Finding the Right Compensation for Temporary Assignments
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- Determine the criticalness of the assignment. There are various instances where an organization will need to temporarily fill a role, and how they go about compensating the employee assigned to the temporary role should be preset and determined on how critical it is to the business.
- Filling in for an employee on leave. In a scenario in which an employee goes on leave and a person is asked to take over their job responsibilities for a defined time, a compensation bump should be added as a premium in the form of a line item of pay with their typical paycheck.
- Put a formal process in place. Having an established process makes good business sense because when an employee takes on a new role for a period of time, exercising the same responsibilities as the employee on leave, they should have the same pay opportunity.
- Quick-fix scenarios. Some work scenarios are more difficult to formalize a compensation structure for temporary assignments, such as an employee in a call center not showing up for work for an extended period without notice. Employees who fill in when needed should receive other reward items such as free lunches or gift cards that say “thank you” for picking up the additional workload.
Temporary assignments, or the assignment of duties to an employee outside their regular scope on a short-term basis, often come with an increase in direct compensation.
But how should that amount be determined?
It all depends on whether the assignment is for a new project or simply a fill-in for a missing employee, said Julian Pawlowski, senior principal at Mercer.
“[Temporary assignments] are common practice in the context of a major project and typically involve an additional scope of responsibility,” he said.
On the other hand, with constant organizational changes, such as a promotion or other employee transitions such as maternity/medical leave, organizations may need to assign an employee to a temporary role to both support that transition and any gaps in the workflow that a change creates.
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“Some roles have less influence on results and pay should be commensurate with that,” he said.
Therefore, leaders must first determine the criticalness of the assignment to the business, Pawlowski said.
“What will be the impact if someone’s not in place?” he said. “There really has to be a discussion about the risk if the project isn’t completed on time. What’s the risk if no one is covering that person’s responsibilities? Risk must be determined up front.”
With core strategic projects, for example, there typically are very defined project plans with dependencies and outcomes so that organizations understand the scope of work that’s occurring and the employee understands the part of the workflow and outcome they are responsible for.
From an administrative perspective, this should include an assignment letter, a plan document explaining the terms and conditions of the program, the award amount, timing and any actions that occur if a person leaves.
“All that should be in place before the project begins so they are clear about what they are eligible for, how they earn it and when they earn it.”
But the extra compensation — paid out at the completion of preset milestones — should not just be based on an individual’s performance, Pawlowski said.
“There’s the participant’s support and input that should be measured individually, but also the team’s outcome,” he said. “So a composite score should determine that temporary assignment’s compensation range.”
In a scenario in which an employee goes on leave and a person is asked to take over their job responsibilities for a defined time, however, the compensation bump should be added as a premium — a line item of pay with their typical paycheck.
“That way the person is recognized immediately for the time and work done, and reinforces the idea that the person is getting the opportunity and extra money immediately,” Pawlowski said. “It really helps with both employee motivation and retention.”
Formalizing the Process
For McKesson Canada and its 4,500 employees, temporary assignments that last a minimum of three months occur often enough that the company has a formal process in place.
Isabelle Brissette, a McKesson Canada compensation consultant, noted the company had 29 temporary assignments for the past fiscal year. “Some of our maternity/parental leaves can last up to 18 months,” she said.
Having a formal process in place makes good business sense, Brisette said, because when an employee takes on a new temporary role, exercising the same responsibilities as the employee on leave, they should have the same pay opportunity.
McKesson Canada employees on temporary assignments receive a compensation package that al teast matches the new career grade’s minimum salary range, Brisette said.
For roles in which the employee will take on new responsibilities for three months or more — sometimes up to 18 months to cover maternity/parental leaves — the employee will be placed in the new job code, with the new grade level and get the new bonus target associated with that role.
Base pay, however, will not be increased.
“We will put in a temporary bi-weekly premium as a percentage of base,” she said. “This bi-weekly premium usually ranges from 5% to 15%.”
However, in light of new pay transparency standards , as well as because the employee will have access to the new salary range, McKesson ensures that the bi-weekly premium added to the base pay comes to at least the minimum of the new range.
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Once the assignment is over, the employee goes back into their regular position and grade level, and the bi-weekly premium stops.
McKesson has another process for a temporary assignment for extra responsibilities, Brisette said.
“This is where an employee would remain in their current role but take on responsibilities from a colleague or a superior who is on leave for an unknown period of time (short-term leave, jury duty, etc.).”
In these cases, she said, compensation is simply made by a lump-sum payment.
Some work scenarios, however, are more difficult to formalize a compensation structure for temporary assignments, Mercer’s Pawlowski noted.
“Maybe there’s an employee in a call center who doesn’t show up or leaves unexpectedly and the remaining team picks up the workload,” he said. “That’s fairly common and there needs to be consideration in other areas beside direct compensation.”
Employees who fill in when needed should receive other reward items such as free lunches or gift cards that say “thank you” for picking up the additional workload.
“That’s a really important detail,” Pawlowski said. “There are many cases where it’s not formalized and there are gaps in the work and workers still need to pick up the slack.”
