Ask the expert

Ask the expert
31 Jul 2015

What are some of the layers and complexities involved with global payroll?

Every country has different laws pertaining to hiring, on-boarding and paying employees.

Different municipalities within each country may have their own laws and may also have their own individual tax codes. You can imagine how quickly this complexity compounds. Let’s start at the beginning, when employees first get hired. Countries have different processes and requirements for on-boarding new employees.

For example, in Spain you have to register a new employee with the government before their first day on the job.

In Mexico you have a five-day window, but you are responsible for them from the time they come on-site to the time that paperwork is filed. So if they slip and fall on their way to orientation, you have to pay their healthcare costs out of pocket rather than through government-funded sources. Speaking of health insurance, benefits of course play into this. In the US, you are now required by law to offer health coverage at a certain level.

In other countries, the government providesthat coverage, but you may need to know the beneficiary in case of death. Then there are expatriate benefits, like covering the cost of sending a US citizen’s child to an American school during the year the family lives in Morocco, for example.

Payroll complexities

The next layer of complexity is payroll. The differences in tax withholding mentioned above (assuming income tax is withheld at all) are only the tip of the iceberg. In Germany, a ‘church tax’ has to be paid, for which the employee’s religion must be recorded. In the US, religious affiliation would be considered highly sensitive data and even asking the question would expose the employer to discrimination lawsuits.

Several countries require that employees sign their pay slips upon receipt. This is the only proof that the company and employee agreed on that period’s pay ie that the amounts are correct, the manager approved the overtime, all the money owed was paid and vice versa. Without this signed pay slip, the employee could come back and sue the company for lost wages.

In different countries, payroll is taxed at different rates with wildly different reporting requirements. If you’re trying to streamline your accounting by folding reimbursable expenses into payroll, those reimbursements are considered taxable wages in some countries, with a drastic impact on the company and the individual. In Italy, you need an Italian bank account to pay your monthly statutory returns.

This is not something you want to discover on the day they’re due.

In each country you may want to do business, taxes are paid on different dates, with different paperwork and if you make a mistake on those filings, every country has a different process and penalty structure for correcting that mistake.

In some, you can just roll them into the next period, while in others you’re required to re-file.

Cultural differences are also important. In places with highly unionised workforces, the entire company can go on strike the minute their pay is past due, causing huge losses in productivity and reputation, both of which impact the bottom line.

Then, just when you think you’ve got it all figured out, it changes. It’s not just pay cycles that vary. Legislative cycles vary, too. And if understanding payroll law in one country is difficult, following the changes is even more so. On top of that, keeping up with those changes across a dozen countries is a huge challenge. Which changes actually apply to you and your current environment and when do they go into effect? Are they retroactive? Are they being challenged in the courts? What do you need to do to actually enact that change? Keep in mind that you’re facing all of these hurdles coming to you in a foreign language, at all hours of the day and night (what time is it in India right now?), using different data privacy laws, which are also constantly changing, and with cultures and customs that may be unfamiliar to you.

What solutions are available to me?

Given the vast level of these complexities, you can’t simply Google ‘Italian payroll law’ and expect to get all the information you need.

Even in the major markets, and on the most reliable websites (where the most up-to-date information is available), at best you’ll get an incomplete picture that could open you up to hidden problems further down the line.

In order to ensure that you’re fully compliant with all your international hiring obligations, you need to hire a specialist in this area. For that, you have a few options.

Your first option would be to hire staff at your local office. In this case, you’ll be relying on an individual or team of individuals, hired locally, who are either specialists in the payroll laws of each country you do business in, or are capable of becoming specialists in those countries. This may be tempting, especially if you’re a large organisation. Your payroll staff would be just an elevator ride away, and (on the surface, at least) the cost of hiring a full-time employee may appear to be less than the equivalent consultancy costs.

The problem with this option is that it’s highly inefficient and error prone. Your individuals need to be on top of international law changes, they need to remit government reports and payments from abroad, and of course need to work around multiple time zones and languages.

The more nationalities you have on your payroll, the more specialists you are going to have to hire (or the more the people you have hired are going to have to expand their knowledge). In addition, you have to find those people, and Swiss payroll specialists don’t come cheap in the United States.

The second option would be to hire staff in each home country. This solves most of the issues around inefficiency and error, since each specialist will live in their single dedicated country and be focused on their specific laws. But, again, finding those people is difficult across international borders.

Your international office also has to be quite large for this not to be a prohibitive cost. A company of 100 employees that just hired salespeople in Australia and England won’t hire two payroll employees just to pay themselves and one other person.

This brings us to option three, which is to hire a payroll company in each country. Here you’ll be contracting out to payroll experts everywhere you do business, so they can pay your international employees for you. For small cases like the above this can work, but it very quickly gets unwieldy as you end up having to deal with multiple vendors around the world.

If you’re in ten countries, you have to find ten vendors across international borders, negotiate ten different service agreements across ten different time zones, and then when you decide to make changes to your pay or benefits, you need to communicate those changes ten different times.

This, too, is inefficient and error prone.

The third alternative is to find a single payroll company that already has those networks in place. By selecting one company with an international presence, you allow yourself the time to focus on your area of expertise, instead of expending resources on navigating all these regulations or hiring across borders. Instead of having a dozen different service-level agreements, you can have just one. The company should help you understand the rules and regulations in
every country, upcoming changes and how to keep you payroll compliant.

