As companies expand their operations into new countries, it becomes increasingly important to have a global payroll system in place to manage employee payments across borders. The expansion of a company into new markets can present several challenges, not the least of which is ensuring that employees are paid correctly and on time. A global payroll strategy helps to ensure that all employees are paid accurately and in compliance with local laws and regulations.
Software providers play a key role in providing the tools necessary to manage a global payroll effectively. By working with experienced software providers, companies can streamline their payroll processes and minimize the risk of errors or non-compliance. There are several different software solutions available that can help with this, and it's important to choose one that will fit the specific needs of your business.
Once you have a global payroll system set up, you'll be able to make sure all your employees are paid on time and in compliance with local regulations.
What Is Global Payroll?
Global payroll is the process of managing employee compensation and benefits across international borders. This can include everything from calculating wages in different currencies to complying with local tax laws.
For companies with employees in multiple countries, global payroll can be a complex and work-intensive task. But it’s also an essential part of doing business on a global scale. By streamlining the process and working with experienced partners, businesses can ensure that their employees are paid accurately and on time no matter where in the world they are located.
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Global Payroll Models: Wholly-Owned Model and Aggregate Model
The two models of global payroll are wholly-owned and aggregate.
In a wholly-owned model, the company owns all aspects of the payroll process and manages it in-house. This can be beneficial because the company has complete control over its payroll processes and data. However, it can also be more expensive and time-consuming to manage everything internally.
In an aggregate model, the company contracts with one or more third-party providers to handle some or all of its payroll processes. This can save time and money, but it means that the company will have less control over its payroll procedures and data. To properly reap the benefits of an aggregate model, companies need to find a reliable partner provider such as Skuad so they don’t have to worry about their processes and information being mishandled.
Challenges of Setting Up Global Payroll
Global payroll can be complex and challenging, due to quite a few hurdles such as compliance requirements, data protection laws, cultural differences, currency fluctuations, language barriers, time zone differences, and different calendar systems. You can expect to face the following challenges when setting up global payroll:
- Compliance - Employers must comply with local laws and regulations regarding employee compensation in each country where they have employees. Employers must ensure that their payroll processes meet the requirements of any applicable tax treaties or other international agreements. Failure to comply with these obligations could result in significant penalties.
- Data Protection - Data protection laws vary from country to country, and employers must take care to comply with the requirements in each jurisdiction where they have employees. In some cases, data protection laws may require employers to obtain consent from employees before collecting or sharing their personal information. Employers should also be aware of any restrictions on transferring employee data out of the country.
- Cultural Differences - Employers need to be sensitive to the fact that employees in different countries may have different expectations and preferences regarding their compensation. For example, some cultures place a high value on bonuses or other forms of variable pay, while others may prefer more stable salaries.
- Currency - Currency fluctuations can have a significant impact on an employer's budget for global payroll. Employers need to be aware of exchange rates and how they may affect the cost of employee compensation. They also need to consider whether employees will be paid in their local currency or in the currency of the country where the company is headquartered.
- Language - Language barriers can make it difficult for employers to communicate with employees about their compensation. In some cases, it may be necessary to hire bilingual staff or use translation services to ensure that all employees understand their pay and benefits.
- Time zone - Employers need to be aware of the different deadlines and cut-off times in each jurisdiction and plan accordingly. Different local labor laws may also have various requirements when it comes to cutoffs and deadlines.
- Calendar - Some countries use different calendar systems (e.g. Israel and China), which can make it difficult to keep track of employee pay dates. Employers may also need to account for public holidays in different countries when setting up their global payroll.
Benefits of Implementing a Global Payroll Solution
Given all the above-mentioned challenges you can probably already tell how potentially complex it is to set up a global payroll solution in-house. Many organizations opt to pursue an aggregate model and partner with a provider like Skuad. There are many benefits to partnering with a global payroll provider, including streamlined processes, increased productivity, better analytics, and cost savings. If done right, a partner global payroll solution can afford you all of these competitive advantages:
- Streamlined process - The right global payroll provider streamlines the process of paying international workers by automating many of the tasks associated with managing payroll. This includes calculating employee pay, issuing payments, and maintaining records. By outsourcing these functions to a partner provider, businesses can focus on their core operations and leave the complexities of managing international payroll to the experts.
- Better productivity - Through streamlined processes, you also get the increased productivity that comes from having all of your payroll information in one central location. This saves you valuable time and energy when it comes to managing your employees' compensation. In addition, a partner provider can offer expert guidance on compliance matters, which can help reduce the risk of costly penalties or fines.
- Better analytics - Global payroll providers offer powerful analytics tools that can help you understand your employees' compensation and benefits on a deeper level. This information can be used to make strategic decisions about where to allocate resources or how to improve employee retention rates. In addition, these insights can help you identify areas of potential cost savings so that you can reinvest those funds into other parts of your business.
- More cost savings - Global providers have economies of scale and can pass on their efficiencies to their clients in the form of lower prices. In addition, by automating many of the tasks associated with managing international payroll, businesses can further reduce their labor costs.
- Better time savings - The right partner can save you time in more ways than one. Yes, they can make processes go faster and help avoid delays, but more importantly, they also help free-up time from key HR resources like decision-making personnel so they can focus their time on other areas of operation.
How To Establish a Global Payroll System
There are a few ways that companies hiring internationally can establish global payroll systems, but partnering with professional employer organizations (PEOs) or employers of record (EORs) are two of the most popular methods. Both PEOs and EORs provide similar services, such as handling employee onboarding, compliance with local employment laws, and processing payroll and benefits. However, there are some key differences between the two.
The foremost difference is that PEOs are co-employers along with their clients. When you sign with a PEO, you need to have a local subsidiary in the target market, and you’re both employers of any workers hired there. EORs are sole employers, hiring on behalf of clients, which gives them the flexibility of being able to quickly set up operations across multiple countries because their clients do not need to establish a local legal entity.
Due to this difference, PEOs typically have a stronger presence in multiple countries than EORs, which gives them an advantage when it comes to understanding complex international labor laws. Additionally, PEOs often let you have more control over your HR and payroll processes because, unlike EORs, you are co-employers, so you share responsibilities and liabilities between the two of you.
If you want to invest in building and paying globally distributed teams you need to partner with a reliable, leading PEO such as Skuad to help you set up your roots and expand internationally. What’s more, leading providers like Skuad understand the need to prioritize the employee experience, letting you effectively scale your global payroll while minimizing the hassle for your international workers.
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To expand your business internationally, you must first understand and comply with the local labor laws of the markets in which you want to operate. This compliance is essential for success.
Attempting to go at it alone will only hinder your progress. Instead, partner with a reliable global payment provider like Skuad who can manage HR and payroll globally while also ensuring compliance with all local labor laws. Skuad addresses all of the challenges mentioned above and lets you enjoy all the competitive advantages of partnering with a leading global payment solutions provider.
Ready to start paying globally? Book a demo with Skuad today!