Why Do Some Countries Have More Complex Payroll Than Others?

Posted on 27 March 2018 by IRIS FMP

Categories: Global Payroll

According to the Global Payroll Complexity Index, France has the most complex payroll system on the planet. At the other end of the scale you’ll find Malaysia and much of Asia. But why is this? What makes some payroll runs more complex?

List of Countries by Payroll Complexity

  1. France
  2. Italy
  3. Belgium
  4. Bosnia & Herzegovina
  5. Singapore
  6. Japan
  7. Denmark
  8. Netherlands
  9. Spain
  10. Brazil
  11. Russia
  12. Ireland
  13. New Zealand
  14. Hungary
  15. Sweden
  16. Poland
  17. United States
  18. Germany
  19. South Africa
  20. Australia
  21. Czech Republic
  22. Philippines
  23. United Kingdom
  24. China
  25. Portugal
  26. India
  27. Slovakia
  28. Switzerland
  29. Argentina
  30. Canada
  31. Turkey
  32. Colombia
  33. United Arab Emirates
  34. Saudi Arabia
  35. Papua New Guinea
  36. Greece
  37. Angola
  38. Zambia
  39. Thailand
  40. El Salvador
  41. Mexico
  42. Botswana
  43. Luxembourg
  44. Hong Kong
  45. Bangladesh
  46. Mozambique

What affects payroll complexity?

Domestic payroll is complex. You need to consider employee benefits and deductions, legislative obligations, reporting etc. When paying employees abroad, there are a host of other considerations too. The more there are, the more complex the payroll.

Employee Population

Employee populations (blue collar, seasonal workers, students etc.) vary from country to country. Each sector has more or less complex elements to them.

Of all the populations, retirees form the most complex, with pensions, unique tax codes and part-time work making payroll more complicated. So countries with the most difficult populations, like Italy and France will rank higher in overall payroll complexity.

Employee Data & Data Management

On average, you need 14 pieces of employee information to process payroll. These include employee name, age, pay scale, tax code, bank details and so on. More data means more complexity. But more importantly, how that data is managed has a huge impact on payroll complexity. It doesn’t matter how much data you need if you can get it at the touch of a button, after all.

Countries with high levels of bureaucracy and form filling will be naturally harder to process than those that don’t.

Payroll Parameters

Gross salary, benefits, overtime, taxes and social security are all important factors for payroll whether domestic or international. Of these parameters, benefits and entitlements are by far the most complex.

Some people are entitled to more than one type of benefit and some are taxable, while others are not. Countries that offer more benefits and entitlements to their employees result in more complex payruns.

Another consideration is the frequency of payruns. Most payruns are issued once or twice a month, but this isn’t always the case. Some payruns are less frequent, meaning the payroll is much easier.

Government Reporting

Payroll departments are often responsible for submitting government reports on behalf of their business. The frequency and complexity of this process has an impact on global payroll difficulty.

Canada has one of the easiest payroll reporting processes, with T4 and T4A slips being relatively simple to fill out and file. Canada even goes so far to produce resources such as webinars, video guides and podcasts to help employers meet their obligations.

Geographical Considerations

Finally, you need to consider the relationship between the states you’re working with. For example, does your country have a tax exemption treaty with the host country? Does the industry you operate in have certain policies for international trade? Will in-country unions have an impact on payroll?

Treaties and international agreements change all the time for any number of economical and political reasons and sometimes they can have far reaching impacts on payroll processing.

European payroll complexity

Western Europe has the highest number of technical, legal and payroll updates per year, making managing payroll a case of trying to score against constantly shifting goal posts. Europe also has the most payroll populations and the highest number of payroll parameters of all markets. Given the unique structure of the EU and its 28 member states.

By comparison, Asia has fewer payruns than other markets and reports an average of just 5 types of payroll reports per year. They have fewer benefits to consider and the employees are most likely to request payment in non-local currency. This means that international businesses don’t have to go through the process of currency conversion.

Overall, globalisation is getting easier

Despite the complexities surrounding international payroll, we are moving towards a simpler world of global connectivity. While tax reporting is becoming more strict and more detailed, the process by which it is submitted is getting easier. But it’s hardly a walk in the park. For many businesses looking to work internationally, the biggest hurdle to overcome is working out what you have to do per country.

This is where IRIS FMP comes in. Our experts have the local knowledge you need to accurately and effectively process payroll in over 100 countries worldwide. If you would like to know more about international payroll and the complexities that come along with it, download our free guide to international payroll now.