Participation by foreign employees.

[HCE]

We have an ESOP and we would like to have certain employees outside the US participate in the Plan (the ESOP currently only covers US employees).  Normally, this wouldn't even be a consideration because ESOPs normally allocate based on US income.  We don't have that issue, because we allocate based on job classification.  

But we still have the remaining issue that allocations cannot exceed 415 compensation.  Do we have any options here?

Is there a way that non-US compensation can be classified as 415 compensation?

If not, is there a way we can pay foreign employees so that the compensation somehow qualifies as US compensation?

To the extent it is helpful, some of the foreign employees are in Ukraine, but we have others in other countries who we would also like to add as participants.

[Bri]

What if you were to do a currency conversion on each paycheck the employees received?  (Not just convert the year-end total as of 12/31's rate.)

[HCE]

Bri -

How does that work.  Just by virtue of paying them in dollars we can count the money as US Pay?  Then would they pay US taxes and taxes in the country out of which they work?

[Bri]

I was just thinking, say you pay someone a thousand Euro a week.  So maybe that's 1,132 dollars the first week of January, but with conversion rates changing, maybe for week 2 it's 1,129 dollars.  You'd add them all up and that's their pay for the year for plan purposes.

If you pay them in dollars it's obviously easier.  But the 415 regs don't exclude compensation based on the location of the services.

I don't know how the employee ends up taxed by either or both countries, though.  Everything I peeked at started referencing the 800s and 900s of the Code, so I sorta bailed at that point. 

[HCE]

Thats a huge help.  Thank you!

[Bob the Swimmer]

I thought defn of EEs had to be US-based ?

Not sure it's relevant what they're paid in.

 

BOB

[Luke Bailey]

I think what Bri is pointing out is that you don't have to use the W-2 or FITW safe harbor. If you use the general definition of comp it should include, because foreign pay generally counts. See Treas. Reg. 1.415(c)-2(g)(5).