As your business grows and your operations expand into new countries, you’ll likely be hiring staff in these new locales.
Working with an international payroll company is a great way to navigate the complexities that accompany a global expansion.
In this article, we'll introduce some of the critical concepts surrounding international payroll, and explain how these might overlay onto your business activity. We'll also look at the benefits of partnering with a dedicated global payroll company.
What Is International Payroll?
Put simply, international payroll - or global payroll - refers to paying employees in countries beyond your organisation's country of residence. International payroll covers payment and payroll management for employees at offices your business manages abroad, as well as contractors or staff employed through agencies.
Managing the payroll of all staff through one system, regardless of their location, is linked with a more streamlined and efficient payroll process. However, implementing such a system can be tricky, thanks to the different legal and financial systems that may exist between your various countries of operation.
You can read more about international payroll here.
What To Consider When Managing International Payroll
There are several factors to keep in mind when managing international payroll. These factors combine to create a relatively complex web of interlaced considerations, which can lead to the assumption that global payroll is a bit of a headache.
Keeping abreast of the rules and regulations between jurisdictions does present an ever-evolving set of challenges, which leads some organisations to outsource their international payroll management to a dedicated provider.
Such companies - like Optimum Pay Group - have at the core of their operations an obligation to stay completely up to date with all developments, to ensure streamlined service to their clients, and their client's employees around the world.
Here's what to keep in mind -
Government regulations: Depending on the jurisdiction(s) where your international employees operate, there may be regulations in place that you have to observe. Such regulations can involve making payments into local bank accounts, signing additional contracts to those required domestically, and more.
Compliance with tax law: Each jurisdiction has different tax law, too, both in terms of the amount paid and payment procedure. Understanding the tax requirements in each country - and the ways they overlap and interact - is an essential aspect of managing international payroll. Potential fines, audits, and investigations for non-compliance mean that falling afoul of tax legislation is never a good idea, regardless of which country you're operating in!
Other financial obligations: It's not just tax that varies between countries. You may be liable for additional costs like pension contributions, social security charges, and others.
Payroll processes: The process for managing payroll will vary based on the above factors, and may be somewhat complex depending on how far-flung your business operations. Bringing an in-house team up to speed (or multiple in-house teams if you have payroll departments in offices abroad) comes with costs attached, both financial and administrative. Outsourcing to a specialist global payroll company is a way of reducing the administrative costs, and may also work out cheaper in the long run.
Processing New Employees: When you hire a new employee either at home or abroad, they'll need to be onboarded into your payroll systems. If you keep things in-house, you'll need to ensure that your systems are sophisticated enough to integrate each new hire successfully and to ensure they get paid on time and in line with relevant laws and regulations.
Exchange rates: Moving money across borders traditionally carries costs thanks to exchange rates between currencies. There are ways to alleviate these costs - borderless accounts, for example - but figuring out and implementing the most cost-effective way to transfer money internationally can be tricky - and costly!
Fees for retained payroll services: When it comes to outsourcing international payroll management, there's a trade-off between cost and benefit. While you may baulk at the initial outlay, the benefits on offer usually outweigh this. You tap directly into existing expertise that can help to reduce costs - financial and administrative - throughout the process, meaning a more streamlined and optimised payroll process for you and your employees.
A step-by-step guide to setting up International Payroll
This is a condensed summary of the process required to establish international payroll processes. Obviously, in practice, things are prone to be more complicated than the steps below might suggest.
Step 1: Register as an employer in each jurisdiction
We say 'jurisdiction' rather than 'country' because some international blocs only require you to be registered as an employer in one constituent country when working with employees in other member countries. The EU is one example of such arrangements.
Your organisation needs to be correctly registered as an employer in every relevant jurisdiction with one or more employees.
Step 2: Get up to speed with local employment law
To avoid mistakes, whether they're costly clerical errors or full-blown legal violations, you need to build a firm understanding of the local laws and regulations that apply to your business and its operations.
Your organisation needs to understand such rules well enough to integrate them into your international payroll activities.
Step 3: Collect the data you need
To process payments, you'll need up to date data for each of your employees, wherever they are in the world. This includes name, address, eligibility to work, payment details, and any other relevant information like tax codes, benefit status, and so on.
Step 4: Correctly handle the data you need
Data protection legislation varies between countries, and your data handling needs to be watertight because the penalties for mishandling data can be enormous.
Ensuring your systems are compliant with data protection law in each and all of the jurisdictions whose data they will process is essential.
Step 5: Ensure your employees' eligibility to work
The factors determining whether an individual can work in a jurisdiction will vary based on the location. Your business needs to know for sure that all of its employees - wherever they are in the world - have permission to work legally in the jurisdiction where you employ them. Failure to observe this opens up another avenue for potential law violations and the hefty fines that accompany them.
Step 6: Process payments in each period
Once you're registered, your systems are in place, and they're populated with all the relevant data required to pay your employees, it's time to process payments.
The frequency will vary between employee and jurisdiction, making international payroll that little bit more complex than domestic payroll in one country.
Step 7: Check that payments have been processed and received correctly
Once the payments are made from your end, you'll want to check your employees have received them. Failure to pay the correct amount or to make a payment on time are surefire ways to lower workplace morale, and to damage the trust your employees have in your organisation.
Step 8: Update local tax authorities
As an employer, the onus is on you to update local tax authorities with information on all payments that have been made in their jurisdiction. This allows them to keep track of their resident employees, and to ensure the correct deductions are made from any earnings.
Step 9: Have provisions in place for changing legislation
Even when you've got everything in place, the legal bedrock your systems are built on is continuously shifting. Employment law, tax law, and relations between different jurisdictions evolve constantly, and you need to keep on top of this to ensure that relevant amendments are made to your processes. Ongoing compliance with all applicable rules and laws is vital for the smooth functioning of your business.
With all that in mind, consider our bonus step -
Step 10: Consider partnering with an international payroll specialist
If the above feels quite involved and elaborate, that's because it is. International payroll is inherently complex, and navigating the unique set of challenges it presents is no mean feat.
Partnering with a specialist global payroll company is a great way to absolve yourself of the administrative burden of keeping everything up to date. Instead, you hand over this aspect of your business operations to qualified experts and let them process payment for you.
International payroll is complex; there’s no sugar-coating that reality.
However, payroll doesn't need to be one of the challenges that operating internationally brings to your business. By building and implementing a system that takes into account the numerous considerations for operating internationally, your business can run smoothly and efficiently.
Or, by partnering with a dedicated international payroll company, you can hand over this complex array of challenges and considerations to a third-party who will take care of everything for you.
Hopefully, after reading this article, you'll have a firmer understanding of the considerations at play, and the relative challenges and benefits of keeping things in-house versus outsourcing to specialists.
Want to know more? Get in touch today and find out how we can help you.