Companies managing multiple employees in various international markets face a number of hurdles. As a result, many organizations choose to rely on consolidated global payroll services to help with areas including compliance management and accuracy. Outside of compliance issues, the most common challenges to achieving payroll consistency when working across multiple countries include:
• Reliable money transfers
• Managing multiple currencies
• Time zone differences
• Multiple payroll providers
• Inconsistent reporting
Understanding the hurdles involved with international payroll is the first step towards developing a strategic action plan for success. In this post, we’ll walk you through each challenge and recommend how to effectively solve these through global payroll services.
Whether your organization is operating in one or ten international markets, you’ll need to adjust to the individual requirements in each country to pay your team members. Your company has to manage the following compliance requirements in international payroll:
• Calculating gross-to-net payments
• Income tax withholding and reporting
• Disbursement of funds to employees
• Withholdings and filing
• National health insurance
• Pension payments
Opting to partner with a consolidated global payroll service helps to ensure these required calculations are all managed effectively and accurately with little compliance management on your end. These common legal requirements are only a portion of what your organization will need to manage to successfully pay employees.
Let’s look at some of the less obvious areas of payroll management that your team should prepare for to avoid turbulence.
You will likely be required to pay your overseas team members in their local currency. For example, if you manage a business in Japan, you must pay team members in Japanese yen, not US dollars. Converting your dollars to yen – or any other local currency – is an extra step that takes time and involves additional costs. And, the fluctuation in currency exchange rates can present an additional risk.
Which Global Payroll Services Can Help:
A payroll provider with a track record of success in your foreign markets enables your company to provide employees with funds in their preferred currency while minimizing the exchange risks and costs. Treasury management is a valuable service that takes the burden off your team. Essentially, a third party payroll management firm handles all currency exchange matters as an integrated service offering. This helps you handle disbursements and payment of taxes properly and, of course, on time. Look for a provider with in-house treasury management capabilities – not one that merely partners with a foreign exchange house. This will minimize the number of contracts and touch points in the payroll process, keeping it as simple as possible.
In addition, it’s best to find a larger payroll partner that has the negotiating power to lock in an exchange rate on your behalf, prior to the transaction. This will essentially eliminate post-transaction foreign exchange reconciliation, simplify general ledger reporting and reduce the burden on your corporate finance systems.
Managing teams across multiple time zones affect more than the internal culture and communication of your organization. It can also affect your payroll schedule. If there’s an issue with the accuracy of your employee’s paycheck, a delayed schedule or withholding error, a dramatic difference in time zone can increase the severity of the conflict by adding additional delays.
Which Global Payroll Services Can Help:
Find a payroll solution that covers all the time zones in which you operate. Many have teams dispersed regionally, with each region covering a handful of proximate time zones from its regional office. A dedicated team that’s always available when you need them can help manage payroll issues at a moment’s notice. A global payroll partner with regional presence also likely has vast experience working with the local country regulations, language and culture of each country within their assigned region. So they can better mediate any inaccuracies.
If an organization has the resources and the expertise in-house or has established shared services centers, they may choose to manage international payroll without a third-party partner. They also may choose to use an assisting software that is either supported by a third party (SaaS), hosted and maintained internally, or some variation of the two.
Organizations on the smaller end of the spectrum may find that they’re too low on resources and expertise to manage payroll as a function of HR.
Whichever route your team chooses, you need to limit the number of disparate sources of information. Miscommunication as a result of an increasing number of parties involved should be avoided as best as possible. As you increase the number of providers for your international payroll, the difficulty of managing clean, accurate and timely payroll data grows exponentially. The common problems resulting from having “too many cooks” in your global payroll kitchen are the following:
• Payroll inaccuracies
• Reporting errors
• Under or overpayments
If payroll data gets misinterpreted or lost in translation and causes errors, it can lead to unhappy employees and a drop in morale, which has a number of other negative consequences. Both employee retention and potentially client retention are directly correlated to core employee satisfaction.
A consolidated global payroll service reduces the number of providers your internal team has to deal with down to a single source, completely eliminating silos. By alleviating the burden of communicating with multiple in-country providers across your global footprint, an effective global provider makes payroll less complicated, less risky, and less painful for your organization.
A well-established consolidated global provider will also offer a fully-managed, well-organized technology platform that reduces your inputs into the process to the bare minimum. Typically, all that’s required from your team is that they input or upload your employees’ info and pay changes prior to the designated cut-off date. Then, as soon as your provider calculates the payroll, you review and approve your payroll register and send the funds to your partner. They manage the rest of the process, paying your employees on time — and accurately.
Rely on a consolidated global payroll solution like Celergo to reduce the complexity, confusion, and risk of global payroll processing as much as possible. We make our clients’ lives easier by managing all aspects of global payroll through 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.