HR Mavericks

Eddy’s HR Mavericks Encyclopedia

Global Payroll

The bigger the world gets, the smaller the world gets, or so it’s said in global payroll certification training. Each country’s payroll brings the opportunity to learn and adapt to a new set of rules, compliance issues, benefits, payment types and exchange rates, as well as the invaluable exposure to that country's culture.

What Is Global Payroll?

Global payroll encompasses all parts of the payment process for international employees, whether domestic or abroad. It includes set-up, complex rules and requirements, and the need to be available at various times of the workday. Each country has its own specifics, so it becomes a constant learning opportunity as payroll practices evolve in countries.

Local vs Global Payroll

Domestic payroll can be local to one state or involve more than one state, which can complicate wages, allocations, taxes, etc., but they still roll up under the same government. States are permitted to govern and tax payroll independently, provided they do not fall below federal minimum levels. Global payroll involves unique governments, both at the federal and local levels, for every country involved.

The Challenges of Global Payroll

There are a number of challenges that may be faced in global payroll, including potential language barriers. Here are some other global payroll challenges you may face.

Employee Classification

The business practice of hiring contractors abroad for gig work has been successful for many companies. Not unlike domestic payroll, each country has a unique set of rules about how the citizens of the country are paid and taxed. Each country also has a different set of rules around foreign companies doing business there, including how employees are paid and taxed. If there is a physical office, your company may have a more difficult time classifying these individuals as contractors per the country's rules. Regularly reviewing the relationships with each group of global contractors can help maintain compliance.

Compensation and Benefits

The wage types and amounts vary from country to country, and the exchange rates can make calculations much more complicated. The formation of the European Union (EU) made payroll easier in the countries that use the same currency and exchange rate. Other countries have unique monetary systems. For example, the monthly salary of an employee in Taiwan might be 200,000 TWD, which translates to $6,600 a month in USD. Benefits are another important subject to be mindful of in global payroll. Health benefits are offered in many other countries, but the way employees are charged (or not charged) may vary. In the United Kingdom, benefits are often referred to as schemes, so it is entirely possible for an employee to ask you how a scheme was calculated on their pay.

Funding and Tax Filing

Collaboration will need to take place with the treasury team because global payroll involves the moving of money across international borders, and that type of money movement is regulated by strict laws. There are countries that require your company to have a relationship with an in-country financial institution to pay employees, and there are countries that accept direct deposit from U.S. financial institutions via wire transfer. Researching the financial and tax treaties between countries is important to include when establishing payroll in a new country. Taxes are universal. There isn't a country that doesn't require employers to provide wages and/or tax amounts to be submitted to a governmental agency. Each country has a unique set of taxing laws and methods. It is important to build and maintain positive relationships with the reporting agencies or the vendor you choose to represent you.

Other Challenges

Language is a significant challenge. This might sound like the most obvious challenge, but it is often the last challenge that is addressed when new country payrolls are being set up. It is unlikely that you have a team member that is fluent in every language in every country. It is likely, however, that agencies have translation services and/or English versions of their forms. Some countries do offer online or phone services in English, but there are not very many. For example, in Canada, the province of Quebec prints all of their payroll forms in French only. Oui, c'est vrai!

The Responsibilities of Running Global Payroll

Knowing the rules and regulations of global payroll, staying up-to-date on technology to ensure it’s being used ideally, and protecting the global employee through strategic projects that affect payroll are all important responsibilities in global payroll.

Compliance With Global Laws

A large corporation in the U.S. has an obligation to follow the payroll rules and regulations in every state where they have employees. The same holds true for global payroll. Every country has taxes that need to be remitted, many including reporting. It is crucial to think of global payroll as continuous education of in-country rules and how they apply to your company and employees.

Employee Data Privacy and Security

Data privacy and security have been top headlines in HR and payroll for years! Now that the U.S. has the California Consumer Privacy Act (CCPA) and the EU has the General Data Protection Regulation (GDPR), both of which enacted extremely high penalties for data privacy violations, more employers are looking inward at their data privacy processes and procedures. The vendor used for global payroll calculations should also be questioned to ensure they are compliant too. A global data privacy violation can be something as minor as a German employee's home address being visible to an employee in the U.S. Again, knowing the rules makes it much easier to follow them.