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Temporary assignments and pay
Q. What is the difference between a temporary promotion and a temporary detail?
A. A temporary promotion is intended to meet the temporary needs of an agency’s work needs when those services can’t be met by other means. To be temporarily promoted, an employee has to meet the same qualification requirements that are needed for the permanent promotion. He or she receives the higher graded salary for the period assigned and gains quality experience and time-in-grade at the higher grade level. The 120 days can be made noncompetitively. In other words, the employee doesn’t have to compete with other employees for the temporary assignment. A detail is the temporary assignment of an employee to a different position or set of duties for a specified period when the employee is expected to return to his/her regular duties at the end of the assignment. An employee who is on detail is considered for pay and FTE purposes to be permanently occupying his or her regular position. Therefore, there is no change to the employee’s grade or salary while serving on the detail (even though the duties associated with the detail opportunity may be classified at a higher or lower grade level than the employee’s current position).
Reg Jones was head of retirement and insurance policy at the Office of Personnel Management. Email your retirement-related questions to [email protected] .
Buyout and reemployment.
can an employee be temp detailed to a set of duties for 120 days and then temp promoted to a successor position for 120 days?
To the best of my knowledge, the answer is yes. If one of our readers has better information, let us know.
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Temporary employee laws: A guide to hiring contract roles
The labor market is a strange place right now. A shift towards unconventional work lives means that many employers and companies are in the midst of a total overhaul when it comes to thinking about their workforce.
That said, temporary employment or a contract role may be a good fit for individuals looking to learn more about a certain type of job or eager for immediate work, as well as for employers who are looking to fill a role that has a time-limited or a defined endpoint that doesn’t require a full-time employee. Here we’ll define and discuss what it means to be a temporary employee, the benefits and disadvantages of hiring a temp, as well as temporary employee rules.
What is a temporary employee?
A temporary employee is a contracted worker who is hired for a short-term job. The United States Department of Labor (DOL) defines a temporary employee as someone hired to work for one year or less with a specific end date—however, a typical temp job usually lasts a couple days to a couple weeks. When the position continues longer than six weeks, it’s generally considered a long-term job. Temporary employees are often hired through a temp staffing agency that manages and connects interested individuals to various temp or contract jobs, but temps and contractors can be hired directly by the employer as well. Learn more about how to pay contractors with a data-driven approach.
Benefits of hiring a temp
Hiring a temporary employee can prove useful to employers for a few ways:
- When you need a short-term project done quickly. Hiring a temporary employee for a limited scope need with a defined endpoint accelerates your timeframe to hire without the intensive and costly process of hiring a full or part-time employee. This is seen frequently in seasonal retail or service hires around holiday commerce. Contract roles are also found in areas such as the tech industry when an organization needs additional support or specialist skills for a project or time period
- A trial run for a full-time job. If you are looking to hire someone full-time, a temporary job position can also serve as a great trial run. Working with a temp agency saves you time in the hiring process, as they have plenty of resumes on hand and can help connect you with a good fit. Once contracted for the job, a temporary employment provides an opportune time to see how well the employee aligns with your company culture, performs their assigned tasks, and meets or exceeds company goals
- Filling the gaps. A temporary employee can help you and your company “fill the gaps” in a few ways. Perhaps there is a skillset you need that is lacking in your current staff, but not enough to create a full-time position for it—such as a graphic designer or an office assistant. This is where a temporary employee, such as a freelancer or independent contract worker, can help fill that need. In addition, seasonal needs such as an uptick in business during the holiday season, are a great opportunity to bring in a temporary employee to help with the increased workload. Lastly, if an employee is on a temporary leave, a temporary employee can fill that gap until the full-time employee returns from leave
Disadvantages of hiring a temp
The main disadvantage of hiring a temp is that you have less time for onboarding and training. It takes time for any employee to adjust to their new workplace environment and learn the ropes of the job—a temp employee will not have a lot of time to do so. When hiring a temp, it’s important to consider the complexities of the job, the temp’s experience, and how quickly you expect them to acclimate to the position.
Temporary employee rules
As with any employment contract, there are rules to hiring a temporary employee. Here are a few to take note of:
- Clear contracts (no fine print!) . When hiring a temp worker, you as an employer are obligated to clearly define their payment terms and the length of their employment. It’s also good to include any benefits or additional job requirements that will be part of the contract. These are non-traditional employment contracts, so clearly defining expectations up front is key
- No longer than 12 months. The DOL states that a temporary job is (by law) a job that lasts less than 12 months. Anything after that must be treated as a long-term employee with the appropriate rights and benefits
- Exempt from benefits… mostly. Employers are not required to offer full company benefits, such as paid time off, holidays, or healthcare to a temporary employee. However, as we’ll get into in the next section, some temp employees may be eligible for certain benefits depending on the number of hours worked. For example, if a temp works over 1,000 hours in a year, they have rights to social security benefits
- Eligible for Workers’ Compensation. Temporary employees are, however, eligible for Workers’ Comp—insurance that gives your employees benefits if they have a work-related injury or illness. In most states, this is required. You can check the Workers’ Comp requirements in your state here with the understanding that it is either covered by the employer or by the staffing agency that provided the temp employee.
