Stop global payroll roadblocks Stop global payroll roadblocks

Stop global payroll roadblocks
29 Jan 2018

You are setting up an urgent new payroll overseas. The new employee is already in their new location and they are desperate to get their first salary on time. Your plans are in place, but then a new problem emerges unexpectedly, which could delay your payroll launch.

The problems are not payroll’s responsibility, but you want to fix them as soon as possible In this article, I’m going to highlight common roadblocks, which can delay the setup of a new payroll overseas. I’ll explain what they are and why they matter and give you tips on how to resolve them.

I see this situation happening frequently all over the world. The reasons usually fall into two categories. Many companies don’t fully understand all the legal, HR and finance compliance issues before they can start payroll in a new country. Also payroll companies are usually experts at getting the payroll up and running, but they are not so focused on letting you know all the other issues you need to think about as well.

The legal entity

The most common roadblock in my experience is agreeing which legal entity should be used for a new international payroll, for example, a branch, subsidiary or rep office. Many companies simply don’t realise this is an issue until the consequences become clear, so it often develops into an urgent issue which needs to get resolved during a payroll setup.

Alternatively companies make a choice up front without knowing all the international rules, so they change their mind during implementation.

Why does this matter?

The legal entity is critically important. It has a number of direct impacts on payroll:

• The employment contract for your international employees must state the correct legal entity 
• You need to setup a new payroll for each legal entity overseas. If, for example, your Italian employees belong to three different legal entities, you will need three Italian payrolls.

The legal entity is also very important for your colleagues outside payroll: 

• Legal: It affects the legal filings you will need to make in your home country and your new international market 
• HR: It can change the terms and conditions you offer your employee 
• Tax: It will determine which tax returns include the payroll costs 
• Accounting: It drives which statutory accounts include the payroll costs
• Treasury: Your entity choice may even mean your company needs an overseas bank account.

How to clear the roadblock

The best way is to recognise this issue up front and get your company’s legal and tax involved. Normally these departments are the most important voices when it comes to deciding which is the best type of entity to select.

I also strongly recommend getting advice from an accounting and tax firm in your new country. They can confirm that your preferred solution is fully compliant with their laws and they can highlight any consequences that your in-house experts may not expect.

Case study

On a recent overseas payroll my client’s tax lawyer recommended using a branch of the HQ company as the legal entity. When I pointed out this meant the client’s group accounts would be publicly available overseas, the client decided to implement a subsidiary instead.

The employment contract roadblock

One of the first roadblocks you may face relates to the employment contract for your company’s new international employee. I have seen several cases where the payroll is held up because the employment contract has not been finalised.

Why does this matter?

The contract must be compliant with the employment regulations in the country you’ll be operating in. Otherwise your company can face fines and penalties overseas. These regulations can vary according to many factors, for example, the type of industry, the size of company and the age of the employee. They will also affect the terms and benefits that you legally have to offer your new employee

How to clear the roadblock

The solution I recommend is to use an in-country HR specialist who is experienced in providing similar solutions for other international companies.

This specialist can build on your company’s standard employment contract and tailor it to provide you with a template contract for your international employees. This will provide you with a fully compliant contract.

Avoid overpaying by selecting the right level of specialist. Law firms can quote partners for this type of work, which is an excessive cost unless you are dealing with a very complex case.

The expat roadblock

The most complex roadblocks I encounter are those involving expat employees. When an employee relocates to another country, both they and their employer can be liable to pay tax in both their home country and overseas. These implications and requirements should be understood before the first payroll.

Why does this matter?

This affects both the company and the employee. For the company, expats require separate salary and tax calculations, filings and payments in both their home country and the international location. For the individual employee, it affects their own net pay, their individual tax returns and their social security benefits.

How to clear the roadblock

Expat issues need special care because most international payroll providers do not have the expertise to resolve all the issues. Also, you won’t have the in-house expertise to fix this unless you are a large company with global mobility specialists.

As a result many companies turn to one of the major international tax or accounting firms as a safe but expensive option. There are also much cheaper expat tax specialists who are hard to find, but well worth it in my experience.

Expats are probably the highest unit cost in your international payroll. The resources are costly and it can be hard to control their costs because this is such a complex area. Consider getting some extra help to help you manage these costs. For a small outlay it will likely save you huge amounts of money and stress.

 

John Galvin is CEO of award-winning consultancy Galvin International, which provides independent, cost-effective and compliant advice for clients setting up global payroll functions. John was awarded Global Consultant of the Year at the inaugural Global Payroll Awards.

