Managing payroll for a company can be one of the most labor-intensive, time-consuming duties a human resources (HR) department must perform. If that company employs workers internationally, it can be even more complicated, particularly if those workers are spread out among multiple countries.
It is highly difficult for a company to operate at optimal efficiency if its payroll system is fractured among several countries at once. It would be nearly impossible to track your payroll and HR data for international employees using a different system or a separate payroll team for each country in which your workers are employed.
Administering a multi-country payroll system necessitates the use of an integrated payroll system to maintain payroll and administrative functions in multiple countries simultaneously. This may sound like a daunting task, and it will indeed have its obstacles.
In this guide, we will walk you through the challenges involved in setting up a multi- country payroll process. We will also provide you with a checklist to help guide you through the implementation of global payroll, provide you with best practices to assist with the setup of your multi-country payroll system, and offer solutions to streamline the entire process.
Introduction to multi- country payroll
Global expansion has become increasingly popular for many companies around the world. As post-pandemic shortages of talented, qualified job applicants continue, many companies have begun seeking employees or independent contractors in international markets to broaden their recruiting horizons.
Expanding your employee base to an international level is an excellent way to increase your company’s hiring potential as well as to gain a toehold in global markets your company has yet to explore. The challenges inherent in such an endeavor, however, can be daunting for some without experience in maintaining a global workforce and the myriad payroll challenges it brings.
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Challenges in setting up multi-country payroll
Hiring across international borders can raise a variety of issues that you must keep in mind when setting up a system to handle your multi-country payroll administration.
International banking can be complicated
Within your own country, setting up payroll for a local employee and sending payment via direct deposit to their bank account is simple and straightforward. When it comes to sending such a payment to workers in other countries, however, there are various challenges to think about, including legal requirements, steep bank fees, time differences, delays, and currency considerations.
For example, some countries require companies to pay their employees in the local currency, while others allow compensation for work performed to be delivered in foreign currency. Currency exchange rates can fluctuate greatly from day to day, which can complicate payroll processing and cost projection.
Labor laws vary from country to country
When administering multi-country payroll, compliance with local labor laws may be the difference between a successful operation and costly penalties. Employment laws can be quite different depending on the individual country, even differing significantly from the laws in countries within the same region.
When paying employees in multiple countries, you must be well-versed in the labor laws of each country and how those laws affect payroll. For example, there can be subtle or large variances in the payroll contributions that must be withheld from the paychecks of employees from different countries. Laws regarding social security and other benefits must also be applied on a country-by-country basis, not to mention allowed working hours, paid time off, and many other considerations.
Most importantly, if any of the countries in question requires you to open a local business entity to employ workers in that country, you may best be served working with an employer of record (EOR) or using a comprehensive global payroll service like the one offered by Skuad.
Time and language barriers may hinder communication
Maintaining a cohesive team and with clear channels of communication can be cumbersome for a company employing international workers. In particular, time zones vary widely across the world, making team-building exercises in real time all but impossible.
Differences in culture and in spoken and written language can also cause communication difficulties. What is expected in one country may not be important in another, whether the issue revolves around values, holidays, or workplace expectations. It is essential to be mindful of these differences to allow for the enrichment your company can gain from the variety of languages and cultures making up your workforce.
Local payroll rules can pose obstacles
Labor laws in some countries require workers to be paid for public holidays observed in those areas. Minimum wage is also set per country, and some countries mandate various minimum wage amounts based on the nature of the work performed.
Workers from some countries are entitled to such payroll benefits as 13th month pay, which is an annual bonus paid to employees, usually within the month of December, that equals a month of the employee’s regular wages.
Nearly every country expects payroll deductions to be withheld at varying rates and those funds paid to different government agencies.
Failure to observe each country’s labor and payroll rules could result in sanctions or penalties from the country in question and possibly under your own country’s laws, as well.
Keeping global payroll in-house can be costly
If you plan to use software to enable your company to pay workers in various countries at once without outsourcing any responsibilities, keep in mind that maintaining your global payroll process in-house will likely involve setting up a legal business entity in each country in which you hire employees. You will also need to set up a specialized payroll team in each of those countries.
Checklist for setting up multi-country payroll
There are several steps you should follow when setting up a payroll program for your international workers.
- Evaluate your current payroll process. It’s important to determine how your current process works for you — and how it doesn’t — to assess what you need from a global payroll process.
- Consider your business strategy and goals. Ask yourself how you see your business growing in the future. Do you plan to expand into new markets or open offices in other countries? How could this affect your future business and payroll needs?
- Familiarize yourself with the rules of each country. For each country in which you plan to hire workers, study the labor laws, compliance risks, and payroll rules. Collect and organize any data or information your company will need to know.
- Compare your business goals with the features of payroll software or providers. When choosing global payroll software, an EOR, or a global payroll service, it’s essential to compare the features of each option to the goals of your business. You should carefully examine both advantages and disadvantages of each provider before making a decision.
Best practices for setting up multi-country payroll
After you decide what type of global payroll service best suits your company, it’s a good idea to follow these best practices:
Select your global payroll software or partner carefully.
Regardless of whether you’ve decided to keep your payroll process in-house by using global payroll software or to partner with a company like an employee of record (EOR) or a global payroll service, be sure your selection best aligns with the needs, budget, and goals of your business.
Understand the difference between employee and contractor.
Based on the specific labor laws for each worker’s country, specify the type of employment relationship enacted. Misclassification of an employee as an independent contractor in virtually any country can lead to severe repercussions, from tax penalties to fines to criminal charges.
Determine the appropriate compensation for each worker.
Depending on your company’s philosophy, you may pay every worker a similar wage, or you may take into account each country’s cost of living, minimum wage, tax rate, and other pertinent factors. Ensure that any employment offers you extend are competitive for the work, the country where the applicant lives, and the applicant’s specific work experience.
Decide whether to establish a legal entity in each country.
Keeping your company’s long-term goals in mind, including whether you plan to expand your business into any particular market or region and how many workers you plan to hire, determine if it is in your company’s best interests to establish a business office in that country.
No matter how many nations you choose to involve in your company’s multi -country payroll process, a global payroll partner can help ensure your company’s compliance with local labor laws, minimum wage, employee benefits, payroll administration, and much more.
Skuad’s platform enables you to hire full-time employees or contractors in over 160 countries around the world and pay your workers in over one hundred currencies. Its comprehensive payroll solution allows you to expand your international team on a single, unified platform. The Skuad team of international HR experts can take much of the administrative responsibility off your hands, from hiring to onboarding to payroll to compliance to much more.
Don’t let the challenges of multi-country payroll keep your business from growing into the ever-expanding international market. Contact Skuad today to get started expanding the hiring potential of your business.