Corporate payroll services can make or break a global organization’s success as a whole, especially on a global playing field. Payroll is a critical but understated element to a company’s success, especially when there are multiple international operations to manage. Below are five best practices to help organizations understand the implications of global payroll and how to get it right, now and into the future.
Organizations that try to manage international payroll in-house or with multiple providers will likely experience some common issues such as communication difficulties between languages or cultures, inaccuracies from manual handling of critical data, and foreign currency exchange errors resulting in short pays or late pays. Once your country count exceeds three, it’s simply too difficult to organize so many payrolls being managed by multiple local providers. Most companies do not have the requisite expertise to keep it all in-house. Instead, companies can choose to work with one, consolidated provider for their corporate payroll services.
A consolidated service, by definition, will have capability to execute payroll in dozens of countries, even up to 150 across the globe. These providers can handle everything from standardized data management (making all countries look and feel like a single country) to compliance filings and consolidated reporting. The employer simply provides their employees’ demographic information and pay changes, as needed, approves the payroll register and supplies the funds. The rest of the payroll tasks are in the hands of the company’s experienced single-source payroll provider.
Organizations with multiple global operations are bound to have “tail countries” – sectors of the business with smaller populations of employees. A multinational’s “tail” typically contains 1 to 500 employees per country spread across several countries. By contrast, the company’s head country will typically be where headquarters is. The head will often have the largest population and other core populations may reside in countries where the company has a large plant, retail presence, or call center – these locations comprise the body. Why dwell on this distinction? Because these tail country locations can present increased risks and challenges, especially with regard to payroll.
Companies typically do not have the resources to focus on the peculiarities each country may possess within their employment laws, payroll rules and cultural norms. Thus, they are more likely to make costly mistakes in these smaller countries. The ROI of opening and managing an operation in a tail country may be wiped out if that sector of the business starts causing expensive employment problems.
To avoid this dilemma, organizations can rely on a payroll consolidator that specializes in the tail countries by keeping all of the global payrolls under one roof and one strict compliance regime – which leads us to our next tip…
Consolidating international payroll through one provider helps improve a company’s ability to understand global salary costs, handle fluctuations in currency, and make important strategic decisions for future operations. Aside from payroll logistics, it’s critically important that organizations have a documented compliance regimen for each country of operations.
Payroll compliance varies across the globe — there are multiple differences from country to country, affecting everything from taxes to labor contracts and statutory payment schedules. Therefore, it is critical that your chosen corporate payroll services are aware of and well-versed in the compliance requirements in your target countries. Companies need to select a partner that has proven expertise to truly handle compliance correctly.
Unfortunately, there is no shortcut to harnessing compliance requirements. Newer providers, typically, are more prone to make mistakes along the way. Remember that you, the employer, are ultimately responsible for your compliance. Look for providers that have a long history of serving clients in your target countries and are willing to educate you and your HR team on all the requirements. Finally, ask prospective corporate payroll services what guarantees they offer to ensure your compliance success.
Expatriates have special tax implications, especially if their home country is in the United States. The U.S. is one of only two countries — the other being Eritrea — that taxes its citizens no matter where they work or reside. Companies can avoid tax complications for their expats by setting them up on a separate payroll. Companies must utilize the right combination of expat-specific solutions (such as shadow payrolls, cash payrolls and reporting-only payrolls) that match the employer’s policies as well as the requirements of both the home and host countries.
We’ll go into more detail on how these expat payroll solutions work in future posts. For now, if you have expats or plan on deploying them anytime soon, find a consolidated global payroll provider that understands the implications of paying expats compliantly. Providers with solid expat credentials will ensure proper calculation of home, host, and shadow payrolls. Make sure the provider is able to deliver multiple foreign currencies into multiple accounts (as expats often require payment in more than one account and/or currency).
Organizations need to be proactive and organized in managing the pay date for each payroll cycle, as well as the milestone dates for each activity leading up to payday. These include scheduling a changes cut-off date, a register approval date, and a funding date. The funding date is the day by which funds must be sent, accounting for time needed for wires, and foreign currency conversion, if necessary. Otherwise, they may fail to recognize statutorily required payment schedules and/or country-specific holidays that will disrupt the normal cycle. If operating in multiple regions, they should consider synchronizing calendars to increase overall efficiency.
While there is no recognized standard, many organizations choose to establish a 12-month payroll calendar prior to the start of each calendar or fiscal year. Again, the purpose is to ensure compliance and to plan for known events in advance that will force you to build extra time into specific cycles. So, study each country’s holiday calendar and statutes (if applicable), then carefully make adjustments in your calendar to ensure plenty of lead time for local holidays and bank closures. Don’t forget to leave enough time to send wires for funds, especially if you are funding payroll from another country.
When an organization puts trust in a consolidated global payroll provider like Celergo, they can avoid the common mistakes. Consolidation reduces the complexity, confusion, and risks typically associated with global payroll processing. We make our clients’ lives easier by managing all aspects of global payroll for them, leveraging over a decade of relevant experience and expertise. Contact us today to learn how we can help you!
**This article is for informational purposes only. It is not intended to constitute legal advice.