You are setting up an urgent new payroll overseas. The new employee is already in their new location and they are desperate to get their first salary on time. Your plans are in place, but then a new problem emerges unexpectedly, which could delay your payroll launch.

The problems are not payroll’s responsibility, but you want to fix them as soon as possible In this article, I’m going to highlight common roadblocks, which can delay the setup of a new payroll overseas. I’ll explain what they are and why they matter and give you tips on how to resolve them.

I see this situation happening frequently all over the world. The reasons usually fall into two categories. Many companies don’t fully understand all the legal, HR and finance compliance issues before they can start payroll in a new country. Also payroll companies are usually experts at getting the payroll up and running, but they are not so focused on letting you know all the other issues you need to think about as well.

The legal entity

The most common roadblock in my experience is agreeing which legal entity should be used for a new international payroll, for example, a branch, subsidiary or rep office. Many companies simply don’t realise this is an issue until the consequences become clear, so it often develops into an urgent issue which needs to get resolved during a payroll setup.

Alternatively companies make a choice up front without knowing all the international rules, so they change their mind during implementation.

Why does this matter?

The legal entity is critically important. It has a number of direct impacts on payroll:

• The employment contract for your international employees must state the correct legal entity 
• You need to setup a new payroll for each legal entity overseas. If, for example, your Italian employees belong to three different legal entities, you will need three Italian payrolls.

The legal entity is also very important for your colleagues outside payroll: 

• Legal: It affects the legal filings you will need to make in your home country and your new international market 
• HR: It can change the terms and conditions you offer your employee 
• Tax: It will determine which tax returns include the payroll costs 
• Accounting: It drives which statutory accounts include the payroll costs
• Treasury: Your entity choice may even mean your company needs an overseas bank account.

How to clear the roadblock

The best way is to recognise this issue up front and get your company’s legal and tax involved. Normally these departments are the most important voices when it comes to deciding which is the best type of entity to select.

I also strongly recommend getting advice from an accounting and tax firm in your new country. They can confirm that your preferred solution is fully compliant with their laws and they can highlight any consequences that your in-house experts may not expect.

Case study

On a recent overseas payroll my client’s tax lawyer recommended using a branch of the HQ company as the legal entity. When I pointed out this meant the client’s group accounts would be publicly available overseas, the client decided to implement a subsidiary instead.

The employment contract roadblock

One of the first roadblocks you may face relates to the employment contract for your company’s new international employee. I have seen several cases where the payroll is held up because the employment contract has not been finalised.

Why does this matter?

The contract must be compliant with the employment regulations in the country you’ll be operating in. Otherwise your company can face fines and penalties overseas. These regulations can vary according to many factors, for example, the type of industry, the size of company and the age of the employee. They will also affect the terms and benefits that you legally have to offer your new employee

How to clear the roadblock

The solution I recommend is to use an in-country HR specialist who is experienced in providing similar solutions for other international companies.

This specialist can build on your company’s standard employment contract and tailor it to provide you with a template contract for your international employees. This will provide you with a fully compliant contract.

Avoid overpaying by selecting the right level of specialist. Law firms can quote partners for this type of work, which is an excessive cost unless you are dealing with a very complex case.

The expat roadblock

The most complex roadblocks I encounter are those involving expat employees. When an employee relocates to another country, both they and their employer can be liable to pay tax in both their home country and overseas. These implications and requirements should be understood before the first payroll.

Why does this matter?

This affects both the company and the employee. For the company, expats require separate salary and tax calculations, filings and payments in both their home country and the international location. For the individual employee, it affects their own net pay, their individual tax returns and their social security benefits.

How to clear the roadblock

Expat issues need special care because most international payroll providers do not have the expertise to resolve all the issues. Also, you won’t have the in-house expertise to fix this unless you are a large company with global mobility specialists.

As a result many companies turn to one of the major international tax or accounting firms as a safe but expensive option. There are also much cheaper expat tax specialists who are hard to find, but well worth it in my experience.

Expats are probably the highest unit cost in your international payroll. The resources are costly and it can be hard to control their costs because this is such a complex area. Consider getting some extra help to help you manage these costs. For a small outlay it will likely save you huge amounts of money and stress.

 

John Galvin is CEO of award-winning consultancy Galvin International, which provides independent, cost-effective and compliant advice for clients setting up global payroll functions. John was awarded Global Consultant of the Year at the inaugural Global Payroll Awards.