside the scope of this blog, a review of state tax requirements should always be undertaken to determine the state income tax impacts.

In addition to domestic US scenarios, it is also critical to consider the ongoing applicability of IRC Section 162(a)(2) for employees who temporarily relocate due to COVID-related reasons. The following example illustrates this need for an employee and family who are temporarily returning to the US for safety considerations.

Scenario 2 – Temporary repatriation to the US

Assume an employee was on a 3-year assignment from the US to another country and started the assignment on January 1, 2019. During this assignment the employee’s family joined them and they rented out their house in their Home location for the duration of the assignment. Due to the COVID-19 pandemic, the employee returned to the US in March of 2020, and the company provided temporary housing for the employee and his family.

In this scenario, the travel back to the US could be deemed a “temporary assignment” if the individual’s tax home remained in the other country. Accordingly, the “business traveler exemption” could apply to have the housing, meals, and travel costs be exempt from taxable income, but only for the costs related to the employee. Any payments related to the family do not meet the requirements of IRC Section 162(a)(2) to be considered exempt from compensation. Accordingly, any of the following payments for the family would be considered taxable income:

• Housing costs in the US (i.e., the incremental cost of housing for the family beyond a one-bedroom place or similar housing that would normally be provided to an employee on a short-term assignment)
• Travel costs for the family to travel from the assignment location to the US
• Any meals/food for the benefit of the employee’s family

In addition to any US federal tax costs, it would also be necessary to consider whether the additional housing, travel, and meal costs would be subject to state tax or to tax in the non-US country. Once again, the taxability on these payments by the company could result in very unpleasant surprises for the employee and employer.

Section 139 to the Rescue?

While the “business traveler exemption” may not provide much relief to companies that are supporting changes in assignment locations for their mobile employees, there is another IRC section that could assist in limiting any unexpected tax bills.

Soon after the events of September 11, 2001, IRC Section 139 was added to the IRC as an instrument for private entities to provide disaster relief payments to individuals on a tax-free basis. The current pandemic is a “qualified disaster” for purposes of IRC Section 139 and will remain qualified until the President declares that the federally declared disaster condition has ended.

Qualified disaster relief payments are exempt from federal and most states’ personal income tax for the recipient and are exempt from federal tax withholding, FICA, FUTA, Medicare, and self-employment taxes for all parties if structured properly. Further, qualifying payments are still deductible business expenses for the employer, even though they are not taxable to the recipients. Some potential expense reimbursements that could qualify for relief under IRC Section 139 include:

• Housing: Expenses incurred for a hotel room due to quarantine
• Transportation: Expenses incurred as a result of COVID-19 including rental cars and parking expenses
• Meal: Expenses from delivery services as a result of restricted travel
• Remote work: Expenses associated with remote work arrangement as a result of the pandemic
• Medical: Expenses related to COVID-19

There is no specified dollar limitation on the amount of payments that may be excluded from income by operation of IRC Section 139; however, the expenses must be “reasonable and necessary” and your organization should document that the actual payments comply with their own policy (e.g., the amount of payment should be commensurate with the expenses for which the payment is being made.) Also, it is important to note that payments for income replacement purposes, such as payments to individuals for lost wages or unemployment compensation, are not eligible for tax relief.

As mentioned above, the ultimate taxation of traveling costs can vary depending on the locations involved (e.g., states and/or countries) and the specific facts and circumstances. If you have any employees that fit the fact patterns described above, and you would like to explore if IRC Sections 162(a)(2) or 139 could reduce your employee or company’s overall tax cost, please contact us and we would be happy to provide assistance.

Author: Brett Sipes

6900 Wedgwood Rd N, Ste 400

Maple Grove, MN 55311

+1.888.486.2695 | [email protected]

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Effective Short-term Assignment Per Diem Calculations

Short-term assignments is a growing – and growingly complicated – category within international mobility, with the number of short-term assignees increasing at over half of multinational companies over the last two years, according to Mercer’s 2012 and 2010 Worldwide Surveys of International Assignment Policies and Practices. An increasing number of assignments means higher costs, and it is more important than ever to ensure that the short-term allowances you provide to your employees are calculated accurately and consistently. Most multinational employers choose to use short-term per diem allowances rather than an expense-report-based reimbursement system for short-term assignees for consistency and budget control. But how should you approach per diem calculations to ensure your allowances are cost-effective, fair and consistent?

