What is Global Payroll & How Does it Work?
Global payroll is not often considered beyond its basic function of paying employees. Yet, payroll is often one of the largest costs for a business, averaging at around 60% of annual spend. With the cost of running payroll, it’s time businesses focus on getting this provision right.
Not every payroll provision is the same. It will change and evolve depending on the needs and requirements of your business.
Anyone unfamiliar with this type of payroll may feel confused and wonder exactly what it is and how it works. Make sure you are fully prepared and feel confident about your global payroll solution with our useful guide.
What is Global Payroll?
Global payroll is a solution that simply refers to payments made to employees, especially where a company is multinational and has international employees on their payroll.
When a company transitions from solely domestic payroll – or paying staff in the company’s origin country – to global payroll, there can be complications to navigate.
Global payroll is even more complex when there are multiple countries involved. For example, if a company has employees based in the US, the UK, and France, their payroll procedures need to take into account payroll legislation in all three of these countries.
Often the country where an employee is based, rather than the location where the company is headquartered, will guide the relevant regulations that you must adhere to. But there are both domestic and international regulations to be aware of. In the end, a company needs to keep abreast of any regulations that might impact business – the trouble is figuring out which regulations are relevant.
Understanding regulations is critical for delivering a compliant, global payroll solution, but businesses will need be cautious about how boundaries will affect payroll needs and expectations, such as:
- Benchmarking compensation
- Reporting payroll properly
- Issuing global payments
How Does Global Payroll Work?
For expanding companies, or those with a small – or even no – HR and payroll team, navigating the world of global payroll can be a source of tension. This is because there is usually plenty of jurisdiction to contend with in the company’s origin country, let alone that of multiple countries when paying international employees.
Considerations for Global Payroll
When it comes to defining global payroll, there are four main areas that employers are advised to review, including employment legislation, compensation, payroll reporting, and international payments.
1. Compliance With Global Employment Legislation
One of the most important, yet difficult, aspects of global payroll is achieving compliance with international employment law. Each country has its own unique nuances regarding HR and payroll legislation, and the slightest deviation from the law can lead to substantial fines or worse, the closure of the branch.
The benefit of a central global payroll provision, aside from improving the timeliness of payroll, is how it can also help make the process more accurate and manageable.
For many companies, payroll is one of the largest, current sources of data with respect to human capital. Even though this data is most often underutilized, global payroll has the power to help multinationals do more than overcome the challenges of paying employees across the globe. Instead, it can prioritize other critical matters, such as data protection and competitive insight.
When a company plans an international expansion, or if it already operates abroad, there are even more areas of compliance to navigate, such as taxes, reporting and benefits.
The challenges with compliance become amplified when businesses not only consider the nuances of local regulations, but how these change over time. One of the biggest examples here, is the role of GDPR (General Data Protection Regulation) in regulating employee data in Europe, which can impact those businesses even if they only employ in those markets.
2. Offering Appropriate Compensation
Another factor to consider is precisely what kind of compensation package is appropriate to offer international employees. The fact is, salary expectations in one country are likely to be different from another, depending on the local cost of living. However, even in light of this, it’s important to offer all employees access to fair and equal pay.
In the case of asking employees to move abroad to work, it might be necessary to incentivize such a change. As well as covering relocation costs, this may include a bonus, or access to benefits like a company car or private healthcare.
The goal of a global compensation strategy should be to attract top, local talent and ensure all staff feel happy and valued. Without prior knowledge of salary and benefit expectations in the host country, this can be difficult to achieve.
3. International Payroll Reporting
When a company hires employees abroad, the tax jurisdiction in that country will have their own requirements when it comes to reporting.
Where, in the US, the responsibility of reporting income tax information falls under the employee, in many European countries, this is not the case. Instead, tax is paid to the state at the point of salary payment, and all the required information is provided by the company.
Sometimes, it’s not only salary and tax information that needs to be reported. In the UK, for example, employee benefits like health insurance and company cars also need to be reported to HMRC. This is because employers need to make tax and National Insurance contributions on these benefits, as well as employee salaries.
There can be significant repercussions for any company if tax information is not properly reported. The cost of non-compliance can have not only monetary consequences, but also reputational damage.
It’s also worth thinking about where responsibility falls.
For example, in many cases, international branches of a company do not have autonomy, so responsibility for non-compliance would fall under the head office in the company’s origin country. Understanding the differences between branches vs subsidiaries will help you assign accountability over matters such as reporting.
4. Paying International Employees
The practical side of global payroll concerns how international employees will get paid. Often, HR and payroll is handled in a company’s head office in the origin country, which means that payments overseas need to be made.
There are a number of ways to pay employees overseas including wires, ACHs and drafts. Once you’ve settled on a payment method, you also need to keep an eye on real-time exchange rates and payment tracking. It’s vital that you keep on top of exactly who is being paid, when, and how much, so there is no room for discrepancies.
Global Payroll Providers
Companies that have an international workforce need to take care of employees in a fair way that fuses the needs and policies of the company, as well as the expectations in the employees’ host countries. Only with a good understanding of cultural and societal norms can this really be achieved. That’s why having access to local knowledge, through dedicated international experts, is critical.
Rather than taking on the daunting task of navigating global employment legislation, procuring the services of a global payroll provider like IRIS FMP can be hugely beneficial. Operating in 135 countries worldwide, we have the knowledge needed to properly carry out global payroll, covering everything from processing salaries and income tax to country-specific, end-of-year reporting.
Learn more about our international payroll service.
Global payroll doesn’t need to cause stress for business leaders when expanding abroad. While it’s an undeniably complicated, multi-layered aspect of doing international business, with the right support from an expert team, global payroll can be a smooth and easy process.
Get in touch with the IRIS FMP team to find out how we will provide the global payroll assistance you need, so that you can get on with running the rest of your business.