If you're planning to expand your business, you’ll need to know how global payroll works in order to pay global employees properly and on time.
We've put together this guide to help you understand what global payroll involves as well as how to implement it at your company so you can hire international employees and contractors.
What is Global Payroll?
The term global payroll (or international payroll) refers to the system that allows a company to manage the pay and benefits of employees who work across multiple countries in compliance with local laws. This includes handling all the intricacies of international taxation accurately, in addition to making sure the employees receive all the benefits they are entitled to, such as holidays and insurance.
How to Set Up Global Payroll In-House
Setting up global payroll is a complex process that requires careful planning, preparation, and execution. It's important to remember that you are dealing with multiple tax jurisdictions and laws, so there is no one-size-fits-all solution to cover all countries.
We’ve highlighted the key steps of the process so you can be informed on what to expect, however, you should always consult with experts and/or government officials who can guide you with the specifics of the matter.
1. Register as an employer in those locations.
The first thing you'll need to do in order to expand your business operations overseas is register as an employer in the jurisdiction where your international employee is a tax resident.
This varies by country, for example, in nations that are part of the European Union you might not have to go through this process. In the United States, it varies by state. It's best to check on a case-by-case basis.
Be prepared for a lengthy and complex process as in some countries you might be faced with a lot of bureaucracy or even language barriers. Not to be cliché, ****but patience really is key.
2. Study & learn local employment laws.
When you register as an employer, it's incredibly important to document yourself and your HR team with local employment laws.
Identify the regulations that align with your business operations and integrate them into your company. In most countries, these include rules on working hours, holidays, sick pay, insurance, and more.
By making sure you adhere to the given set of rules, you will save your company lots of time as well as money in the long run by avoiding hefty fines and legal battles.
3. Gather relevant employee information.
The next step is to collect the employee information you need in order to hire them. Start with their name, date of birth, address, and bank account details.
You might also need details such as their tax forms, benefit status, and second-job earnings if they have any.
In order to do this, you should first ask your employees to fill out a global payroll form and send it back to you.
4. Store & protect your data.
All the information you’ve gathered is highly sensitive, so you need to make sure you keep it confidential.
The fines for mishandling data can result in big amounts, so this isn't something you want to act lightly on.
Make sure you have proper systems in place in order to comply with local data protection laws and avoid duplicating information to minimize risk.
5. Verify employees' work eligibility status.
Every jurisdiction has different work eligibility requirements you need to look out for when hiring new employees in that location.
Check every potential employee's documents, or, in the case that they are not able to provide them, use online government verification if available. In the United Kingdom (UK), you can use the Employer Checking Service and in the United States (US), you can use Homeland Security's E-Verify.
Don't skip this step, as this is another way you could get fined. In the UK, for example, you can get charged up to £20,000 for employing workers who do not have a right to work in the UK.
6. Authorize payments.
After all the preparation is done, you need to ensure your employees get paid accurately and on time, in every location. Authorize and process payments in line with local pay frequency, along with the required deductions.
7. Check your employees have been paid.
Once you've released the payments, contact your employees to verify the money has reached their accounts on time.
To avoid unnecessary stress, determine what payment method and currency you will be using, and calculate how long the money will take to hit your employee's account.
You've decided to expand overseas in order for your business to grow therefore you need to retain top talent. Taking these extra steps will keep your team happy - trust us on this one!
8. Contact local tax authorities.
As an employer, it's your responsibility to be aware of and follow the tax regulations in your own country. However, when you have employees who work in other countries, you also have to keep track of deductions with local tax authorities. Keep track of payments and stay on top of tax forms that are necessary for this process.
9. Be prepared for things to change.
Sometimes you spend weeks or even months trying to figure out how to implement a new system only to have things change. This can be frustrating, especially in some countries where local employment laws are rapidly evolving. However, you need to stay focused and make sure you apply any changes that are necessary to stay compliant.
Factors to Consider When Managing Global Payroll
As you can see, managing global payroll is a complex task and there are multiple factors you should consider to make sure you do it effectively. Take note of the following:
- Tax laws in different countries vary widely, so make sure you have someone on hand who understands them thoroughly. You don't want to be paying more than necessary or having your employees pay more than they should because of mistakes on your part or theirs. You also want to avoid getting caught up in any kind of tax evasion schemes or fraud schemes by following all local rules regarding taxes paid by foreign workers and reporting those payments correctly back home.
- Currency exchange rates fluctuate constantly. The exchange rate is the price of one country's currency in comparison to another country's currency. A high exchange rate means that your company will lose money when you pay employees abroad because more money will have to be spent on foreign employees than if the employee was located in your home country. The opposite is true for a low exchange rate, which will help save money on paying foreign employees.
- The onboarding process for an international employee should be just as smooth as it would be in other instances. Conduct a thorough background check and have them agree to their position and compensation package. Keep everything documented and store this information safely. Make sure that everyone involved understands what's expected during this time frame — whether it's getting them set up with visas and other travel documentation, helping them find housing or even just offering guidance on local customs — so that your new hire feels welcomed and supported from day one.
