Stop payment roadblocks delaying international payroll Stop payment roadblocks delaying international payroll

Stop payment roadblocks delaying international payroll
18 Jan 2018

By John Galvin, Galvin International

In February’s issue, I discussed how to clear some common roadblocks, which can delay the setup of a new overseas payroll. As promised, I’ll continue on the same theme in this month’s article with a focus on one of the most confusing and challenging areas of international payroll - payments

As we all know, payroll is not complete until all the international salary, tax and social security payments have been made. If payments are delayed, your international employees will be dissatisfied and your organisation may face fines and penalties from overseas tax authorities.

So let’s discuss the issues that you need to consider when arranging payroll-related payments in a new country and tips to resolve these issues.

Most embarrassing payment issue - missing payments

It is common for certain payments to get missed when a new payroll is setup. Sometimes this will only come to light when an international tax authority raises a fine, or an employee complains that their benefit provider has withdrawn their package.

There are some common reasons why payments get forgotten:

• Your team are confused about who is responsible for what, for example, if HR or payroll are responsible for pension payments and other employee benefit schemes
• The payroll team are not familiar with the payment for a specific in-country requirement
• There is confusion about whether payments should be through payroll or accounts payable
• Everyone is mainly focused on paying salaries and other payments are not given a high priority.

How to resolve this

The best way to avoid missing payments is to identify them up-front. It may sound obvious, but you cannot manage all your payroll related payments until you know exactly what these are.

The following steps can help:

• Fully scope all the payments, which you will need at an early stage of your implementation.
Ask your payroll provider to give you a full list of all the taxes, social security and employee benefit items you will need to pay
• Include all employee benefits, both statutory and company-voluntary, in your scope review. Some of these can be extremely complex in certain countries, for example, Germany, but it will pay huge dividends later if you take time to understand these up front.
• Understand which of these payments will be made through your accounts payable system and which will be made through payroll. For example, will you pay employee expenses through your expense system or via payroll?
• Think about the types of benefits you pay in your host country or other countries overseas and question if you do not see payments for these in your new country.

Most frustrating payment issue - payments cannot be made

There is nothing more frustrating for a payroll team than being unable to make payments overseas. It is highly possible to be unable to pay even if you have the cash and are willing to do so.

There are many reasons why employers are unable to make some of the payments they need to. These include:

• The payroll has not been registered correctly so the tax authorities do not yet recognise you as a valid employer and they will not accept your payments for tax and social security.
• You do not comply with local in-country rules, which specify the source from which payments must be made. For example, in many countries the tax payments must be sent from a local country bank account. If you do not yet have such a local bank account or a provider who can help you, you cannot send the payment from abroad.
• You cannot fund your local bank account. Even if you have a local bank account set up, you may be unable to transfer money into it until you complete an intercompany financing agreement.

How to resolve this

• Make an advance penny test if possible, ie payment of a small sum. This enables you to test the end-to-end payment process.
• Ask your payroll provider specifically from which sources you will be able to pay salaries, taxes and social security in your new country.
• Find out which payment options are available to you. Many global payroll providers are now able to provide a variety of payment solutions.
• Look at payments other than payroll to make sure your solution meets all your company’s needs overseas. For example, international bank wires may meet your payroll needs, but they may not be suitable for any ongoing pension contributions.

Many companies avoid setting up overseas bank accounts due to time and cost. However, this shortterm gain can lead to medium-term pain for many reasons, for example, legal entity requirements, ease of doing business locally with overseas suppliers. If a company is planning to do business long-term in a new country, the investment in setting up a local bank account may prove worthwhile.

Most annoying issue - late payments

Delays in making payments are hugely annoying for everyone involved in payroll. All your hard work to get everything set up can go unrecognised if salaries arrive late or taxes are paid later than local deadlines.

There are numerous reasons for delays such as: • If your bank or foreign exchange provider does not receive all the necessary approvals and authorisation required for your account, they will be unable to release funding.

• There are insufficient funds in your international bank account, so there is not enough money in your account for the payment to be made.
• Incomplete records for new employees. If your bank does not receive all the bank account information they need for a new employee, then the salary payment will fail.
• Complex international banking transfers can mean the funding takes a number of days to arrive.

How to resolve this

The most effective way to avoid delays is upfront planning to ensure there are no gaps in your process. You can:

Increase the number of authorisers so you have back-up if key staff are away

• Instigate a routine review with your treasury department to forecast your international cash requirements and transfer the cash required
• Send payments slightly earlier than required, so that any unexpected banking issues do not result in late payment delivery.


John Galvin, CEO of Galvin International, provides expert, independent advice for clients setting up global payroll. He also finds clients excellent international payroll, accounting and tax partners worldwide. John heads a team of global finance experts and a worldwide network of independent payroll, accounting and tax suppliers. He has 20 year’s CFOlevel experience with multinational blue chips and SMEs and has successfully implemented global payroll, accounting and tax in over 40 countries. If you have any queries about the information in this article, or would like to know more, please contact John at john.galvin@galvininternational.com.

