International Payroll Services

Three Common Questions About International Payroll Services

Three common questions about international payroll services

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As companies look for new growth opportunities, they are increasingly considering international markets. A 2016 survey found that 87% of U.S. companies believed that their long-term growth prospect depended on successful international expansion, particularly into emerging markets.

International expansion brings many challenges, though. One of them is payroll. Managing international payroll is no easy task. In fact, it can be incredibly challenging. The bigger the scale of an organization, the more challenging payroll can be. And when organizations have overseas employees, the difficulties can really pile up.

Payroll always requires dedicated staff, established processes, and clear expectations from companies and their employees, but these requirements get more complicated as companies expand internationally. There are time zone differences and exchange rates to consider. Each country has its own tax laws and may have additional legal requirements for compensation, benefits, and pensions. When managing international payroll, a global HR team must make sure a variety of legal and logistical benchmarks are met, while ensuring payroll to global employees is delivered on time. In certain countries, if international payroll is missed or late, the consequences can be severe, including a suspension or permanent loss of a business license.

Cultural differences can’t be overstated, either. Beyond the fact that different cultures have different holidays, international employees often have different values, expectations for compensation, and communication styles.

International payroll services, then, include the typical processes necessary for paying employees, but also a set of strategies for monitoring and responding to changing international business requirements. They include an ongoing process of understanding other cultures as well as systematic, data-driven processes that make international payroll expenses predictable, timely, and error-free.

Typically, a company would have to rely on a variety of payroll companies to fulfill the unique in-country needs of each international employee. Working with these vendors — and entrusting them to execute global payroll within regulations on a monthly, semi-monthly, or possibly weekly basis — is in-and-of-itself a huge mountain to climb for any HR administration, no matter the size. In addition, administering payroll across time zones, while also dealing with language barriers, adds another element of complexity.

Given these challenges, it’s no surprise that companies often outsource part or all of their international payroll services. A global professional employer organization (PEO) can help companies meet their international payroll obligations while maintaining compliance with foreign legal and cultural requirements.

How Do Companies Run Their Own International Payrolls?

How do companies run their own international payrolls

Of course, many companies keep their international payroll in-house, relying on their own human resources departments to tackle the challenges of paying overseas employees. This is especially common for large corporations with longstanding relationships with specific countries, but it applies to organizations of any size.

How do these companies overcome the challenges of maintaining international payroll?

1. They Establish Clear Processes and Guidelines for Communication

The technological innovations of the last 20 years have made it easier and cheaper than ever for companies to maintain robust communication between teams in different zones. Asynchronous overseas communication isn’t easy, but it can be done. Multiple digital platforms exist for helping teams small and large stay in communication.

2. They Maintain Relationships With Employees and Consultants Who Can Advise Them on Important Language and Cultural Differences

Companies with employees in different countries need to be kept abreast of local events, recent political changes, and local banking holidays. They often need translation services, too.

National holidays are naturally important to employees everywhere. China, for example, has 11 national holidays each year. In addition to days off on those holidays, any employee who has worked continuously with one employer for at least one year is entitled to five additional days of leave. It’s hard to overstate the value of an expert who can offer specific advice and perspective on the local culture.

3. They Establish a Legal Presence

Through a subsidiary or local office, these companies manage their withholding requirements and liabilities. The initial setup of these entities can take some time, leading to delays as the companies seek to establish themselves in the new market.

They monitor their compliance requirements, considering factors like taxes, health insurance contributions, bonuses, and pension contributions. Even in countries with well-established legislation, significant legal changes that affect payroll happen regularly. Payroll documents can be much more complex than companies expect, depending on the country involved. In Japan, for example, a pay slip has more than 70 categories.

It’s all too easy to assume that employment practices at home are similar to employment practices abroad. To pick just one example, overtime is regulated differently around the world. In Ukraine, employees cannot work overtime except in limited circumstances. Even then, it must be documented according to a specified procedure, and the employee must receive commensurate compensation.

4. They Set Clear Expectations for Timely and Consistent Payroll

Keeping employees productive and happy with their employer requires consistent payment in line with their cultural expectations. There can be significant consequences for businesses that fail to meet their payroll obligations, including fines and public censure.

In 2017, the UK government published a list of 360 firms that had failed to pay employees the national minimum wage. A total of 15,500 workers were affected. Debenhams, the retailer at the top of the list, claims that it accidentally underpaid staff an average of £10 a year due to a simple error in its calculations for payroll.

Debenhams’ mistake was embarrassing and hurt the company’s bottom line. For a business just establishing itself in a new market, such a mistake could be devastating.