- Two-year limit for rehiring. Temps can only be rehired at the same company for two consecutive years.
Temporary employee FAQs
How long can you employ a temporary employee.
A typical temp job lasts from a couple days to a couple weeks. Over six weeks is considered a long-term position. The DOL defines a temp job as lasting less than a year.
How many hours can a temporary employee work?
While there isn’t a specific limit to the number of hours a temporary employee can work, if they work over a certain amount of hours in a year they gain access to certain benefits, according to the DOL. You may be familiar with the 1,000 hour rule (see below)—basically, if any employee, temporary or otherwise, works 1,000 hours in a year, they are eligible to participate in the same retirement plan offered to other employees. For reference, working over 1,000 hours would mean an employee is working approximately 20 hours per week or longer.
What’s the 1,000 hour rule for temporary employees?
The Employee Retirement Income Security Act (ERISA) “1,000hour rule” states that employees who have completed 1,000 hours of service in a 12-month period are eligible to participate in any retirement plan that is offered to other employees. This applies to full-time, part-time, and yes, temporary employees count, too.
Do temp employees get benefits?
Yes, temporary employees do receive some benefits. Even if they do not meet the requirements of the 1,000 hour rule, temporary employees fall under labor laws rights and therefore must receive certain benefits. What those benefits include varies from state to state, so it’s up to you to research what those are. Unfortunately, there is not yet a cohesive place to look this up that we can recommend to you—although you can start with the DOL which states, “Collectively, the laws enforced by Wage and Hour cover most private, state and local government employment throughout the United States and its territories.” Some common ones include social security, insurance, and even—for extra incentive—vacation time.
Note: If you would like to include health insurance (which is a good thing but uncommon), you will have to discuss this with your insurance provider, and it generally requires your temporary employee to work at least 20 hours a week.
Do temp jobs become permanent?
This is up to you! If your temporary employee is a good fit for the company or excels at the job, you can decide to offer them a full-time position. In fact, as we talked about earlier, this is a benefit to temporary jobs—it’s a great opportunity to scope out new talent and see who is a good fit for your company.
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Policies and Procedures
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Temporary Job Changes
Incumbents may be eligible for additional compensation when higher level duties or significantly different duties are temporarily assigned. Typically the higher level duties must account for a substantial amount of the incumbent’s workload for a period of more than 30 working days and less than one year (different collective bargaining agreements may vary on this definition). Extensions beyond one year require approval by the compensation analyst. For instructions on how to submit a request for temporary stipend see Procedures for a Temporary Stipend. Updates to temporary stipends or requests for extensions must be submitted in Job Builder using the “Extend, Inactivate or Update Temporary Reclass/Stipend” action.
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Temporary Stipend (for Policy-Covered Staff)
A temporary administrative stipend may be paid to an employee who is temporarily assigned significant responsibilities of a higher level position or significantly different duties (25%+) not normally a part of the employee’s regular position ( see PPSM 30.III.B.9 ). Assignment of temporary responsibilities at a lower level does not warrant a stipend. Temporary Stipends are typically effective the date an employee begins performing the higher level duties at a significant portion of time (approx 25-30% or greater). They end when the higher level duties are no longer assigned. Stipends for employees are appropriate when increased responsibility lasts for at least 30 working days or longer. Temporary stipends may be approved by HR for up to one year. Stipends beyond one year require approval of Human Resources via an on-line request in Job Builder, but in no case may a temporary stipend extend beyond two years.
In recommending the stipend amount, managers should consider various criteria including the length of the assignment, position of employee in the salary range, complexity and scope of temporary duties, and comparisons with the salaries of others in the department. The sum of the stipend and the base salary shall not exceed the maximum salary of the range into which the combination of permanent and temporary duties would be classified.
Temporary Stipend (for Represented Employees)
An employee in a bargaining unit may be eligible to receive a temporary stipend when they are assigned substantially all of the duties of a higher classification for a significant portion of their time (usually 50% or greater), commonly referred to as an "out-of-classification assignment" . Temporary stipends are typically effective the date an employee begins performing the higher level duties at a significant portion of time and they typically end when the higher level duties are no longer assigned by management. These appointments must be for a minimum of 2 weeks (longer for some bargaining units) up to a maximum of one year. Stipends beyond one year require approval of Human Resources via an online request in Job Builder, but in no case may a temporary stipend extend beyond two years. Please refer to the appropriate collective bargaining unit agreement for the policy on temporary out-of-classification assignments.
Procedures for a Temporary Stipend
To initiate a temporary stipend, the Department Head or Business Manager submits an online request by going into Job Builder, completing a "Temporary assignment (stipend)" action, and submitting it to Compensation for review. The online request must include all of the required pieces of information (see below) or it will be returned to the department with a request for additional information. Requests should be submitted as close to the begin date of the temporary assignment as is reasonably possible.
