Many business leaders see international growth as the next logical step when their company is flourishing. However, global expansion isn't as simple as it might seem.
There are many considerations to take into account, from hiring across borders to navigating local compliance requirements to managing payroll across multiple countries.
Careful planning is essential to ensure a smooth and successful expansion. That includes evaluating potential new strategies to streamline operations, such as outsourcing global payroll functions by utilizing either global payroll software or an Employer of Record (EOR).
Key takeaways:
- Global payroll outsourcing is beneficial to companies financially, logistically, and administratively.
- Companies should consider their business needs to determine which global payroll solution suits their current structure, future goals, and budget.
- In addition to providing comprehensive global payroll services, EORs also handle international employee management and minimize liability for companies.
When to Outsource Your Company’s Global Payroll
If your company currently employs or plans to hire team members in countries where you don't have a legal entity, it might be time to consider outsourcing your payroll.
This approach is especially beneficial in scenarios such as:
- A complex workforce structure: When your company has employees working across multiple countries, time zones, and currencies, processing payroll can be confusing and complex.
- Small company or start-up: If your company is a start-up and/or has limited in-house resources to manage HR functions, outsourcing payroll can be an efficient way to handle essential operations.
- Lack of local expertise: Expanding to new countries? Your in-house HR employees may not have the legal and administrative knowledge to handle payroll in every jurisdiction.
Additional benefits of outsourcing payroll management include potential cost savings on labor and enhanced operational efficiency.
Differences Between Global Payroll Software and an Employer of Record (EOR)
Both global payroll software and EORs provide general payroll processing, including calculating and paying employee wages.
However, there are some key differences.
Scope of Services Provided
Global Payroll Software: This tool primarily helps you manage payroll processing across multiple countries. It typically includes features for calculating wages, withholding taxes, currency conversion, and generating payroll reports, but your internal team still handles the day-to-day administration.
Employer of Record (EOR): An EOR acts as the legal employer for your international employees, handling not just payroll but also employee contracts, adhering to local tax laws, employee benefits, and compliance with local regulations. It provides a full-service solution for paying and managing international employees.
Administrative and Operational Responsibilities
Global Payroll Software: Your company's HR or payroll department oversees the payroll system and ensures everything runs smoothly.
Employer of Record (EOR): The EOR manages all aspects of payroll administration, freeing your company from directly handling the logistics of managing and paying employees in other countries.
Responsibility and Liability
Global Payroll Software: Your company retains full responsibility for payroll management, including ensuring compliance with local labor laws, tax regulations, and currency conversions. Any non-compliance or other errors fall on your company.
Employer of Record (EOR): The EOR takes on all responsibilities related to payroll, including compliance, taxes, benefits, and local labor law adherence. If any issues arise, the EOR is liable, not your company.
Global Payroll Software or EOR: Which Do I Choose?
Once you've made the decision to outsource your company's global payroll, you must decide whether to buy global payroll software or work with an EOR. Some factors to consider include:
- Responsibility and Liability: Consider whether your company wants to retain full responsibility for compliance, payroll administration, and legal liabilities, or if you'd prefer the EOR to assume these responsibilities.
- Compliance Requirements: Evaluate the complexity of local labor laws, tax regulations, and potential compliance issues in the countries where you hire employees, including following data protection laws governing employee information. EORs take on compliance, while payroll software requires you to handle this internally.
- Scalability: Determine how well each solution can scale as your business grows. Global payroll software may require more internal resources as you expand, while an EOR can provide more flexibility for rapid growth without adding administrative complexity.
- Costs: Compare the costs of global payroll software and EOR services. Payroll software typically involves subscription or license fees. In contrast, an EOR charges a fee per employee, which might be more cost-effective for smaller teams or when expanding into multiple countries.
- Global Reach: Evaluate the extent of the global reach offered by each option. EORs typically have broader coverage across different countries, while payroll software may need third-party providers to manage specific regions or countries.
- Integration Capabilities: Consider how easily the payroll software integrates with your existing HR, accounting, and finance systems. EORs often provide a more integrated solution for managing international payroll and HR processes without the need for separate tools.
- Customer Support: Consider the level of customer support each option offers. EOR providers typically provide dedicated support to address payroll, compliance, and employee-related issues, while global payroll software may require more self-service or rely on third-party customer service representatives for troubleshooting and assistance.
- Time and Resource Requirements: Determine the amount of time and resources your company is willing and able to dedicate to managing international payroll. An EOR will take on most of the administrative work, while global payroll software may require significant internal resources to handle payroll operations.
- Flexibility in Hiring: Consider the type of employment structure you want to establish. If you need the ability to hire employees quickly in different countries without setting up a legal entity, an EOR provides an easy and flexible solution. On the other hand, payroll software requires you to manage all employment aspects yourself.
- Risk Management: Assess your company's tolerance for risk. With payroll software, your company assumes the risk of compliance mistakes, miscalculations, or regulatory issues. An EOR takes on this risk, ensuring all payroll-related tasks meet local standards and regulations.
Carefully weighing these factors — and any others that may be specifically relevant to your business needs — will help your team decide which option is the best fit for your company.
Plan the Transition
Once you've made your decision, it's time to create a plan and timeline to migrate to the new system.
A general global payroll transition timeline includes the following:
- Purchasing the payroll software or signing an agreement with an EOR to formalize the partnership and start the transition.
- Scheduling a meeting with the software provider or EOR representative for an in-depth walkthrough and addressing any questions or concerns.
- Training HR staff on the new software or the process of transitioning to an EOR, ensuring they understand how it will affect their daily operations.
- Notifying employees about the upcoming changes, including what they can expect, any necessary actions they need to take (such as updating paperwork), and timelines for the transition.
- Making the transition by fully implementing the new software or EOR, ensuring all systems are in place and functional.
- Monitoring performance and accuracy by regularly reviewing payroll reports, analyzing data, and gathering employee feedback to ensure smooth operations and resolve issues promptly.
Make RemoFirst Your Global Payroll Provider and Partner
Global payroll doesn't have to be confusing. With RemoFirst, you can hire, pay, and manage employees and contractors in over 180 countries.
RemoFirst handles your HR logistics, including contracts, onboarding, payroll administration, and compliance, so you can focus on growing your business.
Schedule a demo today to learn more about simplifying your global payroll.