What Are the Challenges of Running In-House International Payroll?

what are the challenges of running in-house international payroll

Running in-house international payroll can be a time-consuming, expensive process filled with unexpected challenges. That’s why it’s common for companies to contract out all or part of their international payroll processes to external vendors. Typically, companies contract with a different payroll company for each country or region in which they have an established market. Sometimes they use third-party platforms to recruit, manage, or pay international employees.

What are the challenges that encourage companies to look outside their own human resources department for international payroll services?

1. Communication Barriers

Time and distance have created headaches for corporations as long as corporations have existed. Team-building, oversight, and communication all get more complicated when a company has multiple locations, and the complications only increase with the distance between sites.

Time zones can be a thorny problem for businesses expanding to international markets. A company that wants to establish a consistent weekly, biweekly, or monthly payment schedule will need to plan around the time zones and banking hours of their international offices. Mistakes here can be devastating — in some countries, missed or late payroll can result in a suspended or revoked business license.

Language and cultural differences can also create barriers. Businesses that assume what works at home will work abroad often find themselves frustrated and unsuccessful. With careful attention to different cultural values, holidays, and communication patterns, companies can connect with other cultures and maintain relationships with international clients and employees.

2. The Challenges of International Banking

Inside the U.S., sending a direct deposit to an employee’s bank account is a straightforward payroll process. However, there are many more legal requirements for moving money across international borders. Furthermore, these deposits often take longer to process than people expect, depending on the country to which the payment is sent. It can simply take time for the transaction to move through the proper systems.

Additionally, there may be currency requirements when paying international employees. While some countries allow businesses to pay employees in foreign currencies, others insist on payment in the local currency. For example, companies in Brazil must pay their workers in Brazilian reals. Given the fluctuations in the currency exchange markets, this can create uncertainty for businesses as they project their monthly payroll costs.

3. Financial Forecasting Difficulties

Uncertainty is the bane of any department trying to make accurate budget predictions. Planning annual and monthly payroll budgets is a time-consuming process when the budgets have to plan for the needs of international employees.

Uncertain exchange rates, international banking practices, and changing regulatory environments can all create the need for careful monthly manual reconciliation. Without prior experience and careful monitoring, global payroll can be unpredictable — and payroll differs from country to country.

4. Compliance Obligations

Companies with in-house international payroll services have to pay careful attention to the payroll regulations in each of the countries in which they have employees. These regulations can vary significantly, even between countries in the same region.

Pension requirements, for example, can vary significantly from country to country. France funds a defined-benefit pension program by taxing a percentage of employee income. Denmark funds its pension program with a fixed annual fee per employee. India has both defined-contribution and defined-benefit plans with a complex set of options, including exemptions for businesses that exceed the minimum. Regulations for unemployment or social security may apply as well.

In addition to pension and social security regulations, businesses will need to pay attention to laws regarding paid time off, annual bonuses, and expectations for tax withholding. Companies should pay particular attention to local requirements for taxes and other deductions, hiring a professional as necessary.

5. Local Payroll Practices

In the United States, annual bonuses are sometimes part of an employee’s compensation, but not required. Other countries take a very different approach. In the Philippines, for example, private-sector employees are required by law to pay their workers a “13th-month pay” no later than December 24th. This pay should equal 1/12 of the employee’s annual salary and is generally tax exempt. Failure to provide this compensation can lead to legal consequences — and employees who start looking elsewhere for work.

The Philippines’ 13th-month pay law is just one example of how cultures around the world have different expectations, both legal and cultural, for what employment compensation should look like. Expanding into new international markets and hiring foreign employees is a process that requires real contact with new cultures and an understanding of how they approach the employment relationship.

International Payroll Management Outsourcing

Globalization Partners has a payroll solution to fit any company with any number of overseas employees, whether that’s one person in a single country or several people spread across the world. Globalization Partners deals with businesses on a global scale every day — our Global Employer of Record Platform, GoGlobal, allows us to process payroll in over 150 countries.

How It Works

A company’s candidate is hired by Globalization Partners and is technically added to our in-country payroll. As a Global PEO, this means we are the new employee’s “employer of record.”

The employer of record model vastly simplifies the process for the client, the professional, and for Globalization Partners. Because the employee is on our payroll, we maintain full control and ownership of when that employee is paid (on time) and are responsible for ensuring that all necessary regulations are satisfied in each country.

How Does a Global PEO Help Address the Challenges of International Payroll?

how does a global PEO help address the challenges of international payroll

There are many challenges to running timely and compliant international payroll services. A global PEO like Globalization Partners is well-positioned to help companies establish and maintain effective payroll for international employees.

