Global Payroll Headaches And How To Avoid Them
I’m often asked by companies what the experience is like paying people in other countries, and what are the global payroll headaches. For me preparation is always the key.
A lot depends on how many people you plan to have in each country, (is it just a few or hundreds), the size of your business (are you small or large), where you are expanding to (EMEA, APAC, Americas) and your industry. First choices for U.S. companies looking to dip their toes into the international market are often Canada, Mexico and Europe.
Preparation should start before you even think about payroll, but this is seldom the case. It’s all a bit last minute. If you have the time, it’s always good to do your research or employ a global HR consultancy on the countries you are planning to dip your toe into.
Don’t just jump in
The first thing that always springs to mind is how you will support employees in each country. As countries invariably have their own legislation and tax considerations your support structure may need to be varied. Finding individual in-country providers can be time consuming and difficult to manage. An in house global or regional team may have the necessary bandwidth to do this, or you may go down the route of in-country specialists, but this makes for a weighty back office team. Depending on where you are with your international expansion you may have a mix of in house and outsourced global payroll suppliers.
The model you end up going with depends on many things, and sometimes forms just part of an inherited system, acquisition or merger. Cost of course is important and I would always advise against setting up a huge back office operation initially whilst you are just getting established. Better to outsource to ensure compliance and manage the risk before investing in more people to support the in-country operation. Of course, as soon as you bring HR or Payroll people into your staffing equation there is significant cost in maintaining external knowledge of in country payroll legislation and compliance.
Of course, one of the main challenges that hits payroll and HR teams is the lack of communication from the top. From a strategic point of view payroll teams are often told last about a new overseas venture. This lack of notice often means plans are quickly put together with limited understanding of budget and resources required, putting payroll on the back foot. Finding a suitable supplier both knowledgeable of in-country requirements but who can also integrate with your company and provide the bridge between your language and the local language, is often down to a quick search on Google and a conversation with one who looks like they can handle it. The earlier HR and payroll can be brought into the strategic consultation, the better.
Understanding, managing and reporting on your overseas operation can also be problematic. Don’t be swayed into buying expensive reporting software when there are excellent software packages available to help you, the on-ground in country managers and the overseas employees, stay in touch with each other, no matter what the time zone.
The protection of data has become very prominent globally, so you should check what systems you use to send and receive payroll and employee data. Electronic systems, portals, and secure SFTP sites are far better than any email or traditional mail systems. And don’t forget that legislation such as the general Data Protection Regulations in the European arena, can result in substantial fines if data is handled incorrectly.
Errors in global payroll are usually as a result of a lack of understanding of in country legislation, and you can’t rely on your own internal compliance policies to get you out of trouble, no matter how robust they are. Incorrect calculation of liabilities and late statutory reporting add to the mix of problems often faced. So, make sure you know what you need to do, or get someone onboard who does.
In conclusion you’ll always end up with less time to prepare than you imagined, so making contact with key suppliers, consultants and internal stakeholders is the key to a successful expansion into new territories.
Dipping your toes overseas can be daunting – Here’s a snapshot of some key things happening this year. Don’t forget. We’re here to help. Download our free eBook today.