In three installments, I will share three Employment Contract Terms that benefit Payroll and HR, and Finance as well.
Tip 3: Pay everyone on a payroll in the same currency
Generic High Tech Inc, a hypothetical company, is opening operations in Kuwait to serve the needs of businesses operating in Kuwait and throughout the Middle East. The employees are being hired from the local labor force. Expectations are that this will be a simple payroll to administer. Sophie, the global payroll director, nevertheless wants to be sure that no complications are introduced. She speaks to Ahmed, the Regional HR Lead, to be sure that there are no contractual exceptions or promises to payment in other than Kuwaiti Dinar.
Sophie tells Ahmed: Please pay in Kuwaiti Dinar and do not agree to pay any employee in any other currency.
- The payroll system will need to produce a pay register for each currency agreed. For example, to pay 100 employees in Kuwaiti Dinar and one employee in US Dollar will mean one payroll with a headcount of 100, and one payroll with a headcount of 1.
- Fixed minimum costs apply to payrolls, so the cost to administer the 1 headcount payroll will make one employee several times more costly, than one employee on the 100 headcount payroll.
- The funding will be more complex; the one payment in US Dollars could involve a wire transfer fee that will increase the cost of that employee even higher.
- If the value of the Kuwaiti Dinar were to fall against the US Dollar, this employee will cost the company more.
Based in the United States, it is a temptation for Generic High Tech to think that paying employees outside of the United States in USD could be a good idea. If the entire population of a payroll in Kuwait were to agree to USD, then this might be a possibility. However, in most cases employees want to be paid in the local currency, to meet everyday costs. The best policy is to pay local employees in the local currency, and to be consistent.