There was a time when employers wouldn’t even consider hiring candidates who were not based in the same city as them. Today, global teams are more the norm than the exception.
Employers have realized the advantages of having a workforce spread across the world. It dissolves geographical limitations when hiring top talent. It does away with expensive relocation complexities. The business gets to enjoy global perspectives and the team culture becomes richer and a lot more diverse. With newer collaborative technology, factors like distance and time zone differences are not an issue anymore.
However, there is still one challenge that holds employers back from going global with their workforce – and that’s managing global payroll.
The international global payroll process is not as simple as just disbursing a set amount as salaries to employees each month. There are many calculations and considerations to be taken into account. Even for a single employee, you will need to calculate their wages, reconcile it against their time off, pay out the benefits and perks they are entitled to, award any bonuses as applicable and also withhold the necessary amount as taxes.
Global payroll is the centralized system that processes these calculations for workers around the world – and then makes each payment compliantly across different countries.
Any company that is considering a global expansion needs to embrace global payroll first. The first reason for this is that it lets you offer a consistent payroll experience to all your workers, no matter where they are based.
Secondly, it allows you to remain compliant. You cannot simply pay your international workers based on the laws of wherever you are headquartered – you will need to adhere to the labor laws and regulations of the country the worker is based in. Global payroll equips you to handle this.
Thirdly, it offers a great alternative to setting up subsidiaries in each new country you want to hire in. You can simply onboard, work with and pay new talent in different regions, without going through the costly and time-consuming process of establishing an entity there first.
There are several international global payroll systems you can consider based on your business needs now and in the long term.
You may be wondering why you need global payroll providers at all. If you are already paying local employees, why not use the same payroll system for international workers too?
This is because local payroll has far fewer complexities to consider. Your current system may not account for the differences in labor laws across countries and thus miss out the implications they have on your obligations as an employer – be it minimum wages, employee benefits or insurance payments.
There are logistical factors too. Your local payroll system may not have the capability to handle payments in different currencies or calculate international taxes. The payment method they use may not be available in every country.
A global payroll system will have all these considerations built into it already.
For most employers, the biggest challenge of global payroll is staying ahead of the diverse employment laws in different countries.
For example, the minimum wage for workers in Europe is very different from that for workers in Asia. Similarly, you will need to offer your US workers 12 weeks of unpaid maternity leave – but in India, the law requires you to offer 26 weeks of paid maternity leave. Calculations for health insurance, social security payments and more, will also differ. Making global payments requires you to be aware of all these intricacies and implement them.
Keeping up with tax deadlines in one country is challenging enough – let alone that of multiple nations! The tax regimes may not be synchronized in all the locations you have hired in – so this means you will constantly need to stay on top of filing deadlines and important dates.
You will also need to know how to calculate the amount to be withheld for each worker, given that deductibles and taxable amounts vary, not just across countries but also based on individual circumstances. Getting even a single payment wrong can result in hefty fines.
What’s more challenging is that these tax laws are always being updated – so just when you think you are finally on top of it all, the laws may change.
Payroll information is a gold mine for hackers and identity thieves! Think about it – where else would they find someone’s personal information, bank details and social security numbers, all neatly compiled in one place?
So your payroll system getting hacked would mean all your workers’ data being compromised. This is why payroll information is strictly legislated and controlled by data protection laws – like the General Data Protection Regulation (GDPR) in the UK, the Privacy Amendment in Australia, the Personal Data Protection Bill in India and other equivalents all over the world.
While the end goal of all these laws are the same, the regulatory requirement for each may be vastly different – and as a global employer, your payroll system will need to adhere to all of these in the relevant location.
Even if you manage all of the above well, there’s still the challenge of actually disbursing the right amounts to workers internationally!
You will need to consider currency exchange rates and fluctuations. You will need to find a suitable payment method based on what works in all the countries you have workers in. International bank transfers can be extremely expensive – and even well-known platforms like PayPal are not operational in every country.
Additionally, you will need to figure out how to pay out benefits like health coverage, dental coverage and wellness benefits, across different countries.
A good global payroll software helps you manage all these intricacies, in every country you hire workers in.
An international payroll system should be able to automate wage calculation by tracking time for each employee and calculating their paid and unpaid time off, overtime, reimbursements, bonuses and more. It should also reconcile the benefit obligations you have towards each worker – thus helping you manage employment compliance.
When it comes to taxes, a global payroll system should be able to automate the process – keeping track of relevant filing dates, forms, calculation parameters and so on.
Equally importantly, the software should ensure data protection by storing all your workers’ data in the cloud or in encrypted systems, in a way that’s compliant to the laws of their country.
Finally, it should make payouts on your behalf, in various currencies and in a timely manner, using an optimized payment method.
A global payroll software increases your organizational efficiency by integrating various systems. Typically, payroll, HR and finance teams work in silos – maintaining their own data sets, which may or may not match with one another.
A global payroll software offers a great opportunity to bring all these functions together to offer better visibility, reduce discrepancies and cut down on unnecessary duplications. Aside from day-to-day efficiencies, this also makes monthly reports or year-end audits super simple!
Now let us look at how to go about choosing the right vendor for your needs. Not every global payroll service will be suitable – but by the time you get to the end of this section, you should have a fair idea of what to look for in your payroll provider.
When you choose the right provider, global payments become so much smoother. It ensures you don’t have to worry about payment inaccuracies or delays – no matter where your workers are based.
It gives you the assurance that you are fulfilling all your obligations as an employer, when it comes to employee benefits in different countries. And when it comes to tax, HR and legal compliance, it makes sure you no longer have to rely on manual systems that are prone to errors. The peace of mind you enjoy from having these bases covered, is extraordinary!
A great payroll system makes your global team happier too. They no longer have to wonder about when they are getting paid or why certain deductions were made. With a transparent app or dashboard, they should be able to log in and access all their payment and deduction data easily.
It also enables you to offer similar benefits across geographies. After all, nothing demotivates an employee more than finding out that their peers in other countries enjoy better perks than them.
While a global payroll platform brings many advantages, it is not the right solution in every case, so do consider your future plans for your business first!
For instance – if you are looking at a targeted expansion in a single country, and plan to hire large teams in just that one location, it makes more sense to set up an entity there. Likewise, if you would rather work with international contractors than make full-time hires, an AOR service is a better fit for you. An Agent of Record (AOR) is a third-party entity that helps you hire, onboard and pay freelancers and contractors around the world, compliantly.
However, if you are looking to engage full-time employees as well as freelancers across a large number of countries, a global payroll system would be perfect for you.
That said, you cannot engage freelancers and contractors and expect them to fulfill the role of a full-time employee. There are laws against this, and in fact, doing so counts as ‘worker misclassification’.
If a contractor or freelancer consistently fulfills a core function of your business, works with you on an open-ended or recurring basis, and you assert a high degree of control over when, where and how they function, the tax and legal authorities would consider them as an employee disguised as a contractor.
They would then require you to actually term these workers as employees and offer them the same protections, benefits and rights that your other employees would get.
This is why, when considering your global talent strategy, it is important to define your specific business requirements in an impartial way and identify which solution will work for you. As we have established, the easy way is not always the right way – and can lead to more issues than advantages.
A good Employer of Record (EOR) or an Agent of Record (AOR) service can help you assess your needs and advise you on the right way to go. Additionally, a good global payroll solution makes it easy for you to make the right choice without having to worry about the operational challenges it may involve.