Payroll can be an unforgiving place for global employers to make a mistake. You can wade into some hot water if you’re not running a tight ship.
That’s why global companies put an awful lot of emphasis on tracking and correcting common payroll errors. In fact, a 2019 global payroll benchmarking survey found that 89% of global companies report payroll errors as their top concern.
Why do these mistakes happen?
What are the most common payroll mistakes? And how can you prevent them?
Let’s take a look.
Why payroll errors happen
Why do mistakes happen? It’s not typically due to a lack of experience.
Collectively, the payroll industry is full of talent. The average professional has 12 years of experience, most of which is at their current organization. Plus, they’re educated—most have obtained a four-year degree and complete an average of 20 hours of additional training per year.
Payroll errors happen because there are so many variables to get exactly right.
Different rates of pay for different employees and different reasons (e.g, overtime, bonuses) is only the beginning. Global employers are at the mercy of a different set of rules for every country they operate in–including currency, deadlines, and regulations that impact payroll.
Still, the largest percentage of payroll errors happen because there is a problem with the flow of information. Things like missed time clock punches and manual data entry errors account for more than one-third of off-cycle payments, indicating that inefficiencies in upstream payroll processes are the biggest culprit.
What payroll errors should you watch out for?
With multiple differences across each country, global payroll can have a lot of moving parts. Here are the most common sticking points.
1. Calculating pay in the wrong currency or exchange rate
Running accurate payroll is all about crunching numbers—but there can be a lot of variables in the equation.
You may be calculating pay based on an assigned rate and a variable number of hours worked. Then you often have to consider overtime wages, leave benefits, as well as tax rates and withholdings.
And that’s just a typical Tuesday in the payroll office.
Global employers are also working with different currencies for each country, plus a variable exchange rate that’s different from one day to the next. Even with clean data, it’s easy to see how payroll can be miscalculated.
In reality, poor organization and late reporting pile onto the challenging task of calculating an accurate payroll, which compounds your risk of errors. The best way to stop these errors in their tracks is to address these causes.
Spend more time getting organized and enforcing hard deadlines with other departments. Every calculation should be automated through your payroll software. Letting go of spreadsheets and getting the right payroll system in place can help your payroll processing run more seamlessly.
2. Missing deadlines
Missing a payroll deadline generally comes with financial repercussions—like penalties and interest.
Your payroll department has to stay on top of making tax payments and insurance premium payments on time.
With every payroll cycle.
In every country where you operate.
The only way to keep the trains running is to create a master payroll schedule and stick to it.
3. Outsourcing to the wrong payroll provider
Outsourcing payroll functions is common practice. More than 73% of global businesses currently outsource at least one function—and payroll is a favorite when it comes to offloading tasks.
Outsourcing to a third-party payroll service can be a great way to build efficiency and manage your payroll risks with local expertise.
But we have heard a story or two about mismatched expectations and providers that overpromise and underdeliver. It takes a lot of legwork to wrap your head around what services are being offered.
Before you commit to a payroll provider, consider:
The flexibility of the service structure
The provider’s inclination towards proactive or reactive service
Commitment to customer service vs. shared successes
The vendor’s business model—technology, global services, HRO, etc.
4. Not being set up to hire abroad
Even as the digital world embraces a more remote workforce and more fluid geographical boundaries, there are steps you need to take before legally employing workers in other countries.
At a minimum, you’ll need to register your business with local taxing authorities so you can pay your bills. And there are different rules for every jurisdiction—hiring and paying workers in China is different from Latin America or even Germany, for example.
Working with an international payroll provider can make the process of getting set up and paying the right amount in taxes a lot easier.
5. Getting confused about global employee benefits
Sometimes healthcare is provided by the local government. Sometimes employees are on the hook for private insurance. And sometimes there are laws that dictate how much and what type of health insurance an individual is required to purchase.
For example, in the Netherlands, all employees are required to carry basic minimum healthcare insurance. If they try to skirt this requirement, the Dutch government will enroll them into a government-managed plan and garnish their wages for premiums.
There’s a whole ecosystem of cultural factors and regulatory control that vary from one country to the next. It’s easy to forget that these benefits don’t work the same for every employee in a global company.
The best solution is to develop a global benefits strategy that addresses the minimum needs of every country where you do business—while equalizing the benefits across the global organization for fairness.
Get global payroll under control with a centralized payroll provider
Running a global business invites complexity. As you try to blend the needs of different governments and cultures with your organization, it gets easy to lose control of processes, oversight, and spending.
The right centralized payroll provider can help you to maintain the right amount of control over your payroll and improve efficiencies—thus reducing the likelihood of many common global payroll errors.
A payroll provider can help your company process payroll more seamlessly—learn more about your options here: Finding the best international payroll providers