Navigating pay-equity: Do you have the data to manage risk and compliance concerns of a global workforce?
Eloise Knapton, Madalina Racovitan & Minaho Shiraishi of KPMG discuss navigating pay-equity through a global workforce.
Minimum wage, maximum challenge
Meeting minimum-wage requirements can be a complex challenge for businesses whose employees are constantly on the move to foreign assignments. Minimum-wage rates vary widely around the world and are updated regularly – creating a ‘moving target’ for global firms. The top 10 global minimum wage rates, converted to US currency, currently vary from a high of USD14.14 per hour in Australia to USD9.06 per hour in Canada. Luxembourg has the highest minimum wage in the EU at the equivalent of USD13.14 per hour – vastly higher than the EU’s lowest minimum wage of about USD1.79 per hour in Bulgaria. The US federal minimum wage, by comparison, is USD7.25 per hour.1Many businesses are struggling to keep up with the bewildering array of evolving minimum-wage requirements they face as employees traverse borders around the clock. KPMG member firm research shows that among 31 countries we survey annually, only 21 have a minimum wage set at the national level – versus regional or even collective-bargaining rates that employers need to comply with.The European Union’s (EU) Posted Workers Directive is a legal framework designed to guide companies operating in a foreign jurisdiction within the EU. The European Commission (EC) in 2018 officially revised its Directive and the updated framework must be transposed into national laws by 30 July of this year. The revised Directive aims to enhance protection of posted workers’ rights, articulating core employment conditions that must be met for employees working in a host country, including:- Minimum rates of pay
- Maximum work periods and minimum rest periods
- Minimum paid annual leave
- Conditions for hiring workers through temporary work agencies
- Workplace health, safety and hygiene requirements
- Equal workplace treatment between men and women.
- Fraud
- Circumvention of rules
- Inspections and monitoring
- Joint liability in subcontracting chains
- Exchange of information between authorities in EU member states.
‘War stories’ from the labor front
To illustrate how things can go wrong as firms deploy employees to international assignments – and reinforcing the need for accurate and timely data – consider the case of a Romanian company whose mobile workers provided services to EU clients operating outside of Romania. The employees were paid ‘assignment allowances’ in order to comply with minimum wage rates of the host country to which they were posted.In Romania, an assignment allowance is usually deemed tax free, and the employer therefore treated the assignment allowances as non-taxable. Unfortunately, in the course of a tax audit, Romanian authorities challenged the employer’s interpretation. Since the assignment allowance was paid for the purpose of reaching the minimum wage in the host country, it did not qualify as tax free but instead was deemed to be taxable as employee income. The company faced significant tax liability charges plus penalties and interest for late tax payments.In another instructive case for global employers, a UK business assigned staff from India to work on a significant IT project in the UK for about 6 months. The employer chose to maintain each employee’s Indian salary level but paid an allowance linked to the higher cost of living in the UK during the assignment. But such allowances do not necessarily count as part of a salary or wage in the UK. As it turned out, the Indian salary that the workers continued to receive while in the UK failed to meet – due to the number of hours worked – the UK’s minimum-wage requirements. A word of caution on business travel
Tracking compliance with the moving target of wage requirements during foreign assignments is presenting its own immediate challenges but what about business travel involving excursions that can be as brief as a single day? How are today’s business travelers affected by local wage requirements and the Posted Workers Directive?There is no clearly defined answer, unfortunately, because the Posted Workers Directive defines postings in the context of the provision of services. Business travelers are on the move for a wide variety of reasons – some providing paid services or work in another country, others traveling for training or to attend meetings and conferences. Compliance can quickly become a complex challenge given the number of employees in transit at any time, their specific roles and timelines, and what the immediate employee entitlements and employer obligations are amid varied or changing rules and laws.Beyond posted workers, it’s crucial for businesses to know exactly when and how the Posted Workers Directive and its wage requirements apply to business travelers. Forward-looking businesses are tapping into innovative technology solutions such as business-travel management systems that are designed to help manage compliance with minimum wage rules and other host-country requirements.Addressing the global gender gap
While the array of minimum wage rates and employment rules has businesses seeking innovative solutions that will require timely data, addressing and narrowing the global gender gap is posing significant challenges as well.The World Economic Forum’s (WEF) Global Gender Gap Report 2019 measures among 153 nations the relative gaps between women and men across four factors:- Economic Participation and Opportunity
- Health and Survival
- Educational Attainment
- Political Empowerment
- The right of an employee to ask for information about pay levels, broken down by gender, for employees doing the same work or work of equal value
- Company reporting of average remuneration by employee category or position, broken down by gender
- Conducting pay audits in large companies and making them available to worker representatives upon request
- Inclusion of equal-pay issues and pay audits in collective bargaining.
- Environmental, Social and Governance (ESG) investing, which addresses the sustainability and ethical impact of investing in a business based on ESG factors, including gender parity and pay gap transparency. We are seeing ESG investing move from the sidelines to the forefront of decision-making for investors
- Shareholder activism and public awareness of business practices and ethics. KPMG International’s global CEO survey revealed that a third of leaders polled have actually increased transparency amid pressure from the public and factors related to ESG investing
- The need to make progress on gender parity amid fierce competition for critical new skills in the digital age. Today’s younger workers are increasingly mindful of what companies stand for and their employer ‘brand’ as a desirable workplace. Companies are thus being challenged to make rapid and measurable progress on the gender pay gap and related wage and workplace issues.
Visit the KPMG website to learn more
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