What is a short-term assignment?

First of all, it is important to be clear with what constitutes a short-term assignment. Employers may be differentiate based on family status, nationality, salary levels or other factors when determining the daily living allowance for these assignees. However, typically, a short-term assignee at a multinational company

• is on an assignment of 3 to 12 months,
• is unaccompanied by family members,
• is housed in a company-provided furnished apartment, with a self-catering facility (i.e. kitchen),
• receives transportation assistance from the company, and
• remains on home-country payroll and benefits.

What matters in determining short-term per diems?

What should you watch for when determining daily allowance recommendations for this type of assignees?

The key to effectively managing per diems is to ensure that you are getting data based on correct assumptions. The data should be flexible, accurate, and tailored toward short-term assignees at companies like yours.

The accuracy of the data that goes into the calculations is, of course, primary. That does not only mean that the various costs that make up the per diem should reflect current spending levels of assignees in a particular location. But the data should also be based on the spending of other business employees on short-term assignments. That means the calculations are made with appropriate assumptions, such as that the employees are staying in lodgings with self-catering facilities rather than in hotel dwellings where they would spend significantly more on eating out.

It is also important that the recommendations are transparent and flexible. Being able to pinpoint the costs of various elements of the per diem will not only help you manage budget and expectations, but will also let you adjust the allowance based on specific circumstances. You may want to adjust the market basket and/or compensate short-term assignees differently depending on their salary level, the purpose of their assignment or other factors. Mercer’s short-term per diem calculator presents our clients with three price levels and allows to customize per diem elements, so that they can apply the recommendation that fits their company’s budget and spending assumptions.

Isn’t free public data the easiest and cheapest source of recommendations?

When searching for per diem recommendations, you may find free public data available online, often published by government agencies. But this data may not meet the objectives of your short-term assignment policy or budget for a number of reasons. Here are some differences between the governmental approach, this one of the United States Department of State, and that of Mercer, which is experienced in providing data specifically for short-term assignees from multinational companies:

• Assumes employees are living in apartments/hotels with kitchen facilities for meal preparation
• Prices are updated twice a year and exchange rates are updated weekly
• Prices reflect outlets used frequently by expatriates in each location
• The number of meals out varies by the three levels offered by Mercer and can be customized to include as many or as few as a company deems essential. It is based on typical costs at dining facilities frequented by expatriates.
• Data includes expenses based on statistical research of consumption on short-term assignments and includes items in categories of personal care, recreation, public transportation and over-the-counter medicine.
• Assumes employees are living in hotels without kitchen facilities and eat all meals out
• Prices for hotels and meals are updated every two years (unless major changes require an interim update)
• Prices reflect the hotels and meals most frequently used by typical government travelers
• The meal portion is based on the average costs of three daily meals at dining establishments typically used by federal employees in that location.
• The “incidentals” portion is calculated as the cost of meals plus 10% of the combined lodging and meal costs, to cover incidental travel expenses

What do these differences in data sources and per diem calculations mean in terms of daily allowances? Let’s look at some of the most common short-term assignment locations worldwide and compare Mercer’s recommended per diems with those of the US Department of State:

Per diem allowances: Mercer vs. US Department of State (DoS) – Data other than % in USD; all data as of 15 October 2012

Unaccompanied assignee, price levels (all in USD)

As you can see, the differences in assumptions and approach yield significantly higher daily per diem recommendations from the US Department of State data. Using these recommendations would cause an employer with short-term assignees to waste hundreds to thousands of dollars per assignee per month, even if you compare to the “High” price level in Mercer’s range. So much for cost-effectiveness!

As multinationals increase their reliance on short-term assignees to reach their business goals, they should also increase their vigilance in ensuring that those assignees are provided living expenses based on realistic assumptions. Use of accurate and flexible per diem assumptions will not only be fair to assignees but will benefit employers’ bottom lines.

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