Process for an Online Submission:
- Review the eligibility criteria for the employee. (For non-represented employees refer to PPSM. For represented employees refer to the applicable collective bargaining unit contract.)
- Obtain needed departmental and / or Control Point approvals (as set by each department and division).
- In Job Builder, select the employee's current job description, and begin a "Revise Job Description" action. Once you have begun the workflow, choose the "Temp Assignment (Stipend)" action type..
- Complete the "Temp Assignment (Stipend)", Comp Information, and Action Justification tabs. No changes are made to the content of the job description apart from completing any required fields that are new to the job description since the transition to Job Builder.
- On the Action Justification tab, attach an Organizational Chart and complete the Department Head and/or Control Point Approvals.
- Submit the action to your Compensation Analyst for review and approval.
- Human Resources
- Interim Assignment
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- Interim Assignment Guidelines
HR Forms Library
WHAT IS AN INTERIM ASSIGNMENT?
An interim assignment is a temporary assignment a current employee takes on which is a different role. An employee is asked to temporarily assume the duties of a higher graded position that has fallen vacant or whose incumbent is on leave. A temporary increase to a staff member’s pay may be provided for taking on an interim assignment; however, it is not required.
Interim assignments are adjustments to an employee's base salary and are not considered additional compensation.
Interim assignments and the amount of the temporary salary adjustment must be approved in advance of any discussions or written communication with the employee.
HOW LONG CAN AN INTERIM ASSIGNMENT LAST?
Interim assignments may not exceed 6 months . If the position is above grade 114, the interim assignment may be extended for a one-time extension not to exceed 6 additional months.
If the period of the assignment will cross fiscal years, the assignment must end on August 31 and a new ePAR, effective September 1, will need to be submitted to continue the assignment to the already approved end-date (not to exceed the initially approved 6 months).
INTERIM PAY INCREASE AMOUNT
General considerations for interim increases.
- An employee being considered for interim assignment must meet Minimum Qualifications of interim role in order to be considered for assignment.
- Compensation will utilize the UH average salary to assist in determining appropriate/equitable interim salary. Alternatively, if the interim assignment is for a single-incumbent role, the external market value of a job can be identified by a compensation analyst.
- The employee no longer performs the primary assignment and serves solely in the new capacity.
- An interim increase should be no more than 10% of interim employee's current salary.
- All interim increases above 10% of interim employee's current salary require prior approval from Human Resources, and the Provost or appropriate VP.
- In all cases, interim payments will be capped at 20% of interim employee's current base salary.
- Employee's interim pay should not be greater than the pay rate of the previous incumbent except under exceptional circumstances. This requires prior approval from Human Resources.
COMPLETING THE INTERIM ASSIGNMENT REQUEST FORM
SECTION I - EMPLOYEE AND UNIT INFORMATION
SECTION II - DESCRIPTION OF INTERIM ASSIGNMENT
SECTION III - APPROVALS
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Temporary assignments/interim appointments.
From time to time, it may be necessary for staff and administrators to take on additional or different responsibilities of a temporary nature. While all employees are expected to fill in for vacations and other short-term absences from time to time, in some circumstances additional compensation may be warranted. A department supervisor initiating a Temporary Assignment or Interim Appointment in his/her area of responsibility must submit a written proposal to the appropriate Vice President, presenting the reason for the assignment/appointment, the expected duration, resources required, the method for evaluating successful performance, and the criteria for selecting the employee.
A Temporary Assignment is when an individual is assigned (in writing) additional duties on a temporary basis in the absence of another employee at the College through a one-time payment. Higher volume of work is not included. This additional work must continue for 30 or more days and must be a significant, clearly defined addition of responsibilities to the normal workload (higher volume of work is excluded from this definition).
During this period, the individual may be eligible to receive additional compensation ranging from 3 - 10% of the employee’s current base salary or hourly rate. The amount to be received will depend upon the duration of the Temporary Assignment, the degree of complexity and/or importance of the additional work, and the level of performance.
An Interim Appointment is when an individual is appointed (in writing) to a different position (either in the same or in a higher band) on a temporary basis where there is a vacancy expected to last for an extended period of time. The individual will be held accountable for the scope of the interim role that is identified by his/her supervisor at the time of the Interim Appointment. Potential compensation is as follows:
- Interim Appointment to a position in the same pay band – Since the interim position has the same salary potential as the individual’s own position, base salary for the individual will not change, although he/she may be eligible for a one-time cash payment, depending upon the duration of the Interim Appointment, the degree of complexity and/or importance of the additional work, and the level of performance demonstrated. Human Resources and divisional leadership will evaluate these situations on a case by case basis to determine if any cash payment is necessary and appropriate.
- Interim Appointment to a position in a higher pay band – Since the interim position has a higher base salary potential than the individual’s own position, an individual taking on such an appointment may be eligible for a temporary increase in base salary, determined under the College’s promotional guidelines as if the individual were being promoted to this position, and remaining in effect until the Interim Appointment is completed. Upon returning to his/her position, the employee will receive the salary rate he/she had been earning prior to the Interim Appointment, adjusted for any intervening salary increases (annual increases, increases due to market or internal equity, etc.). Human Resources and divisional leadership will evaluate these situations on a case by case basis to determine if any salary adjustments are necessary and appropriate.