 

By John Galvin, Galvin International

In February’s issue, I discussed how to clear some common roadblocks, which can delay the setup of a new overseas payroll. As promised, I’ll continue on the same theme in this month’s article with a focus on one of the most confusing and challenging areas of international payroll - payments

As we all know, payroll is not complete until all the international salary, tax and social security payments have been made. If payments are delayed, your international employees will be dissatisfied and your organisation may face fines and penalties from overseas tax authorities.

So let’s discuss the issues that you need to consider when arranging payroll-related payments in a new country and tips to resolve these issues.

Most embarrassing payment issue - missing payments

It is common for certain payments to get missed when a new payroll is setup. Sometimes this will only come to light when an international tax authority raises a fine, or an employee complains that their benefit provider has withdrawn their package.

There are some common reasons why payments get forgotten:

• Your team are confused about who is responsible for what, for example, if HR or payroll are responsible for pension payments and other employee benefit schemes
• The payroll team are not familiar with the payment for a specific in-country requirement
• There is confusion about whether payments should be through payroll or accounts payable
• Everyone is mainly focused on paying salaries and other payments are not given a high priority.

How to resolve this

The best way to avoid missing payments is to identify them up-front. It may sound obvious, but you cannot manage all your payroll related payments until you know exactly what these are.

The following steps can help:

• Fully scope all the payments, which you will need at an early stage of your implementation.
Ask your payroll provider to give you a full list of all the taxes, social security and employee benefit items you will need to pay
• Include all employee benefits, both statutory and company-voluntary, in your scope review. Some of these can be extremely complex in certain countries, for example, Germany, but it will pay huge dividends later if you take time to understand these up front.
• Understand which of these payments will be made through your accounts payable system and which will be made through payroll. For example, will you pay employee expenses through your expense system or via payroll?
• Think about the types of benefits you pay in your host country or other countries overseas and question if you do not see payments for these in your new country.

Most frustrating payment issue - payments cannot be made

There is nothing more frustrating for a payroll team than being unable to make payments overseas. It is highly possible to be unable to pay even if you have the cash and are willing to do so.

There are many reasons why employers are unable to make some of the payments they need to. These include:

• The payroll has not been registered correctly so the tax authorities do not yet recognise you as a valid employer and they will not accept your payments for tax and social security.
• You do not comply with local in-country rules, which specify the source from which payments must be made. For example, in many countries the tax payments must be sent from a local country bank account. If you do not yet have such a local bank account or a provider who can help you, you cannot send the payment from abroad.
• You cannot fund your local bank account. Even if you have a local bank account set up, you may be unable to transfer money into it until you complete an intercompany financing agreement.

How to resolve this

• Make an advance penny test if possible, ie payment of a small sum. This enables you to test the end-to-end payment process.
• Ask your payroll provider specifically from which sources you will be able to pay salaries, taxes and social security in your new country.
• Find out which payment options are available to you. Many global payroll providers are now able to provide a variety of payment solutions.
• Look at payments other than payroll to make sure your solution meets all your company’s needs overseas. For example, international bank wires may meet your payroll needs, but they may not be suitable for any ongoing pension contributions.

Many companies avoid setting up overseas bank accounts due to time and cost. However, this shortterm gain can lead to medium-term pain for many reasons, for example, legal entity requirements, ease of doing business locally with overseas suppliers. If a company is planning to do business long-term in a new country, the investment in setting up a local bank account may prove worthwhile.

Most annoying issue - late payments

Delays in making payments are hugely annoying for everyone involved in payroll. All your hard work to get everything set up can go unrecognised if salaries arrive late or taxes are paid later than local deadlines.

There are numerous reasons for delays such as: • If your bank or foreign exchange provider does not receive all the necessary approvals and authorisation required for your account, they will be unable to release funding.

• There are insufficient funds in your international bank account, so there is not enough money in your account for the payment to be made.
• Incomplete records for new employees. If your bank does not receive all the bank account information they need for a new employee, then the salary payment will fail.
• Complex international banking transfers can mean the funding takes a number of days to arrive.

How to resolve this

The most effective way to avoid delays is upfront planning to ensure there are no gaps in your process. You can:

Increase the number of authorisers so you have back-up if key staff are away

• Instigate a routine review with your treasury department to forecast your international cash requirements and transfer the cash required
• Send payments slightly earlier than required, so that any unexpected banking issues do not result in late payment delivery.


John Galvin, CEO of Galvin International, provides expert, independent advice for clients setting up global payroll. He also finds clients excellent international payroll, accounting and tax partners worldwide. John heads a team of global finance experts and a worldwide network of independent payroll, accounting and tax suppliers. He has 20 year’s CFOlevel experience with multinational blue chips and SMEs and has successfully implemented global payroll, accounting and tax in over 40 countries. If you have any queries about the information in this article, or would like to know more, please contact John at john.galvin@galvininternational.com.