When a company’s growth strategy includes expanding into new countries, one of the most essential business functions to take into account is payroll. Because no matter where in the world an organization grows, employees must be paid—accurately, promptly and compliantly.
Even if payroll is a well-oiled machine in U.S. operations, it’s important to remember that paying workers across borders is a far from simple operation. Extra care must be taken when going global to consider diverse currencies, languages, customs, legal requirements and data privacy regulations.
How can U.S.-based companies adapt their payroll strategies for a multinational workforce? It starts by keeping the following three insights in mind.
Compliance complications multiply.
The first and probably most important difference between U.S. and multinational payroll is how much more complex compliance becomes. More employees in more countries means exponentially more regulations to follow regarding taxes and withholdings, reporting and benefits.
The countries where a company does business affect the number of data items per employee that must be recorded and reported to local governments for tax purposes. European and South American countries are often the most complex, with an average of 35 data items per employee that must be reported.
In addition to the current laws and nuances specific to each country, organizations also must be able to keep on top of any changes or legislation that can affect employee data. One big example is GDPR, the European Union’s sweeping General Data Protection Regulations, which went into effect in May 2018. Although most of the fanfare focused on the customer and vendor data, the legislation has a big impact on employee data—even for companies that don’t necessarily have an EU location. If a company has employees in the EU, even if they aren’t EU citizens, there could be fines for GDPR noncompliance.
Currency and pay frequency matter.
Multinational companies must also consider how payroll is affected by currency and pay frequency requirements in the countries where they do business.
In many countries around the world, it’s required that employees be paid in their local currency. For global companies, this means managing how the money is moved across banks, borders and time zones, and then converted to local currency. The currency conversion not only has to be accurate, it also has to be prompt, so that all employees get paid on time. And this elaborate process has to be replicated in every country where a company has an entity and employees.
Just as important as what currency employees are paid is what cadence they are paid. Some countries, whether by law or custom, have more frequent pay intervals. France and Italy, for example, have the most frequent pay runs, with an average of 4.11 and 3 per month, respectively.
Transparency becomes even more crucial.
With employees around the world, and myriad payroll systems to match, visibility into each country and understanding of payroll operation becomes essential. It’s likely that as people process payroll data in each of the countries a company does business, they’re doing so in various languages.
Transparency across the entire payroll organization helps give multinational companies insight into:
- Who’s being paid, and where
- How much and how frequently employees are paid
- Whether legal regulations and cultural norms are being followed
- What additional actions need to be taken to ensure compliance
The vast number of differences involved in multinational payroll often makes the case for many businesses to outsource payroll. Though the services offered can vary by solution, they usually involve some or all payroll operations being managed by a local, regional or global provider.
At Safeguard Global, our Global Managed Payroll solution combines innovative technology with human expertise on a local level—in virtually every corner of the world. So if a company is lacking expertise in a particular country where it has expanded, or has limited or no staff to manage payroll there, with Global Managed Payroll, it can rest easy knowing that payroll is compliant, timely and accurate. Additionally, it gains a deeper understanding of its payroll operation as a whole.
Understanding which payroll model is best for your organization’s goals is key to investing in the right systems and processes for your growth and sustainability.