As you expand your business into new countries, you must establish global payroll systems to hire and manage talent across borders. Given the complexity of running payroll in different countries, it is easy to feel overwhelmed. There are several factors to consider, including local employment laws, cost of living, local benefit packages, and currency exchange rates, to name a few.
However, with some planning, you can streamline your global payroll and taxes process. And that is what we will help you with today. So, whether you are expanding your business globally or looking for ways to manage your existing international better, this guide can help you do that efficiently.
What is Global Payroll?
Payroll involves calculating employees’ earnings, managing bonuses, commissions, and benefits, and paying taxes to the government. It also includes maintaining employee records and tracking their paid time off.
The global payroll process is the same but is repeated for countries you have employees. Since tax and employment laws differ from country to country, things can get complicated and overwhelming.
Importance of Managing Global Payroll
You must pay the correct salaries (considering their leaves, overtime, and other incentives), irrespective of how big or small your organization is. Incorrect or untimely payroll processing makes employees feel undervalued and detached from your organization. Besides, 49% of employees will begin a new job search after two paycheck errors.
And even a minor mistake in payroll or misclassification of employees as contractors could cost you millions of dollars, depending on the worker’s country of residence. It will also impact your reputation as an employer and probably make it challenging to onboard the best talent.
Managing Global Payroll: Challenges
Before you set up your global payroll system, you need to keep the following potential roadblocks in mind.
Data Protection and Management
Regulations around data protection are getting stricter. Spreadsheets and unencrypted email threads won’t do the job in 2022. You need an advanced solution to comply with international laws like GDPR. The software should also keep the data encrypted for additional security.
Just so you know, Facebook recently paid $6.5 million in a lawsuit that allowed hackers to access user data.
You will also have to abide by different intellectual property laws in the countries you operate. Failing to do so could result in loss of IP rights and even damage reputation.
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2- Deciding Compensation
It could be challenging to decide on compensation for employees in similar roles but in different countries.
- Should you pay everyone the same amount?
- Should you pay as per the cost of living in their neighborhood?
- How to compensate for benefits that an employee in one country receives but others in countries don’t?
One way to solve this problem is by offering what your competitors in that country give for similar roles. You can consult third-party payroll providers to understand the best compensation for each position.
This is the most challenging part of managing global payroll. Your company must understand the laws and regulations of each country and design the payroll structure accordingly. Many countries even require you to register your company’s legal entity to hire local talent.
The best way to solve this challenge is by working with a global PEO/EOR provider who can help you ensure compliance and even handle HR-related tasks
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How to Manage Global Payroll?
There are three ways to manage global payroll and taxes for a distributed workforce.
- Employer of Record (EOR): An EOR service provider is a company that manages your HR and payroll process in a foreign country. They enable you to hire international staff without establishing a legal entity in each country.
- Professional Employer Organization (PEO): Like an EOR company, PEO acts as your HR and payroll partner. However, the only difference is that when you work with a PEO provider, you have to set up a legal entity in the country you operate with employees.
- In-house workforce management team: You can also internally manage global payroll and taxes. However, you will need to create a legal entity in each country, have experts monitor compliance, and understand their cultural nuances.
Why Partner with an EOR Provider?
Building an in-house global workforce management team is time-consuming and makes scaling difficult. In addition, as you expand to new countries, you will have to set up a legal entity and hire HR experts everywhere.
On the other hand, an EOR provider eliminates the need for setting up an entity to handle local payroll. From a legal perspective, your EOR provider is an official employer of your international staff. They enable you to hire global talent quickly and cost-effectively while being compliant with local laws.
Another advantage of working with leading EOR providers like Husys is that they ensure your employees get accurate salaries on time and in their local currency. This helps you save time, boost staff engagement, and improve the company’s reputation.
As your business grows and you build a global team, creating a robust global payroll system is essential. You must ensure the payroll structure aligns with local laws and regulations. Even though it sounds challenging, a global PEO/EOR partner like Husys can make things easier for you. Our solutions help you save money, reduce risk, and enhance employee engagement to drive better results. Contact us today to get started with global payroll and tax management!