Global payroll refers to calculating salaries, handling deductions pertaining to existing social taxes, and managing bonuses and other benefits to evaluate net pay for employees working from different countries.
Besides providing every employee with the corresponding net pay from time to time, you have to maintain payroll records and make payments to government agencies and insurance companies on your employees’ behalf. This is usually done using the fixed sum of money you deduct from your employees’ earnings on legal grounds.
Compared to domestic payroll, global payroll comes with a layer of complexities. This is mainly because each country has different tax structures, labor laws, and social deductions. Moreover, taxes and deductions change every year. Therefore, staying constantly updated is one of the key aspects of managing global payroll.
How to make Global Payroll work?
Global employment is one of the key things that can help your organization grow internationally. However, international payroll implementation is not an easy task. You need to keep in mind taxes, global compliance, social deductions, benefits, and much more. Here are a few steps that will give you an idea of how you can make global payroll work.
- Set up a local entity: This is the first thing you need to do to hire and pay international workers. You need to have a physical business entity in the country you wish to hire from. Having a local business entity is mandatory if you want to hire employees in said country.
- Build a team of local experts: Entering a new market is very close to starting a new business. You need to understand the local policies, conduct surveys, and get thorough due diligence done before you start up. Local experts can help you with complex things like research and hiring.
- Generate compliant contracts: The first step you need to take while hiring international employees is to generate compliant contracts. The laws for every country are different, and you must ensure that your employment contracts comply with them.
- Identify taxes and social contributions: As a business owner, and an employer, you must be aware of the tax structure of the country you are expanding into. From a payroll standpoint, you must ensure that you deduct the right amount of taxes from your employees’ salaries and deposit them with the local government agencies. Apart from this, social contributions are also different for each country. You must ensure the right deductions and contributions are made.
- Manage payroll cycles: Depending on the country, your payroll cycle may be monthly, weekly, bi-weekly, or even daily. Effective payroll management is the key to paying your employees timely and accurately. To run a successful payroll, you can either build an extensive team or rely on various payroll softwares.
While there is a lot more to global payroll management, these are the key things you should be aware of. They may seem complicated, and that’s because global payroll is a complex task. It requires precision, efficiency, and a lot of time and money.
Challenges that come with Global Payroll
Complexity is something that global payroll brings along with itself; however, there are a few more challenges that you will face when implementing and managing international payroll.
- Exorbitant Costs: Implementing and running global payroll is a very expensive affair. Setting up a local entity can alone cost you thousands of dollars. Along with this, you will come across many recurring maintenance bills once your international payroll is up and running. It may seem doable for one country, but going over the same costs every time you expand into a new country can cost you a lot of money.
- Compliance management: Staying compliant is one of the top priorities for you to avoid legal trouble. Local laws keep updating, and to stay compliant with them, you will need to hire a strong legal team to ensure that all your payments comply with the regulations. This, again, is a very time-consuming and expensive activity.
- Ever-changing tax codes: Every financial year brings along changes in the tax structure. As an international employer, you will need to monitor every minute change in the tax code and ensure that it immediately reflects in the payroll. Even if you work with automated payroll softwares, the changes in tax codes will have to be constantly and manually updated.
- Benefits management: Every country has a set of statutory benefits to which an employee is entitled. These usually include social security and leaves; however, many countries also impose benefits like insurance. Keeping a tab on the benefits and making necessary contributions to the same is essential for you to stay compliant. This becomes challenging because there are multiple government agencies that take care of these benefits, and employers need to deposit employees’ and employers’ contributions with every one of them.
- Currency management: Currency management is specifically a challenge when you have employees in multiple countries. The exchange rates change every second and keeping track of them is quite difficult. Moreover, converting currencies is also a very expensive task, especially when a large amount is involved.
All the above challenges may put you in a dilemma about implementing global payroll. However, there’s an easy fix for all these problems, global payroll services.
Why a global payroll service is the best choice?
A global payroll service can take care of all your international payroll needs. Complexities like compliance, taxes, benefits, and employee management can be easily maneuvered by partnering with a PEO or an EOR. Here’s how a global payroll service can benefit you.
- Compliance: Global payroll services have strong legal teams that focus solely on keeping their clients out of compliance issues. These teams are always updated with the local laws, labor codes, and tax structures. This ensures that all your payments are compliant with the latest laws and that the right deductions are made.
- Accurate and on-time payroll: Global payroll services make sure that your employees get paid on time, in the right amounts. This benefits employers as they do not need to focus on things like currency exchange rates and payroll cycles. You can pay your global payroll service one amount in a single currency. The service will then disburse the payments in the employees’ local currency.
- Cost efficiency: Global payroll services usually charge you a fee, per employee, per month. This is much more cost-effective than setting up a local entity and building a team of local experts.
- Time-saving: In hindsight, global payroll services take care of end-to-end payroll management. This saves a lot of time on the employer’s end. Your internal HR teams can use the added time to focus on core business activities.
Global payroll services can prove to be very beneficial for your business. However, depending on your needs, you must choose the right service for your business.
Choosing the right global payroll service
There are two types of global payroll services that you can go ahead with to simplify your internal payroll needs – a PEO (professional employer organization) and an EOR (employer of record).
The functions of both these services are very similar; however, there are two key differences. They are:
- While working with a PEO, your employees remain your employees on paper. The PEO acts as a mediator of the payroll cycle. On the other hand, when you work with an EOR, the EOR service becomes the on-paper employer of your employees.
- With an EOR, you don’t need to set up a local entity in the country you wish to hire from. If your EOR partner has an entity there, you can simply hire employees and onboard them using the EOR service. With a PEO, you need to have a physical, local entity in the country you wish to hire from.
In general, an EOR is a better choice since it gives you the freedom to hire from multiple countries. EOR services like Multiplier have entities in multiple countries across the world, and this helps you hire the best talent in any country.
Get started with Multiplier and grow your business
Multiplier is a powerful platform that helps you manage global payroll without hassle. It allows your organization to easily onboard, manage, and pay your international employees.
Multiplier makes it possible to automate International payroll processing on a single platform. Let it be any location across the world, and we guarantee you 100% statutory compliance.
As Multiplier stands for end-to-end global payroll automation, our platform comes in handy to prevent manual errors, achieve high precision, and gain complete control over your international employee payroll.
Keeping track of changes in tax-related laws of different countries is one of the major problems global payroll managers face. Multiplier can solve it just like that by having a constant eye for such legal concerns and maintaining updated tax tables to process global payroll efficiently.
Go ahead, talk to our experts and go global now!
Frequently asked questions
How do you pay workers in multiple countries?
A global payroll system is used to pay workers in foreign countries. This can be implemented internally, or you can partner with a global payroll service to make things easier.
Which country’s laws apply to foreign workers?
Employment laws differ for each country and even state at times. You international workers will be paid according to the laws of the country they reside in.
What taxes do you need to pay for international employees?
The tax code varies for every country. Moreover, deductions for benefits like social security also differ for every country. Your international employees will be taxed according to the tax codes of their country.