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Umgc policy on temporary assignments and acting appointments, explore more of umgc.
- Human Resources Policies and Procedures
(Approved by USM BOR on April 21, 2017; UMGC President on July 1, 2017)
Purpose and Applicability
This policy establishes the authority of the University of Maryland Global Campus (UMGC) President or designee to temporarily assign duties to existing positions and/or to temporarily reassign Staff employees to those positions. This policy applies to Nonexempt, Exempt and Overseas Staff employees on Regular Status. Nonexempt Staff employees who are included in the representation of the collective bargaining unit are subject to the Memorandum of Understanding (MOU) and applicable UMGC HR Policies; where there is a conflict between the two, the MOU will prevail.
Temporary Assignment: The action of adding or replacing job duties to an employee's existing position on a temporary basis.
Acting Appointment: The action of appointing an employee to a different position on a temporary basis, where there is a vacancy and/or operational need that is anticipated to exceed 30 consecutive calendar days.
Temporary Assignments and Acting Appointments
Based upon operational need or organizational necessity and consistent with the knowledge, skills, and abilities of the employee, the Chief Human Resources Officer (CHRO) or designee may authorize a Temporary Assignment or an Acting Appointment of an employee who meets the position's minimum qualifications. The CHRO or designee may make exceptions to the position's minimum qualifications.
With the CHRO or designee's approval, an employee's supervisor may make Temporary Assignments to an employee's current position.
Temporary Assignments may not result in a change in title or compensation.
The CHRO or designee may appoint an employee to an Acting Appointment.
An employee in a Nonexempt position may only be given an Acting Appointment in another Nonexempt position.
Employees appointed to an Acting Appointment for more than 30 days shall receive a temporary title change and a compensation adjustment consistent with the policy on promotional reclassification.
If and when practical, the employee shall be provided with written notice of the Temporary Assignment or Acting Appointment at least five (5) working days prior to the effective date of such change.
Duration of Temporary Assignments and Acting Appointments
Temporary Assignments and Acting Appointments should normally not exceed 12 months. Additional extensions may be considered based on operational need of UMGC and exceptions may be granted only by the CHRO or designee.
Position Classification Reviews may be conducted for Temporary Assignments and Acting Appointments that last or are expected to last more than 30 consecutive calendar days.
At the end of a Temporary Assignment or Acting Appointment, an employee shall be returned to the employee's former position with the same salary and status as he/she would have had if he/she had not been temporarily reassigned with the addition of any intervening salary adjustments, which may have occurred, including any increase that would have been made to the employee's regular salary during the Temporary Assignment or Acting Appointment period.
Determination of Salary for Acting Appointments Determination of salary for Acting Appointments shall be made in accordance with VII-9.11-GC – UMGC Policy on the Pay Program and Administration for Exempt and Overseas Staff Positions and VII-9.20-GC – UMGC Policy on Pay Administration for Nonexempt Staff Employees .
Benefits During a Temporary Assignment or Acting Appointment
Benefits shall not be adjusted during Temporary Assignments or Acting Appointments.
Layoff During A Temporary Assignment Or Acting Appointment
An employee on a Temporary Assignment or Acting Appointment shall not be subject to layoff based on the employee's Temporary Assignment or Acting Appointment status.
The UMGC President has designated the Chief Human Resources Officer (CHRO) to administer this policy; to develop procedures as necessary to implement this policy; to communicate this policy to the UMGC community; and to post the policy and any applicable procedures on the UMGC website.
USM BOR VII-9.50: Policy on Temporary Assignments and Acting/Interim Appointments for Regular Status Nonexempt and Exempt Staff Employees
UMGC OS 33.00: Policy on Temporary Assignments and Acting Appointments
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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
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Choosing the Right Tax Approach for Long-Term Temporary Assignments
In the world of long-term temporary assignments, two popular approaches are often used: the Home-Based Tax Equalized (also known as the "Balance Sheet") and the Host Plus (also known as "Local Plus"). Our blog series has covered the basics of each approach, how to select the right assignment approach and finally we focus on tax.
It’s important to know that expatriate assignments are not one-size-fits-all. The budget of the employer, priorities of both the employer and the employee, and the salary affinity between the home and host countries must all be considered when deciding which approach the employer will use. This decision should be based on a variety of factors: assignment length, level of employee, assignment purpose, intended assignment conclusion, and home and host location.
The Balance Sheet uses tax equalization . This is where the employer pays all the tax obligations in both home and host locations and withholds a home hypothetical tax contribution from the employee’s paycheck. The hypothetical tax is equivalent to what the average person typically pays on that compensation level and family size in the home location. Social security contributions are typically made in the home country by both the employer and the employee.
For Host Plus, the employee typically pays the host country tax obligation on their compensation . The employer will often pay any additional taxes owed on the gross-up of the benefits. Some policy decisions will need to be made as to who pays any home residual tax obligations, as well as where social security will be paid.
