Guide To Global Payroll

Posted by Bluerozz John on January 19th, 2022

What is Global Payroll?

Payroll is the process that includes calculating each employee’s earnings, withholding the correct income and social taxes, managing bonuses, commissions, expenses, and benefits, and delivering the correct payment to the employee, with a payslip. It also involves keeping records on behalf of employees, making payments to all the necessary stakeholders (such as tax authorities) and keeping track of work hours and paid time off.

Global payroll is the same process, repeated for each country, but with additional levels of complexity. Tax and labor laws vary widely from country to country. Keeping track of numerous data streams – different spreadsheets and expense invoices in different languages and different units of measure – can be overwhelming.

The definition of  a multi-country payroll is the same regardless of whether a company has an entity in the country where it is hiring, working through an employer of record (EoR) or hiring independent contractors. What distinguishes a global payroll from a local payroll is the ability to carry out the necessary payroll steps for different countries simultaneously, making it not only manageable to hire and pay a workforce abroad, but also simple.

What Makes Global Payroll So Complex?

A local payroll can be complex, particularly at an enterprise with thousands of employees, even if all of them are in a single location and fall under the same tax and legal codes. But a global payroll can be at least three times more complicated, and when there are dozens of countries involved, it can be simply overwhelming – unless there is a technological solution.

Labor laws and tax codes are not only different in each country, but also from person to person. Every employee’s tax rate is based on numerous factors, including salary structure, age, and family status. Laws are also highly unstable. Legislative changes happen without warning. Languages and currencies are different from country to country, and so are standards for bonus payments. Many countries require employers to pay a 13th salary as a bonus.

The number of data points that need to be collected and processed with an international payroll can be staggering. Every department in each location must provide time and attendance reports, expense reports, and bonus and commission data. Earnings can change each month, and therefore the tax rate could be different. Benefit packages also need to be calculated. In additional there will be variable costs such as expenses and bonuses that also must be calculated in the gross to net.

All those reports will arrive in different languages and in different formats. After they are all aligned and calculated, there is yet another level of complexity. Payments need to go to no less than three parties (employees, tax authorities, benefits vendors), and sometimes as many as 10.

For a global payroll manager aiming to co-ordinate all these ‘local payrolls’ into one ‘global payroll’, it is an extremely complex and taxing job to deliver an accurate gross to net payroll on time with zero errors.

A true global payroll solution in the modern age should address this complexity. A sophisticated multi-country payroll platform consolidates the data streams, automates the workflows, and standardizes the information to make it simple. When combined with in-country partners and a dedicated project manager to stay on top of law changes, the result is a perfect payroll in full compliance on time every month.

Payroll Models – Aggregate or Wholly-Owned

To maintain compliance, stay informed of legislative changes, and work effectively with the local culture, a company delivering an international payroll must have a local presence. In today’s global payroll landscape, there are two primary models.

One model is the wholly-owned model. Companies open offices in those countries to handle the entire operation in-house. Another model is the aggregate model. Companies build partnerships with at least one local company (known as an in-country partner) to carry out the payroll – usually accounting firms or law firms. The in-country partner (ICP) is hand-picked, vetted, and provided with the technological support of a payroll platform.

When it comes to ICPs, one size does not fit all. While the wholly-owned model has an intuitive appeal because it seems more integrated and controlled. In reality, it has proven to offer less flexibility, transparency, and accountability than the aggregate model.

With the aggregate model, payroll suppliers in the local country compete for the ‘business’ of the global payroll solution provider. That makes them more accountable and allows the global payroll company to work with only the best ICPs. The aggregate model also allows maximum flexibility. If an enterprise has a special need, it can be matched with the right ICP.

The best global payroll provider is a global payroll aggregator together with a cloud-based payroll platform that collects data from all locations and provides a unified view from a single pane/dashboard. Together, the result is a strong combination of flexibility, transparency, and data consolidation.

Ensuring Compliance

When it comes to global payroll, compliance is an ongoing challenge. With so many laws and tax codes to track in each country, fear of non-compliance often push companies away from even considering an international workforce, often giving up lucrative business opportunities in the process.

Despite the challenge, compliance can be achieved in each location with the proper setup in place. By using the aggregate model, companies have access to local experts who have a vested interest in knowing the letter of the law in all payroll matters. They not only handle the payroll calculations, making sure to withhold the correct taxes from each employee, but also monitor the legislation, such as changes to the minimum wage, overtime, or new tax rates.

Compliance, however, is more than simply having ICPs across the world. It is also connected to levels of support services that keep companies informed about all relevant information and provide answers to important workforce-rated questions. A good global payroll provider will have a network of ICPs as well as in-house experts, clients can turn to for information before making hiring decisions. Payroll software can show clients the true costs for each employee in every area.

Understanding Your Global Workforce Costs

Since payroll is the single largest cost item for any company, it makes sense to monitor that spending as closely as possible. Knowing how much is being spent at any time and exactly where the funds are going is the essence of control. Otherwise, it’s nearly impossible to make effective business decisions on increasing investment, or if necessary, cutting costs. Without real time business intelligence (BI) reporting, it is impossible to run an efficient global operation.

With a manual global payroll, however, keeping track of total payroll spending, or even how many employees a company has in total, is a massive challenge. It means reconciling data from many sources, often multiple excel files, delivered in different styles, adding up all the figures, and hoping that it matches the total that is actually being paid.

Real time reporting is the only effective way to keep track of payroll spending. When all the information is consolidated into a single dashboard, it’s easy to see the most important information and to use it to make strategic decisions. Did your payroll spending go up or down this month? Do you know why it changed? With real time reporting, the information is ready at your fingertips.

A good reporting suite will allow clients to compare spending by time (month or month, year over year, etc…) location (costs of hiring in one country vs a different country), and overseas project. It provides a broad overview of all payroll spending and offers an option to drill down to each element and examine it closely.

Starting with a Global Payroll Provider

When a company begins to consider expanding abroad, or in moving from a decentralized manual payroll to a unified global payroll system, it’s important to know how it will benefit from the move. One of the first considerations to take is whether the new system will be able to process the employment type the company is most likely to use.

A simple way to handle it is to work with a global payroll provider. The combination of state-of-the-art software solutions, expert ICPs through the aggregate model, and in-house support to ensure every detail is addressed can solve all of the payroll problems.

Running an overseas payroll can be fiendishly complicated. But working with the right company that can handle all types of employment models (payroll, EoR, contractors) and that can allow for an easy transition  between the three main types as your company grows; can provide an automated payroll platform, with payroll processed by local experts whilst offering offering individual support, the process can actually be rather simple.

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global payroll solutions, global payroll services, best global peo