Efficient international payroll processing

Whether a company is established in multiple countries or just beginning toexplore foreign expansion, international payroll processing is a complex undertaking.

Because of this complexity, payroll is increasingly being considered an integral part of an organization's global strategy—and rightly so.

In 2017, 84% of organizations reported that payroll was included in initial conversations from the expansion planning process to the implementation phase—up from just 38% of organizations that reported this same involvement in 2014.

This shift in how companies view the strategic importance of payroll can be attributed to both the challenges faced when navigating international payroll rules and advances in international payroll services.

Common challenges of international payroll processing

Companies who don’t make international payroll a priority face a host of potential problems, including inefficient processes, noncompliance issues and dissatisfied employees whodon’t get paid correctly or on time. Some of the challenges to managing international payroll processing include:

Navigating compliance with foreign governments. By and large, everyforeign country has their own international payroll rules that regulateprocessing. For example, one country may differ from another one on the issueof opening an account at a local bank, or have different statutes on payingsalaried employees or independent contractors.

It’s especially important to keep abreast of all local payroll compliancelaws. Key areas, such as payroll withholding statutes and tax obligations,should be a priority for U.S. companies processing payroll in multiplecountries.

For instance, many countries have different withholding mandates on employeebenefits like health care. Failure to get those numbers right on a staffer’spayment records or with income reporting processes can lead to noncomplianceaction taken by a foreign government.

Getting payroll figures right for employees. Multinationals need to do allthey can to keep employees, both salaried and contractor staffers, happy andproductive on the job. And getting the numbers right on paychecks is crucialto keeping employees satisfied.

There are various factors that affect what employees see in their finalpayslips, including overtime and deductions on taxes and employee benefits.These factors all underscore the need for accurate and automated payrollprocessing to produce the correct numbers every payroll cycle and plan aheadfor future payroll cycles.

Ensuring accurate reporting. Calculating payroll income, withholdingpayroll taxes, and accounting for currency differences among workforcepopulations all can have an effect on the reporting accuracy of internationalpayroll processing.

For multinational companies with a range of country, state, regional and localtaxes to account for, accurate reporting is crucial.

Being proactive about processing errors. The fact is, once a multinationalcommits one or two compliance violations in a foreign country, the companyputs itself on the government’s regulatory radar.

Working closely with local business and regulatory partners on a proactivebasis helps bolster your knowledge of local payroll regulations and createsgoodwill with local regulators to foster a culture of learning and leniency.

Choosing the best strategy for your international payroll processing

When deciding on a global payroll strategy, both established and emergingmultinationals should evaluate options that not only will address currentchallenges, but also will set them up for future success in all the localmarkets where they have employees or plan to have employees.

Here are four international payroll services and strategies to consider.

Employer of record payroll. Companies that are expanding globally andhiring in new international markets for the first time have plenty ofrequirements to worry about—the complexity of international payroll processingdoesn't have to be one of them.

By outsourcing with an employer of record, emerging multinationals that need a local payroll solution and haven’t established a legal entity in-country can compliantly pay and employ workers overseas, unlike global PEOfirms.

Global Employment Outsourcing (GEO) alleviates the costly and arduous work of setting up a local entity to pay foreign workers by supplying the local infrastructure for payroll, including all banking, insurance, tax, HR, facilities and contract requirements. It’s a prime international payroll service option for companies needing:

• A compliant way to pay workers, while exploring or testing new international markets
• A way to guard against international independent contractor noncompliance
• An interim employment and payroll solution to quickly onboard employees, possibly workers obtained during an acquisition, while working to set up a legal entity

Local payroll administrator. Engaging with a local payroll specialist isadvisable for companies who have a more established local presence but arestruggling to manage errors, inefficient processing and compliance on theirown.

An experienced and efficient local payroll administrator gives multinationalsmultiple advantages, including having a local payroll processing team on theground in countries with complicated payroll compliance laws. A localadministrator can ensure payroll is done by the book in a specific country,while also improving data security and visibility in foreign markets, thusreducing the chances of fraudand mismanagement of company assets overseas.

Additionally, by going with a local payroll administrator, companies can savemoney by not having to hire additional staffers or invest in expensiveinfrastructure to manage international payroll processing.

In-house payroll. Global companies with enough internal resources maydecide to handle payroll themselves in each of their foreign entities. Thisstrategy requires in-house expertise in all the countries where they haveemployees to ensure an understanding and adherence to international payrollrules. In-house payroll can be an inefficient option to implement in countrieswhere the company has only a few employees.

If keeping payroll in-house becomes harder to maintain as your company movesforward in new key markets, a pros and cons discussion should occur betweendecision-makers. You may find that outsourcing with an international payrollservice company in some or all foreign markets makes more economic sense.

Global managed payroll. This payroll outsourcing option is a good move forlarge multinationals looking for a strategic solution to standardize theirentire global payroll operation.

A centralized payroll system with one global provider can help leaders gain access to real-time workforce data, so they can make smarter decisions about talent management, monitor key performance indicators, enable process improvements and identify inconsistencies and fraud.

For U.S.-based multinationals, a solid international payroll processing strategy is critical for success whether a company has a few international employees or hundreds.

Speak with a global payroll expert today and let our experts find the right payroll solution for your organization.