Each approach has its own benefits and challenges, and it is often important to understand which is best for each of your unique scenarios.
We asked Pat Jurgens , our Director of Global Tax, for a more in-depth explanation of the key differences between the home-based tax equalization and host-plus tax methods.
The premise of the 'Home-based Tax Equalized' methodology is to maintain the assignee's home-based salary and benefits, provide for over-base expatriate allowances and reimbursements intended to cover the differences in costs between the home and host locations, and to provide for tax support during the assignment in the form of 'tax equalization.' With this home-based approach, the employer's intent is to keep the assignee whole, maintain the assignee's purchasing power, and maintain the same ability to save.
The assignee's share of the tax cost under equalization is referred to as hypothetical tax and is deducted from payroll. This payroll deduction is based on the tax law in the home country, using their stay-at-home salary and bonus compensation. However, hypothetical tax withholding is generally not remitted to the tax authorities in the home country. Instead, the hypothetical tax withheld is used to help offset the tax costs to the company.
In exchange for deducting the hypothetical tax from the assignee's pay, the company agrees to pay actual tax liabilities associated with the international assignment. This will include any tax incurred in the host country and any home country residual tax costs.
Actual tax liabilities during the assignment will vary significantly from a stay-at-home tax, including the following key factors:
- The host tax system may result in a higher tax rate.
- The base salary and bonus are generally taxable in the assignment location, as well as most expatriate allowances and reimbursements.
- The company's contribution toward the tax liability is a tax benefit. This 'tax on tax' is handled through a gross-up calculation, so the calculated tax paid is inclusive of the taxable reimbursement of the employee's tax.
Tax equalization costs are often one of the largest cost elements of a typical home-based tax equalized package.
The premise of host-based packages is that the employee is responsible for host income tax and host social security on salary and incentives because the employee is on local compensation terms and conditions, and typically is on the local payroll. The employer is responsible for actual tax and social security (primarily host income tax and host social security) on any taxable allowances and reimbursements included in the calculation.
This generally includes a 'gross-up,' as reimbursing employee taxes is also generally considered taxable. The assignee's share of the tax costs under the 'host-plus' methodology is limited to tax and social security due on salary, incentive, and allowances delivered gross, if any. The employer's tax costs will include tax gross-ups on the allowances delivered net and also will include the full amount of the employer's contributions to host country social security on all taxable compensation, including salary and incentive. Under Host-Plus, there is no expectation that the employee's purchasing power is maintained. Additionally, the employee's tax position will be subject to tax law changes in the host country.
In certain circumstances, the employee may also incur tax in their home country. For example, U.S. citizens may incur a residual United States income tax in addition to the host country tax. This residual home tax is net of double tax relief, such as the foreign earned income exclusion and a foreign tax credit. Employers may expect the employee to be responsible for this residual home country tax or assist with reimbursing this home country tax liability.
The best method for a company to use will depend on several factors, such as the tax laws of the home and host countries, the company's budget, and the employee's preferences.
Here are some additional things to consider when choosing between home-based tax equalization and host-plus:
- Tax laws: The tax laws of the home and host countries can have a significant impact on the cost of each method. In some cases, the home-based tax equalization method may be more expensive, while in other cases, the host-based tax gross-up method may be more expensive.
- Company budget: The company's budget will also be a factor. Typically, the home-based tax equalization method may be more expensive, but the host-based tax gross-up method may be more expensive depending on the amount of allowances provided, the country combination, family size, and income level.
- Employee preferences: The employees' preferences should also be considered. Some employees may prefer the certainty of knowing exactly how much tax they will owe, while others may prefer the flexibility of the host-based tax gross-up method. Future plans will also be a factor as to whether the assignee intends to return to their home country.
Ultimately, the best way to choose between home-based tax equalization and host-based tax gross-up is to work with a tax advisor to understand the specific circumstances of the company and the employee.
Pat will be presenting at our Global Tax Chat in December - subscribe to our blog to hear more!
Comparing Home-Based Tax Equalized and Host Plus Assignments
Choosing the right assignment approach: understanding compensation & allowances.
Developmental Housing: It's Not as Difficult as You Think
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Temporary Transitional Work Assignments Policy for Workplace Injuries and Illnesses
November 10, 2022
The purpose of this document is to provide standardized guidelines for current City and County of San Francisco (CCSF) practices for providing employees injured at work with an opportunity to return to work at the earliest, medically approved opportunity.
Employees who experience a workplace injury or illness are often temporarily disabled from performing their regular duties and can be absent from the workplace for extended periods of time. These periods can result in an employee losing compensation and valuable service credit. These periods can be shortened or eliminated by offering a temporary transitional work assignment (TTWA, otherwise known as “modified duty”) that includes other appropriate work that the employee can safely perform while they are recovering. Early return to work is often a key to faster recovery, to maintaining the employee’s productive connection to the workplace, ensuring the economic well-being of employees1 , and recognizing contributions a temporarily disabled employee may make to their organization. TTWA’s include temporarily adapting the employee’s usual job or locating a temporary assignment outside of the employee’s normal work area while the employee continues to recover. Early return to work also ensures that departments can address important service needs by offering meaningful and productive work assignments to address outstanding tasks or functions, thus reducing overtime for those employees who must cover for the absent employee and reducing disability costs to the department which have been steadily increasing.
