What is Global Payroll?
In the process of international expansion and global mobility, paying staff in different countries can be a challenge to new global businesses.
As experts in global mobility, payroll, HR and business expansion, IRIS FMP have created a global payroll guide to help you navigate this tricky world.
What is global payroll?
Global payroll is the cohesive management of a company’s payroll across multiple countries, currencies, legislative areas and languages. There are numerous ways to run global payroll, including managed global payroll service providers.
As each country has a variety of different laws, regulations, pay periods and more, global payroll can quickly become complex. Payroll affects every part of the business, and as such, getting it correct across borders is incredibly important.
In a global context, payroll is no longer about simply paying employees, it’s also about consolidating costs, equality across different currencies, creating efficiencies and analyzing data.
What are the most common ways to carry out global payroll?
In the majority of situations, global payroll is run centrally by one team or one provider. They may use individual, in-country payroll processors to ensure local compliance is met by local experts in payroll.
Some payroll administrators will use a unified platform, that processes payroll in one sweep. This is done by collecting individual, in-country data, and pulling it into one application. The global payroll data can then be standardized before being processed.
While there are many ways that someone can carry out payroll, here are the most common:
How does global payroll work?
Global payroll is about the interconnectedness of each country’s payroll, and how they work together. Payroll data is collected in a similar method in each country division. For example, you’d need the employee’s name and address, bank details and tax status as standard.
It depends on which countries you are running payroll from, as each will differ greatly.
In each country location, it’s common to use a localized payroll platform to maintain compliance with the laws and regulations in each country. However, with software such as IRIS FMP’s Engage payroll dashboard, each country’s data is fed into one software, which then processes the payroll in a neutral method, standardizing and consolidating the data. This then reduces the risk of cross-border disparities in payroll, something that for many years has been a challenge. Ultimately, for everyone involved in payroll, one consolidated group of data allows for ease of understanding and translation.
Global payroll challenges
When managing global teams across many borders, there are inevitable challenges with global payroll. Missing data, equality of compensation, the numerous regulation challenges and more; there can be so many points of failure.
Equality of compensation across borders
When moving from a sole US operation to outside of US borders, fair compensation must be achieved. As the US has minimum requirements for annual leave or sick pay for example, when expanding to other countries there can be a considerable jump to be made to meet the legal minimum requirements.
As such, creating compensation and payroll plans that allow for equality across borders is often a mammoth task and one that requires the use of experts to help consult on what ensures maximum employee retention and acquisition. By not providing equality across borders, you risk people wanting to move and losing good employees.
When expanding to another country, it’s important that all regulatory requirements are met. As regulations are often written in the national language of the country, sometimes without accurate translation and understanding of the unwritten rules and traditions, it’s hard to meet the regulatory requirements. By working with a global provider with local expertise, you can successfully navigate any regulation risks.
Like with employment regulation, the intricacies of global payroll really come to light when you look at tax. As each country has its own, often complex, tax structures, with both employee and employer contributions required, meeting these requirements can be a headache. Global payroll standardization software can help, but there will always be challenges to navigate when it comes to meeting different countries’ tax requirements. You’ll most likely need to appoint a local tax advisor or similar, who can help you to maintain compliance.
Responsibilities of global payroll
As an employer expanding overseas, having different payrolls to manage is a big responsibility. As well as legal requirements, there are also responsibilities such as compliance and cultural differences to uphold which can make for a tricky balance to manage.
Legal compliance in each country From tax to regulatory requirements, you as the employer have the responsibility to ensure you and any partners you choose to use are meeting the regulatory and legal compliance in each country. Through due diligence, getting expert legal advice or even speaking to government officials, you can demonstrate as much responsibility as possible.
Cultural and regional differences
While some countries may have minimum requirements for certain areas of HR and payroll, there may be a cultural or regional expectation to do something above and beyond. This is often unwritten and requires intrinsic local knowledge to understand these small local specifics. As an employer, using a provider with expansive local knowledge will help you to remain competitive with your payroll in local areas.
The EU’s GDPR has made huge strides in individual data protection, making it much more stringent for businesses to demonstrate the need to use and collect data on individuals. As an employer running data in various countries, knowing what you need to do to remain compliant across each and every country you work in is a huge responsibility that must be considered.
Global data compliance is becoming an increasing responsibility of global payroll providers, and something that requires due care in order to maintain the correct compliance.
Outsourcing vs in-house global payroll
When it comes to actually doing global payroll, there are two key methods. You can either run it in-house, hiring experts in each country, or you can outsource some, or all of it.
Why outsource global payroll?
- It’s more time efficient. A global payroll provider who is running payroll for hundreds of companies will have access to tools, expertise and knowledge that an in-house team wouldn’t. This creates massive time efficiencies, freeing up your time to focus on in-house work.
- Access to greater knowledge. As aforementioned, the knowledge that outsourced teams have means that they can apply additional expertise to your payroll, making it work smarter for you. It also means you can be better informed to make business-critical decisions.
- Expand at scale. By using an outsourced expert, you can grow into new markets with greater efficiency. Rather than needing to hire an entirely new team for each country, you can simply upscale your solution with your provider. This allows for more flexibility in your approach to international expansion.
Why keep global payroll in-house?
- Reduced risk of compromised data. With in-house, data is just being transferred within the company, rather than outside every time. By keeping payroll processing in-house, there’s greater control over data security.
- Full control at every point. Rather than rescinding control to a provider, you have full control of each and every change and when that change happens. This gives you insight into the intricacies of payroll and can potentially equal quicker problem resolution.
What is the cost of global payroll?
Running payroll isn’t cheap. As there’s so much expertise and time needed, there is a fee to do payroll. Here’s a breakdown of what you can be expecting to pay:
Base fee model
Some companies run on a base fee model. This means you’ll pay a fixed amount per month plus a certain amount per employee. For example, using representative figures:
Base fee of $50 per month, plus $5 per employee. Use of an employee app additional $2 per month, and data reporting at $200 per month.
The total representative monthly cost for 50 employees:
$50 +$200 +($5 x50) +($2×50)= $600
Cost per employee model
Some companies run on a cost-per-employee model. This is more encompassing and will include everything in one fee per employee. For example, using representative figures:
|Level||Cost per employee per pay cycle|
|Basic in-country payroll||$40|
|Basic plus benefits management||$80|
|Employer of Record||$500|
All-encompassing fee model
This is the simplest to calculate, as there is one fixed fee for everything, no matter the number of employees. The all-encompassing method is often better for larger companies, as it can provide a cost saving against a per-employee method.
What data do you need to process global payroll?
When it comes to processing global payroll, while each country will have their own requirements, there is standard data that will require collecting.
Employer information, such as tax and company registration numbers, registered address, number of employees and more are all commonly required data.
Leave and benefit requirements
Holiday pay and certain benefit payments are very important, and many are required by law. Having a monthly breakdown of what the leave and benefit requirements are and what payment is required against that is important.
Whether base salary, hourly or even a fixed fee, the contract type is a key data point, agreed upon at the point of the contract.
Anything else, such as car or petrol payments, home working allowances, mobile contracts, meal vouces, expenses claimed and processed, or bonus payments are also needed.
Getting started with global payroll
It can be overwhelming to expand into a different country and start processing a global payroll. FMP Global can help. We have years of experience providing global payroll solutions across 135 countries. We also have teams that specialize in HR consulting, compensation and benefits programs which are dedicated to assisting your existing payroll needs. We can also assist in HR advising even if we do not process your payroll.
See how we can help you today. Get in touch.