How to Structure a U.S. Temporary Assignment Policy
As organizations continue to look for ways to manage costs while still meeting their staffing requirements, they are increasingly turning to alternative assignment types to fill their need. Temporary assignments are gaining popularity in the U.S. when a company has a specific need in a work location for a limited amount of time, and a permanent relocation is not necessary. While these types of assignments offer a valuable, cost efficient solution to meet a company’s talent management, training, and career development goals, it is critical to develop formal policies to ensure consistent service delivery for employees, IRS tax compliance, cost savings, and tracking.
Relocation Policy Design for U.S. Temporary Assignments
Temporary assignments differ from business travel, and it is important to design your policy properly. Following are some best practice tips for developing your U.S. domestic temporary assignment policy:
- Use an Assignment Letter to provide structure and definition to the assignment, and serve as a point of reference should the terms and conditions of the assignment change.
- Incorporate a repayment clause into the Assignment Letter to protect your company’s financial investment in the assignment.
- Pay close attention to exceptions, your tolerance for granting exceptions to policy is critical when trying to contain costs.
Tax Treatment of Temporary Assignments
The first step in policy design is to define the assignment duration, which is important as the tax treatment of costs will vary by the length of the assignment. The IRS tax rules regarding temporary assignments are defined, yet complex. It is important that you clearly understand these rules to comply with tax requirements. Most importantly are intended length of assignment and the employee’s “tax home” while on temporary assignment. For your reference, the IRS defines a temporary domestic assignment in IRS Revenue Ruling 93-86 (https://www.irs.gov/pub/irs-wd/0020055.pdf).
Due to the complexity of federal and state laws, we strongly advise you to consult with tax counsel regarding the tax treatment of U.S. domestic temporary assignments of both short and long duration.
Cartus Consulting Solutions has developed a white paper that provides an overview of general practices associated with U.S. domestic temporary assignments. To request this white paper, please contact your Cartus representative, or email us at firstname.lastname@example.org. You might also be interested in our localization, permanent relocation, long-term assignment, short-term assignment, and extended business travel papers, which explore the various assignment benefits and how and why they may vary, depending on your company’s culture, assignment needs, and employee profile.