All departments are required to develop a program for temporary transitional work assignments (TTWA) to ensure that all employees who have sustained an occupational injury or illness are returned to work at the earliest, medically approved opportunity. Departments will work in conjunction with the workers’ compensation claims examiner, the employee’s supervisor, and the employee’s treating healthcare provider to offer temporary transitional work assignments that are consistent with the temporarily disabled employee’s medical restrictions and occupational skills and abilities.
City departments must identify appropriate TTWA and tasks that could be offered to employees with temporary work restrictions. These assignments are provided for 90 days with the possibility of extending for a total of 180 days if the employee continues to show improvement as they transition back to full duty. Except for sworn public safety officers who are subject to general orders, tasks assigned may or may not be consistent with the employee’s job classification so long as tasks are not generally handled by employees in higher classifications. Employees will receive their regular pay for hours worked in the TTWA program by the at-injury department. Should employees be released for part-time work, workers’ compensation temporary disability benefits will supplement the employee’s wages on a wage-loss basis if applicable. Employees who refuse to accept an appropriate temporary transitional work assignment may no longer be entitled to workers’ compensation temporary disability payments. Department coordinators should immediately advise the workers’ compensation claims adjuster of the employee’s refusal and the steps that were taken to provide the temporary transitional assignment. The claims adjuster will provide notification to the employee if the refusal results in a discontinuation of temporary disability benefits. Departments must identify the key contact(s) responsible for coordinating their TTWA program(s) (“department coordinator) no later than November 30, 2022. Information should be sent to DHR’s Workers’ Compensation Division email address: [email protected] This policy does not exclude the provision of temporary transitional work assignments for non-occupational injuries/illnesses, nor is it intended to locate or provide permanent modified positions for employees with permanent work restrictions. Exempted Departments. Where a designated bargaining unit representative and the City and County of San Francisco have executed a written agreement to create a workers’ compensation alternative dispute resolution program (“ADR program”) the applicable department and employees will be exempt from this Policy as long as the agreement is in effect. The exempt department will pursue implementation of the purpose and objectives of this Policy through its representatives on the governing board of the ADR program.
Workers’ Compensation Claims Representative The workers’ compensation claims representative will:
- Identify the parameters of the employee’s temporary work restrictions and communicate them to the assigned department coordinator.
- Where there are questions about the medical restrictions, the claims representative will seek clarification from the medical provider and provide them to the departmental coordinator.
- Pay temporary disability benefits on a wage-loss basis where appropriate.
- Notify the Departmental Coordinator of any changes to the medical restrictions, including when the employee’s medical condition reaches maximum medical improvement and any permanent restrictions.
Department Coordinator: The department coordinator will:
- Determine whether the employee’s existing assignments or tasks can be modified consistent with the medical restrictions, such as removing lifting requirements or limiting overhead work, including assignments that can be performed remotely; or
- Identify a series of task assignments that are compatible with the employee’s medical restrictions (such as completing, developing, or conducting training, updating inventory lists, working on special projects); or
- Identify other needs within the department consistent with the medical restrictions, including temporarily reassigning the employee to another supervisor or work group.
- Once a TTWA is identified, the department coordinator will provide the returning employee with a written description of the TTWA using the standardized template (attached) that includes the following: a. A description of the TTWA b. The planned work schedule c. The departmental contact information for reporting progress, concerns, changes in physical restrictions d. The anticipated dates of the assignment, and e. Scheduled “check-ins” with the employee to support the employee’s transition to work.
- Provide the Temporary Transitional Work form developed for this purpose to the injured employee and thoroughly discuss the assignment with the employee. After signatures are obtained, provide a copy to the workers’ compensation claims adjuster assigned to the case.
- Communicate any changes to the TTWA assignment to the workers’ compensation claims examiner.
- Report back to the assigned claims examiner if unable to locate an appropriate TTWA with the efforts that were made to locate an appropriate placement and an explanation of why one cannot be provided.
- Keep records of the assignment to ensure that the TTWA assignment does not exceed the 180-day limit.
The Workers’ Compensation Division maintains a list of external resources to assist with the development of TTWA programs who are available to consult with departments if necessary.
Helpful articles can be found by following the links below:
- Job Accommodation Network (JAN)
- Modified and Transitional Duties
- Transitional Duty
- Transitional Work Program: Success Plan
Victoria's power outage caught thousands by surprise — here's how it happened
On Tuesday afternoon, about 620,000 Victorian homes and businesses blacked out.
About 530,000 were through power outages caused primarily by downed powerlines, and another 90,000 via load shedding — a deliberate "last resort" option where the market operator directs power companies to switch off electricity to consumers.
