According to a Deloitte survey of domestic and global organizations with between 200 to 300,000 active employees, one out of five of the respondents indicated that there were no plans to develop a global payroll strategy despite having payroll operations in more than one global region. A lack of global focus for an organization’s global payroll vs domestic operations can quickly start to create a number of complicated problems, particularly around compliance.
The reason — there are many differences between global payroll and domestic payroll. As a result, the two should not be handled the same. International companies with operations in many parts of the world benefit greatly from a clearly articulated payroll strategy that either involves a plan for each country of operations or a partnership with a consolidated global payroll service.
To help you understand the differences, we’ve pulled together a comparison between global and domestic payroll.
At a high level, both global payroll and domestic payroll share a few similar qualities. These include:
• Every country has regulations
• Almost every country has taxes and required deductions
• Almost every country has some sort of social benefit program affecting payroll
Perhaps most importantly, no matter what part of the world the payroll applies to, accuracy and timeliness count big time when paying employees. There is no quicker way to kill employee morale than to pay late or get the amount of the payment wrong.
Finally, every company requires accurate reporting for payroll, for both internal and external (government regulatory) purposes. This is one big reason why both global and single country employers have begun integrating payroll data with their HRIS for domestic and global payrolls alike. Now let’s explore the differences between the two types of payroll.
Payroll requirements vary greatly depending on which country your employees reside in. As a result, you cannot expect to find success if you handle your international employees’ payroll(s) the same as your home country employees. The major differences include:
Whether you are operating in Latin America, Asia, North America, Europe, or the Middle East, your company will run into incredibly different payroll regulations concerning taxes, paid time off, healthcare, benefits, and mandatory withholdings. While these factors do have strong similarities within each region, they are by no means uniform. Each of the 195 sovereign countries on the planet must be considered unique when it comes to structuring your payroll policies and processes.
Depending on the country, your team may have a plethora of mandatory paperwork requirements before you can onboard new employees or terminate ones that are leaving. This varies, once again, depending on country so be sure to understand requirements for your new location before making your first hire.
In the U.S., the effects of labor unions on payroll have never been onerous, and their influence has been slowly dwindling for decades. This is not the case in many other countries. For example, in China, the All-China Federation of Trade Unions (ACFTU) is so tough that it defeated Walmart’s very public practice of dismantling the influence of unions. As a result, all 390 Walmart locations in China allow employees to be members of the ACFTU. Another example is in Europe where unions have been strong for decades, there are complicated collective bargaining agreements that must be followed precisely when calculating pay.
Many countries have laws regarding the frequency in which employees must be paid. This can vary on hours worked, national payroll calendar, and other factors. To determine if your payroll calendar should be weekly, bi-weekly, or monthly, consult an in-country expert or your consolidated global payroll provider.
Global payroll can present challenges in making accurate and timely payments, especially if you have to move money from one country, and one currency, to another in order to make payment. Most countries require that employees are paid in local currency, which requires an accurate and timely currency exchange. The issue is that banks can hold up wires for days and they often deduct fees from the amount wired leaving you with short net pays.
Depending on the country, there may be very specific requirements for the formatting of payslips and reports. Some countries even go as far as having requirements for specific font types.
To alleviate the stress and uncertainties surrounding global payroll, it’s best to partner with an expert. The key is finding a consolidated payroll management solution with expertise in all the countries you are doing business in, to ensure a streamlined and error-free payroll process. If you have any questions on how a consolidated payroll solution can help your organization succeed, please contact us. We are here to answer any questions you have.