- Ensure you comply with government regulations as every country has its own laws regarding taxes and employment contracts. Familiarize yourself with the salary deductions and benefits you will have to comply with.
The Challenges of Managing Global Payroll
Payroll is one of the most complex and challenging aspects of operating a business.
It's not something that can be easily addressed by just any business owner—it takes a special kind of person with the right skills, experience, and knowledge to be able to manage payroll effectively.
That's why it's so important to make sure you have the right people on your team who can help you handle your global payroll needs. With a team in place that understands how to handle these kinds of issues, you'll be able to focus on what matters most: running your business!
With that being said, these are the challenges that you and your team should prepare for:
1. Compliance.
We've already mentioned it, but we need to emphasize that when you operate in more than one country, it can be challenging to ensure compliance in each jurisdiction. There are many different laws and regulations that need to be complied with—some of which may be different from one country to another.
The laws and regulations can also change frequently.
In order to avoid fines and penalties for noncompliance, it is important that your payroll management software solution supports compliance wherever you operate.
2. Figuring out the best way to pay your employees.
Paying your employees in full and on time is the most important part of managing payroll. You can cut costs, improve accuracy and automate many parts of your payroll system, but if you don't make sure that every employee is paid correctly, on time and in full each payday, all those efforts will be for nothing.
Here are some tips for ensuring all your employees get paid:
- Keep accurate records. When you're manually processing payments each pay period with a handful of employees, it's easy to make mistakes when entering data into Excel spreadsheets or writing up checks by hand—and then have those errors go unnoticed until after the payment has been issued. By using automated systems that generate accurate reports for all members of staff, you can see where any problems lie before they affect anyone else down the line.
- Automate as much as possible. If there are ways to automate certain aspects of managing global payrolls—for example, sending out automatic reminders via email or text message before each paycheck goes out—then do so!
3. Reporting.
In today’s business landscape, reporting requirements are constantly changing. This is true for both domestic and global payrolls, which are complex and need to be reported on accurately.
Manually managing reporting processes can lead to errors, which can result in penalties and fines. Reporting automation reduces errors, makes it easier to comply with data regulations, improves visibility of payroll data, and makes it easier for companies to meet their reporting obligations.
Reporting automation also ensures that the information being reported is accurate and complete. If a company does not have the right systems in place for reporting, then it may be difficult for them to track who has been paid what amount of money and when they were paid it.
Inaccurate or incomplete reporting could lead to serious consequences for companies today such as fines or legal action from the government or other bodies that monitor financial affairs.
4. Understand and manage your costs
Managing costs can be challenging when it comes to global payroll. Using the right payroll software can help you manage your costs and save money by making sure that you're not paying for unnecessary extras.
Outsourcing Global Payroll
Outsourcing global payroll is the process of hiring a third-party company to handle the payroll for a business or organization that has employees working in different countries.
This type of service can be beneficial for companies that have a significant number of employees working in different countries, as it allows them to focus on their core business without having to worry about paying their foreign workers.
By outsourcing your payroll to an Employer of Record (EOR) you can expand internationally without having to incorporate locally. This will allow you to focus on your core business while experts take care of your employees' paychecks.
Additionally, an EOR will reduce the risk of compliance violations and mitigate the administrative burden of managing a foreign workforce. However, your company would still be in charge of every employee's day-to-day operations, such as tasks, meetings, performance reviews, and termination decisions.
Benefits of Outsourcing Global Payroll
Outsourcing international payroll has many benefits for companies, including but not limited to:
- Efficiency - Outsourced payroll providers are experts in the field and will be able to handle all aspects of your international payroll, in 150+ countries. They can help with everything from reporting to tax compliance, making sure everything is done correctly.
- Accessibility - With an outsourced provider, you'll always have someone available to answer questions or address issues when they arise. You don't have to worry about finding someone on short notice or during off-hours if there's an issue with your international payroll. Ideally, look for a provider with 24/7 support.
- Cost Savings - Outsourced providers are experts at what they do and will work with you to find solutions that fit within your budget. They'll also help you find different ways to save money by recommending ways for you to reduce expenses along with offering suggestions for improving efficiency and reducing costs.
The Importance of Compliant Payroll
A company's payroll is a vital part of any business, and is one of the most regulated areas of a business — especially when it comes to international compliance.
The reason for this is that payroll is one of the largest expenses for any company that operates in multiple countries.
Payroll compliance requires organizations to have an understanding of the tax laws along with insurance requirements of every country where they operate or have employees working. This includes knowing how to correctly withhold taxes from their employee's wages and make timely payments to the appropriate government agencies.
If you're not compliant with your country's payroll requirements, you could be hit with very expensive fines and in more severe cases, even have your business closed down by authorities.
Summary
That's it! We have covered all the essential aspects of international payroll and you should be comfortable with what it involves and the preliminary tasks that need to be undertaken.
While there is much more to learn about this very complex element of HR, we hope this blog has gone a long way in helping you figure out whether or not international payroll needs to be part of your HR strategy.
Our goal is to make sure you have all the information and support you need so that you can prioritize your business' growth. If you didn’t find the answer you are looking for, please reach out to us, and we will be happy to assist!