With an average household size of 2.52 people — and businesses often even more — the total number of Victorians without power for part of the sweltering afternoon is likely more than 1.5 million.
So how did one of Victoria's largest-ever power outage events happen?
What caused Victoria's power outage?
Potentially catastrophic weather conditions were expected on Tuesday, with high temperatures forecast to mix with strong winds and lightning strikes.
Much like emergency services, power companies were prepared, with at least one supplier deliberately adjusting rosters to ensure a high number of staff were working on Tuesday afternoon and evening.
The day started hot and windy, and by the early afternoon thunderstorms rolling south from the state's north began picking up extreme wind gusts.
By Wednesday morning, the State Emergency Service (SES) had received more than 3,000 calls for assistance from across the state.
Among other things, the storms knocked down hundreds of powerlines and power poles, which energy companies have stressed caused the majority of power outages.
At its peak around 4pm, 530,000 Victorian customers had lost power, most of whom were with Ausnet and United Energy in the state's inner and outer east.
What happened at Loy Yang?
One storm band rolling across the state on Tuesday afternoon passed over Anakie, a suburb in Geelong's outer north which also holds a section of the state's 500kV Moorabool-Sydenham transmission line.
While a typical kerbside 22kV powerline stands at about 10 metres, the 500kV transmission towers are closer to 70 metres — and are the highest voltage above-ground lines in the state.
So when the storms passed over Anakie — with wind gusts at nearby Avalon recorded at 122kph shortly afterwards — a total of six high-voltage transmission towers were knocked down.
This resulted in a domino effect.
The downed towers sent a disturbance shockwave through the state's grid causing some power stations to "trip off" — like a dodgy toaster causing the household fuse box to cut power to an entire home.
The biggest fuse to trip as a result of the downed transmission lines was that of AGL's Loy Yang A power station in the Latrobe Valley, one of the state's three remaining coal-fired power stations.
In the past 12 months, brown coal has supplied 66.5 per cent of the power in the state's electricity grid, followed by wind (23.4 per cent), hydro (5.17 per cent), solar (3.24 per cent), gas (1.3 per cent) and battery (0.35 per cent), according to the National Energy Market (NEM).
These figures don't include power being produced on a smaller scale, such as home-solar installations.
Power stations are complicated, so a Loy Yang A worker simply flicking a switch back on wasn't an option on Tuesday afternoon.
With energy generation at Loy Yang A grounding to a halt, and repair works at nearby Yallourn Power Station leaving it working at half-capacity, the state's energy production was left in a position where supply was unlikely to match demand.
This meant the Australian Energy Market Operator (AEMO) saw the spot price of energy in Victoria per megawatt hour jump from $256 at 1:10pm, to $16,600 by 1:15pm — the maximum charge cap for the market.
The high price indicated the lack of Victorian energy supply to match, prompting AEMO to direct the owner of transmission infrastructure Ausnet Services to cut power to 90,000 customers about 2:20pm, in what's known as load shedding.
Energy Safe Victoria — the state's energy regulator — was on Wednesday investigating how winds were able to topple the towers at Anakie and what safety lessons could be learnt.
What's load shedding?
In AEMO's terms, load shedding is the "controlled disruption to people's power supply in Victoria, required as a last resort to return the power system to a secure operating state".
More simply, load shedding is the term for when power distribution companies are directed to deliberately cut electricity to a number of customers, typically when supply is not enough to keep up with demand.
This is done to protect the state's energy system from being overloaded and damaged, which risks cutting power to more Victorians for longer periods than via a "controlled disruption".
To avoid a supply shortfall, the energy market normally taps into power generated from other states, but with the spot price leaping to its price cap, that wasn't a viable option on Tuesday.
By 5:30pm, AEMO reported all 90,000 customers impacted by load shedding had been reconnected to the grid.
By Wednesday morning, about 285,000 Victorian homes and businesses remained without power.
When will the power be back on?
Power companies, the energy market operator and the state government say the biggest problem to solve is the damage to smaller powerlines and power poles.
Australian Energy Market Operator (AEMO) CEO Daniel Westerman said damage to “local poles and wires” was behind the outages felt by most Victorians — not the collapse of six high-voltage transmission towers near Geelong.
“That’s actually the main cause of the issues at the moment, they’re largely unrelated the transmission system issue and the distribution network,” he told ABC Radio Melbourne.
“The disconnection of Loy Yang A at the time did not cause a loss of supply to customers because we did have a sufficient amount of power in reserve.
"The issues that our listeners are feeling is a result of that same severe storm cell which brought down trees, it snapped powerlines, it brought down local distribution lines across the state.”
As of midday on Wednesday, authorities believed around 50 per cent of the people who lost power had been reconnected — so around 220,000 homes and businesses remain without power.
AEMO spokesperson Jonathan Geddes said that number would continue to reduce.
"The information that I have is that this will be dramatically reduced over the next 36 hours down to a very low level," he said.
But Emergency Management Commissioner Rick Nugent said it could be up to a week for some people to get power back, if they're in areas with local lines impacted.
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