Whether a company is established in multiple countries or just beginning to explore foreign expansion, international payroll processing is a complex undertaking.
Because of this complexity, payroll is increasingly being considered an integral part of an organization's global strategy—and rightly so.
In 2017, 84% of organizations reported that payroll was included in initial conversations from the expansion planning process to the implementation phase—up from just 38% of organizations that reported this same involvement in 2014.
This shift in how companies view the strategic importance of payroll can be attributed to both the challenges faced when navigating international payroll rules and advances in international payroll services.
Common challenges of international payroll processing
Companies who don’t make international payroll a priority face a host of potential problems, including inefficient processes, noncompliance issues and dissatisfied employees who don’t get paid correctly or on time. Some of the challenges to managing international payroll processing include:
Navigating compliance with foreign governments. By and large, every foreign country has their own international payroll rules that regulate processing. For example, one country may differ from another one on the issue of opening an account at a local bank, or have different statutes on paying salaried employees or independent contractors.
It’s especially important to keep abreast of all local payroll compliance laws. Key areas, such as payroll withholding statutes and tax obligations, should be a priority for U.S. companies processing payroll in multiple countries.
For instance, many countries have different withholding mandates on employee benefits like health care. Failure to get those numbers right on a staffer’s payment records or with income reporting processes can lead to noncompliance action taken by a foreign government.
Getting payroll figures right for employees. Multinationals need to do all they can to keep employees, both salaried and contractor staffers, happy and productive on the job. And getting the numbers right on paychecks is crucial to keeping employees satisfied.
There are various factors that affect what employees see in their final payslips, including overtime and deductions on taxes and employee benefits. These factors all underscore the need for accurate and automated payroll processing to produce the correct numbers every payroll cycle and plan ahead for future payroll cycles.
Ensuring accurate reporting. Calculating payroll income, withholding payroll taxes, and accounting for currency differences among workforce populations all can have an effect on the reporting accuracy of international payroll processing.
For multinational companies with a range of country, state, regional and local taxes to account for, accurate reporting is crucial.
Being proactive about processing errors. The fact is, once a multinational commits one or two compliance violations in a foreign country, the company puts itself on the government’s regulatory radar.
Working closely with local business and regulatory partners on a proactive basis helps bolster your knowledge of local payroll regulations and creates goodwill with local regulators to foster a culture of learning and leniency.
Choosing the best strategy for your international payroll processing
When deciding on a global payroll strategy, both established and emerging multinationals should evaluate options that not only will address current challenges, but also will set them up for future success in all the local markets where they have employees or plan to have employees.
Here are four international payroll services and strategies to consider.
Employer of record payroll. Companies that are expanding globally and hiring in new international markets for the first time have plenty of requirements to worry about—the complexity of international payroll processing doesn't have to be one of them.
By outsourcing with an employer of record, emerging multinationals that need a local payroll solution and haven’t established a legal entity in-country can compliantly pay and employ workers overseas, unlike global PEO firms.
Global Employment Outsourcing (GEO) alleviates the costly and arduous work of setting up a local entity to pay foreign workers by supplying the local infrastructure for payroll, including all banking, insurance, tax, HR, facilities and contract requirements. It’s a prime international payroll service option for companies needing:
- A compliant way to pay workers, while exploring or testing new international markets
- A way to guard against international independent contractor noncompliance
- An interim employment and payroll solution to quickly onboard employees, possibly workers obtained during an acquisition, while working to set up a legal entity
Local payroll administrator. Engaging with a local payroll specialist is advisable for companies who have a more established local presence but are struggling to manage errors, inefficient processing and compliance on their own.
An experienced and efficient local payroll administrator gives multinationals multiple advantages, including having a local payroll processing team on the ground in countries with complicated payroll compliance laws. A local administrator can ensure payroll is done by the book in a specific country, while also improving data security and visibility in foreign markets, thus reducing the chances of fraud and mismanagement of company assets overseas.
Additionally, by going with a local payroll administrator, companies can save money by not having to hire additional staffers or invest in expensive infrastructure to manage international payroll processing.
In-house payroll. Global companies with enough internal resources may decide to handle payroll themselves in each of their foreign entities. This strategy requires in-house expertise in all the countries where they have employees to ensure an understanding and adherence to international payroll rules. In-house payroll can be an inefficient option to implement in countries where the company has only a few employees.
If keeping payroll in-house becomes harder to maintain as your company moves forward in new key markets, a pros and cons discussion should occur between decision-makers. You may find that outsourcing with an international payroll service company in some or all foreign markets makes more economic sense.
Global managed payroll. This payroll outsourcing option is a good move for large multinationals looking for a strategic solution to standardize their entire global payroll operation.
A centralized payroll system with one global provider can help leaders gain access to real-time workforce data, so they can make smarter decisions about talent management, monitor key performance indicators, enable process improvements and identify inconsistencies and fraud.
For U.S.-based multinationals, a solid international payroll processing strategy is critical for success whether a company has a few international employees or hundreds.
Speak with a global payroll expert today and let our experts find the right payroll solution for your organization.