In-house experts from SafeGuard World
International answer common questions on the
challenges of global payroll compliance

What are some of the layers and complexities involved with global payroll?

Every country has different laws pertaining to hiring, on-boarding and paying employees.

Different municipalities within each country may have their own laws and may also have their own individual tax codes. You can imagine how quickly this complexity compounds. Let’s start at the beginning, when employees first get hired. Countries have different processes and requirements for on-boarding new employees.

For example, in Spain you have to register a new employee with the government before their first day on the job.

In Mexico you have a five-day window, but you are responsible for them from the time they come on-site to the time that paperwork is filed. So if they slip and fall on their way to orientation, you have to pay their healthcare costs out of pocket rather than through government-funded sources. Speaking of health insurance, benefits of course play into this. In the US, you are now required by law to offer health coverage at a certain level.

In other countries, the government providesthat coverage, but you may need to know the beneficiary in case of death. Then there are expatriate benefits, like covering the cost of sending a US citizen’s child to an American school during the year the family lives in Morocco, for example.

Payroll complexities

The next layer of complexity is payroll. The differences in tax withholding mentioned above (assuming income tax is withheld at all) are only the tip of the iceberg. In Germany, a ‘church tax’ has to be paid, for which the employee’s religion must be recorded. In the US, religious affiliation would be considered highly sensitive data and even asking the question would expose the employer to discrimination lawsuits.

Several countries require that employees sign their pay slips upon receipt. This is the only proof that the company and employee agreed on that period’s pay ie that the amounts are correct, the manager approved the overtime, all the money owed was paid and vice versa. Without this signed pay slip, the employee could come back and sue the company for lost wages.

In different countries, payroll is taxed at different rates with wildly different reporting requirements. If you’re trying to streamline your accounting by folding reimbursable expenses into payroll, those reimbursements are considered taxable wages in some countries, with a drastic impact on the company and the individual. In Italy, you need an Italian bank account to pay your monthly statutory returns.

This is not something you want to discover on the day they’re due.

In each country you may want to do business, taxes are paid on different dates, with different paperwork and if you make a mistake on those filings, every country has a different process and penalty structure for correcting that mistake.

In some, you can just roll them into the next period, while in others you’re required to re-file.

Cultural differences are also important. In places with highly unionised workforces, the entire company can go on strike the minute their pay is past due, causing huge losses in productivity and reputation, both of which impact the bottom line.

Then, just when you think you’ve got it all figured out, it changes. It’s not just pay cycles that vary. Legislative cycles vary, too. And if understanding payroll law in one country is difficult, following the changes is even more so. On top of that, keeping up with those changes across a dozen countries is a huge challenge. Which changes actually apply to you and your current environment and when do they go into effect? Are they retroactive? Are they being challenged in the courts? What do you need to do to actually enact that change? Keep in mind that you’re facing all of these hurdles coming to you in a foreign language, at all hours of the day and night (what time is it in India right now?), using different data privacy laws, which are also constantly changing, and with cultures and customs that may be unfamiliar to you.

What solutions are available to me?

Given the vast level of these complexities, you can’t simply Google ‘Italian payroll law’ and expect to get all the information you need.

Even in the major markets, and on the most reliable websites (where the most up-to-date information is available), at best you’ll get an incomplete picture that could open you up to hidden problems further down the line.

In order to ensure that you’re fully compliant with all your international hiring obligations, you need to hire a specialist in this area. For that, you have a few options.

Your first option would be to hire staff at your local office. In this case, you’ll be relying on an individual or team of individuals, hired locally, who are either specialists in the payroll laws of each country you do business in, or are capable of becoming specialists in those countries. This may be tempting, especially if you’re a large organisation. Your payroll staff would be just an elevator ride away, and (on the surface, at least) the cost of hiring a full-time employee may appear to be less than the equivalent consultancy costs.

The problem with this option is that it’s highly inefficient and error prone. Your individuals need to be on top of international law changes, they need to remit government reports and payments from abroad, and of course need to work around multiple time zones and languages.

The more nationalities you have on your payroll, the more specialists you are going to have to hire (or the more the people you have hired are going to have to expand their knowledge). In addition, you have to find those people, and Swiss payroll specialists don’t come cheap in the United States.

The second option would be to hire staff in each home country. This solves most of the issues around inefficiency and error, since each specialist will live in their single dedicated country and be focused on their specific laws. But, again, finding those people is difficult across international borders.

Your international office also has to be quite large for this not to be a prohibitive cost. A company of 100 employees that just hired salespeople in Australia and England won’t hire two payroll employees just to pay themselves and one other person.

This brings us to option three, which is to hire a payroll company in each country. Here you’ll be contracting out to payroll experts everywhere you do business, so they can pay your international employees for you. For small cases like the above this can work, but it very quickly gets unwieldy as you end up having to deal with multiple vendors around the world.

If you’re in ten countries, you have to find ten vendors across international borders, negotiate ten different service agreements across ten different time zones, and then when you decide to make changes to your pay or benefits, you need to communicate those changes ten different times.

This, too, is inefficient and error prone.

The third alternative is to find a single payroll company that already has those networks in place. By selecting one company with an international presence, you allow yourself the time to focus on your area of expertise, instead of expending resources on navigating all these regulations or hiring across borders. Instead of having a dozen different service-level agreements, you can have just one. The company should help you understand the rules and regulations in
every country, upcoming changes and how to keep you payroll compliant.

In-house experts from SafeGuard World
International answer common questions on the
challenges of global payroll compliance

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