Employees are the biggest asset of any business, irrespective of the nature of the company. From operating day-to-day tasks to handling customers to bringing in new companies, employees are the pillar of strength for any business. Hence, it is so crucial that companies compensate employees for all their efforts. Payroll thus comes into the picture. However, payroll doesn’t mean paying a certain amount of money every month to the employees. There’s much more to it, and hence it makes sense for many businesses to outsource their payroll department to third-party vendors who manage all the nitty-gritty of payroll. At the same time, enterprises focus on their core areas. If you’re looking to understand how payroll works and what are the challenges of managing global payrolls, allow us to explain.
Payroll is any business’s most significant overhead expense. The business process deals with employees’ wages after factoring out the applicable federal or state payroll taxes. How you calculate your employees’ payrolls depends on the different components like the nature of your business, taxes, etc. Remember, local laws govern employees’ payroll, so keep it into account while calculating your employees’ payroll.
The first thing you do after hiring an employee is to collect necessary employee information. Depending on the country of hire, you need to gather the employee’s tax-related data.
For instance, if the employee is in India, you get the person’s PAN card details, including a PAN number, name, address, and date of birth. Similarly, form W-4 offers information related to the employee’s federal income tax holding.
Each employee works on a specific pay agreement. Some employees may work on an hourly basis and get compensated for the total hours at work. At the same time, many employees get paid a salary for a fixed period – like a monthly or annual salary.
An essential aspect of payroll is the gross pay or the total amount of money an employer pays to the employees before any tax deductions. Net pay is what an employer pays after all the tax deductions. This is often known as the “take-home” pay.
Employee time is the time an employee spends at work. Time tracking is essential to determine the payroll, especially for employees who get hourly pay. Time tracking is also vital for employees who get paid for working overtime. Each country has its law to determine the overtime rate.
Employees enjoy some perks and benefits that their employers offer in each country. These may include health insurance reimbursement, retirement benefits, paid leaves, telephone bill reimbursement, study allowance, etc. Some employers may also offer commission based on the number of sales or bonuses during a specific time of the year if the company performs well.
It will be incomplete if we do not mention the various deductions to decide the payroll. Some of the standard payroll deductions are payroll taxes and benefit deductions, and these taxes are deducted from the gross pay of an employee. Each country has its own rule and rate for payroll taxes.
If you have a global employee base, dealing with international payrolls can be challenging. However, identifying these challenges early can help you navigate better. Some of the common challenges include:
The biggest hurdle for global businesses in the local payroll regulatory laws. The challenge magnifies when the company headquarters is in one country, and the payroll happens in another country, or you’re expanding in a new country. Using a local payroll provider may solve the problem, but you may find some serious challenges if the payroll provider fails to deliver real-time reports or compliance updates. Lack of real-time visibility can cause compliance errors.
Data security and privacy of your global employees and customers are vital for your business to succeed. But how do you ensure that you have access to global operations data in real-time so that you can spot any trends and make necessary adjustments? There has been a notable change to data privacy and security globally, the most significant one being the GDPR change in the EU in 2018. In such a scenario, investing in good payroll and HR technology for your global workforce may give you an edge to stay ahead.
Finally, companies need to strike the right balance between maintaining a global payroll system with the flexibility of local rules and regulations. There is no point in optimizing a global payroll system unless it adheres to the local federal law.
Here is a list of the top five apps to manage payrolls, according to Business.org.
Payroll is a complicated matter. You need to understand the fundamentals of it to run your finances properly.
Employee payrolls are one of the most significant overheads for any business, and running payrolls correctly is essential to success for any business.
However, the good thing is that you are not in this alone. You can connect with Skuad, which is a global employment platform. Skuad handles the complex tasks of managing global payroll, compliances, and taxation for your globally distributed team. We focus on end-to-end employee lifecycle management so you can focus on your growth strategies!