Knowledge of Local Culture

Similar to language, culture can play a large part in how global payroll needs to be processed. Unfortunately, culture is learned through assimilation and global payroll does not allow the time needed to immerse oneself in a culture long enough to learn it holistically. Use the internet. Do the research. Ask your co-workers. Do whatever you need to do to become familiar with the local culture. You will never know that red envelopes should be delivered prior to Lunar New Year if you haven't processed payroll for a country in the Asia/Pacific region.

Types of Global Payroll Providers

One of the must-haves in global payroll is a global payroll provider. Your provider will assist with the appropriate calculations, tax filing and other reporting requirements. Here are the three types of payroll providers in the global payroll processing market.

Cloud Based Payroll System

A cloud based system is an online platform where users log in and either upload or create a payroll data file (hours, dollars, etc.). Unless the vendor has a portal capable of processing the payroll data, the vendor's system shares the payroll data with a contracted in-country provider (ICP). The ICP will perform the actual payroll calculations and provide the results to the vendor portal. When the ICP payroll has been returned, the user receives a notification from the portal and retrieves the payroll results in the form of reports or employee pay slips. Some of the vendor portals also act as employee self-service for address changes or to view a pay statement.

Employer of Record (EOR)

An Employer of Record, or EOR, facilitates all employment requirements on your behalf. You do the interviewing, but the EOR hires, onboards and pays the selected candidate for you. This is especially helpful in global payroll when an employer needs to move quickly to open payroll in a specific country. The EOR acts as the employer agency while the company retains control over the work performed. The employees are essentially long-term contractors through the EOR agency. The EOR is also responsible for all in-country tax reporting, filing and paying.

Professional Employer Organization (PEO)

Before the inception of EOR organizations, the PEO, or Professional Employer Organization, was the most frequently used employment agreement for global companies getting established in new countries. In the PEO relationship, the employer is responsible for establishing the in-country accounts and relationships. The simplest way to think of a PEO is to consider that you are renting the employees back from the organization. Regardless of which type of vendor relationship you choose, it is important to remember that the final responsibility always lies with the employer, not the vendor.

How to Get Started With Global Payroll

To set up payroll in a new country, there is a lot of planning and decision making. Using a checklist is a good way to ensure you are covering all the essentials as well as the in-country requirements for each new payroll implemented.

Step 1: Know the Country

Without knowing which country the payroll is going to be processed in, nothing should ever be assumed. Even simple information like employee names and addresses may not be required depending on the country.

Step 2: Know the Rules

Once the country has been established, you can begin research to learn the statutory earnings, deductions, information and money movement requirements that need to be set up for the payroll process. For example, research which benefit schemes to offer employees in the region, which tax collection agencies need to be registered with, and what information must be included on the payslip statements.

Step 3: Know the Money

Funding paychecks to employees via direct deposit is always the most secure way to transfer payroll funds. However, when the money is being transferred overseas, the U.S. Treasury along with the chief tax collection agency in most countries provide very specific and stringent laws for international money movement. Unfortunately, since funding employees is typically the final step in the payroll process, this step is often left until the last minute, thus risking additional errors, fees and fines. Establishing the money transfer processes as part of implementation can prevent these issues.

Step 4: Know the Vendor

Vendor selection can be a really fun experience. It isn't a bad idea to approach a Request for Proposal (RFP) like speed-dating because this is the vendor you will be working closely with for (hopefully) a long time. Ask questions about community outreach in addition to compliance education. Have a meal or a Zoom coffee break with the representatives to get a feel for their corporate culture. Use an internet search to read what other customers, candidates and connections have to say about the vendor.

Why Global Payroll?

The ability to employ an individual in another country throws open the doors to a globe covered in talent. Instead of going through the visa process and paying relocation expenses, why not consider a co-employment relationship with an organization in India or Germany? Instead of searching for candidates on the same job sites, work to build relationships with recruiters in the UK and Australia. You too may find that the bigger the world gets, the smaller the world gets.
Christine Stolpe CPP

Christine Stolpe CPP

A twenty-something year payroll veteran, Christine was adopted into the payroll profession from Human Resources when it was discovered that she had a knack for rules, details and numbers. She is a results-driven and accomplished global payroll enthusiast with broad experience in both domestic and global payroll teams, ensuring accurate payroll operations through efficient leadership of staff. Joining the American Payroll Association (APA) and getting her CPP certification in 2011, Christine has thrown herself head-first into volunteering for the APA at the local, state and national levels. She obtained her Global Payroll Certification in 2011 as one of the first 50 recipients, and her professional vision is to lead the drive towards global payroll quality assurance procedures that provide simple solutions for compliance, accuracy and timeliness.
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