Tax law bores non-accounting professionals. That’s just how it goes.
We’re sorry to bore you, but we need to talk about tax gross-ups. We will make it fun though.
Let’s tell a story. John handles talent relocation at his company, Cool Things, Inc. David has been expressing his interest in relocating from his home country of England, where Cool Things is located, to the
United States. After David tells John all the advantages of relocating, including experiencing a new country and growing new skill sets, John is sold. Cool Things is sending David to the United States. After John starts searching for easy ways to handle relocation for his company, he lands at Zenmoov.com because he sees how easy it is for both he and David to handle the entire process, with communication between them and vendors being as easy as booking a plane ticket. Product placement, we know.
After all is said and done and David moves to the United States, he receives a paycheck for
work that has practically the same amount that he would have received while in England. The end.
What seems like a boring, run-of-the-mill story about how David received the same paycheck he received in England has a lot more behind the scenes. What allowed David to receive the same
amount of money was John making sure he took tax gross-ups into account. A tax gross-up is the act of calculating the extra money that will be taken out of an employee’s
net pay due to taxes in the relocation being higher than they were back home. After finding out how much more will be taken out, the company raises its gross pay to the employee so that the
final amount will closely resemble or match what they’d receive at home. Also taken into account is higher tax brackets for receiving more gross pay.
This is an important aspect of the entire relocation process. Without the gross-up, an employee will be making far less than they would be making in their own country. This can lead to
disgruntlement and a worsening relationship between the employee and their company.
It will cost more for the company to make these gross-up payments, so there is a trade-off that occurs. How much is an employee’s happiness and ease worth?
It’s important to make sure that your employee is as happy as they can be, so that gross-up can end up being a dealbreaker or dealmaker for relations between the company and its employees.
More often than not, it shows whether or not a company takes care of its employees and can attract more potential workers down the road.
That’s what happened to Cool Things, Inc, anyways!
