In today's business world, having a global team of workers is critical for your company's growth. However, one challenge you might encounter with hiring international employees is payroll processing.
Payroll processing is challenging when hiring employees from various countries because you need to comply with each country's regulations to avoid compliance issues. Getting your globally distributed workforce compensated on time and using the right currency can also be a massive challenge.
Despite the intricacies of global payroll processing, with some knowledge and some help, you can breeze through the challenges that come with it.
What Is Global Payroll Processing?
Global payroll processing refers to all the functions that deal with making payments to employees across international borders. This may include:
- Keeping records for all employed staff
- Ensuring accurate salary information
- Adhering to foreign pay and tax laws
- Making deductions such as student loan contributions or pensions
- Remitting income tax and other deductions to the relevant authorities at the correct intervals
Global payroll processing is not only essential for retaining your top employees, but it also helps your company build a good image and remain compliant.
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Components of Global Payroll Processing
Global payroll processing is more complex than local payroll processing because you’re dealing with laws and expectations from multiple jurisdictions. Here are some of the issues to consider when paying foreign employees.
Your foreign employees will have varying expectations regarding salaries and benefits. You need to know and meet these expectations to retain them.
The first thing to consider is how much to pay. Consider market rates and minimum wage regulations, as these differ from country to country. For example, the minimum hourly pay rate for an Irish employee is USD 10.40; for a Danish employee, USD 18; and for an Australian employee, USD 20.33.
Another important factor to consider is the pay periods. Employees may need their payments processed daily, weekly, or monthly depending on your agreement and employment laws.
Also, consider the payment methods to use. The channels you use while paying domestic workers may not work with international workers. For example, according to a survey in 2020, over 93% of Americans receive their salaries and wages via direct deposit. However, this payment method may not work with all your foreign workers.
Research by the World Bank shows that around 1.4 billion people worldwide remain unbanked. If you’re hiring remote workers, especially from developing countries, you may need to use alternative payment methods such as digital wallets, payroll cards, or virtual payment platforms like Wise, PayPal, and Payoneer.
Employment and Tax Laws
Employment and tax laws differ among countries. For example, while most US states operate under at-will employment laws, most countries require an employer to have a concrete reason for firing someone.
Here are several factors to consider regarding employment laws:
- Workers' unions: In some countries, unions play a critical role in managing workers' benefits and work conditions.
- Leaves: Employees are generally entitled to vacation, sick, maternity, and other types of leaves, but the terms may vary depending on where your employees come from.
- Probation periods: While most countries require employers to include specific probationary periods in employment contracts, others like Chile and Belgium don’t acknowledge probation periods.
- Notice: How much notice to give an employee before laying them off also varies across countries.
When you hire foreign workers, you're required to adhere to the laws of both your home country and the countries you are hiring from. In some countries, the laws may also differ across regions. Failure to comply with labor and tax laws could put your company in trouble with the authorities and expose you to heavy penalties.
Currency Exchange Rates
In many countries, companies are required to pay their staff in local fiat currency. As such, you will need to engage in currency exchange.
Challenges arise when there are unfavorable changes in currency exchange rates between your currency and the currencies your employees use. Such changes may negatively affect your budget or lead to disgruntled employees.
If you have a large team of international employees, your payroll data is accessible to many employees. For this reason, you should have measures in place to keep all data protected. This may require you to have a safe and secure payroll management system, eliminate redundant employee data, and ensure all emails sent are encrypted.
If you're outsourcing payroll, the party in charge must be willing and able to keep all data safe. You should also have a formal contract stating what is to be done in case of a breach.
Benefits of Global Payroll Processing
Below are some of the benefits of global payroll processing.
Avoid Legal Risks
Global payroll processing helps your company avoid regulatory liabilities. When it’s time to pay your international employees, all the tax and employment liabilities laws from the countries your employees come from are adhered to.
On top of that, global payroll processing ensures all your data is in one place or platform, making it easy to identify any irregularities. And with lots of payroll data scattered across various nations, a unified platform is the simplest way to manage and process it.
Reduce Payroll Leakage
It’s not uncommon for irregularities or mistakes to occur when processing payroll, especially if you’re dealing with data from multiple countries.
With a proper way to handle global payroll processing, you can easily avoid payroll leakages. A global payroll provider knows the requirements to handle payroll data across various countries and won’t commit any irregularities.
Besides, global payroll providers automate the entire process, so you don't have to process payroll through emails and spreadsheets. Hence, it becomes difficult for persons with bad intentions to commit fraud.
Ensure On-Time Payments
Payroll processing goes beyond calculating salary amounts and deducting them. It also includes paying your global team on time and without any hassles.
Global payroll processing providers know how to handle international transactions and can ensure on-time payments. For example, one way to send salaries to foreign workers is through SWIFT payments. However, SWIFT payments can be slow and are restricted in some countries. A global payroll provider can utilize different payment methods for employees from different countries to ensure all payments are made quickly and on time.
Ensure a Streamlined Process
Global payroll processing helps to unify your entire global payroll process. Your local and international employees can access payroll data quickly and in a standardized format to keep everything organized. This also makes reporting easier.
Moreover, the management team will understand the payroll process better because it’s easy to monitor and analyze data in the integrated system.
How To Manage Global Payroll Processing
When it comes to global payroll processing, you need to find a solution that will not only address your existing challenges but also improve efficiency and help you stay compliant. Here are three common ways to accomplish global payroll processing.
If you have a large HR department that is experienced in hiring international workers, you can rely on it to handle global payroll processing.
This option requires your team to have a deep understanding of all the markets you're hiring from. It can also be expensive, as you may need to expand your team as you penetrate new markets.
This solution entails using automated payroll software tools or platforms to manage your international workforce's compensation, benefits, deductions, and tax withholdings. Typically, these software platforms and tools can be configured to work with any business.
When done well, automating your payroll enhances the accuracy of your payroll data and makes it easier to follow international data protection laws. It also allows a wide range of data analytics and reports that may be essential to your company.
Partner with a global payroll platform
If you want to avoid the challenges of paying international employees and keeping up with tax and employment laws, you can hire a global payroll provider to take care of everything.
You can opt for either a Professional Employer Organization (PEO) or an Employer of Record (EOR). With a PEO, you enter into a co-employment plan with the provider, whereby they manage aspects of payroll processing while you handle day-to-day activities. However, when working with a PEO, you may need to set up a legal entity in the country you're hiring from.
If you want a provider that takes care of all aspects of global payroll processing without having to set up an entity, consider an EOR. An EOR will hire on your behalf and then handle employment contracts, compensation, benefits, and more.
Simplify Global Payroll Processing With Skuad
Processing international payroll can be complicated and overwhelming. From managing various payment methods to complying with local and international regulations, ensuring data protection, and integrating software systems, many tasks are involved.
Skuad is a global payroll platform committed to making your global processing easier and more efficient. With operations in 160+ countries, our unified payroll platform ensures your entire global payroll process is seamless so you can scale business operations.
To learn more about how Skuad, book a demo today.