When our partners wish to bring in new candidates, we add the candidates to our in-country payroll and become their employer of record. We then bear the responsibility for paying the employees on time and maintaining legal compliance with local regulations.

How does this process simplify the process of international payroll?

1. Full Compliance With Local Regulations

For the human resources department of an individual company, it can be quite a burden to monitor the legal environment, banking practices, and cultural expectations of a wide variety of countries. For a global PEO like Globalization Partners, this careful attention to trends and changes in international markets is simply part of our core business.

For example, the General Data Protection Regulation (GDPR) went into effect in 2018 in the European Union. This regulation gave individual citizens the explicit right to read, delete, change, and transport digital data containing their private information, and it placed security and encryption requirements on the storage of this data.

The GDPR was in the news for the way it changed the practices of social media companies, but it has also had broad effects on how businesses operating in the EU store client and employee data and make it available to them. Responding to new regulations like the GDPR can be costly for individual businesses, but global payroll providers can efficiently make adjustments for employers who operate in the affected countries.

2. Streamlined Payroll

Global payroll providers are particularly helpful for businesses that operate in many different countries. As the employer of record for all of a company’s international employees, we’re able to provide full information about each employee in GoGlobal, our easy-to-use platform. Our corporate partners can use GoGlobal to access documents, payroll transactions, and personnel information about their international employees — all on one device.

Automating payroll processes through a cloud-based platform creates other advantages as well. Many of the errors associated with ineffective and inefficient payroll processes can be eliminated. A digital platform can also be integrated with other human resource information systems (HRIS). Centralizing information in this way allows human resources to operate more efficiently.

Furthermore, an online platform provides full transparency and enables long-range planning. In the past, international payroll introduced uncertainty and unpredictability into budgeting, making it difficult for businesses to plan resources as closely as they would have liked. With an online platform informed by the many variables that shape international payroll, businesses can make accurate and effective plans.

3. Happy and Productive Workforce

Happy employees, of course, are employees who are paid in a timely fashion. A global payroll service eliminates many of the past inefficiencies that plagued international payroll in the past, improving the relationships between employers and their international workforce.

It goes beyond timely payment, though. Employees are more engaged and productive when they have a close connection with their employers. With a global PEO as their partner, companies have a local expert on hand that can navigate cultural differences. When international employees feel heard and understood, they’re more engaged.

4. Easy Expansion to New Markets

A company may have successfully expanded overseas in one market, hiring employees there in compliance with local laws and regulations. Does that mean they’re ready to do the same in another country? Not necessarily. Payroll regulations vary widely from country to country.

A global payroll service can ease this transition. A global PEO will already have the legal and cultural information that companies need, as well as a legal presence necessary to start onboarding new employees. This can save companies considerable time, as they can significantly reduce the time required for setting up shop in a new international market.

International Payroll & Employee Management Services

Globalization Partners asks for a two-month deposit upfront as a safety net, ensuring payroll is on time for all professionals we are responsible for. Once standard compensation (base salary and standing allowances) and variable compensation are approved (expenses, commissions, or bonuses), we take the following steps to ensure all employees are paid on time in local currency:

  • Statutory benefits are calculated
  • We post the bill in GoGlobal with all transactions/fees for that month
  • The client pays the bill to fund the employee’s payroll
  • Globalization Partners pays the employee

Globalization Partners has a one-of-a-kind payroll software platform called GoGlobal. This platform operates in total compliance with payroll in every country and greatly simplifies what is ordinarily a complex monthly process.

Through GoGlobal, clients can view individual employee profiles including total compensation, benefits, PTO, sick time, and other critical information. Clients can be given varying levels of access depending on internal needs, and they can send messages to Globalization Partners directly through the portal, greatly cutting back on emails.

Contact Us for More Information

Whether you’re looking to bring one international employee on board or expand your company’s presence to a variety of countries, Globalization Partners can help you meet the challenges of international payroll. Contact us to discuss your business and your particular needs.

Frequently Asked Questions

1. What if I have a one-time payout I need to add to the monthly payroll?

This could technically be considered variable compensation, and if we are made aware by the last day of the previous month, your international employee should receive payment on time.

2. What happens if payroll is missed?

Globalization Partners is proud of its 99% payroll success rate, but certain problems can arise (international wire delays, bank holidays not coordinated with U.S. schedule).

In the event of a lack of funds, we consider the client’s initial deposit as a safety net. This way, we always have payroll funds available. As a last resort, Globalization Partners will advance the payroll or make other arrangements in extreme circumstances for our clients.

3. Will I be able to track payroll on my own?

Yes, through GoGlobal, our brand new, one-of-a-kind payroll platform. You can learn everything about this platform here.

 

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