The global workforce is not just a passing trend, it has become the new normal, and to no one’s surprise. The ability to tap into the endless, multicultural and multilingual talent pool is a privilege, one that should be taken into serious consideration. Expansion outside of the home country is a necessity for every business that is eager to leave a lasting mark and to secure its position on the market. However, with limitless possibilities also come complications, lots and lots of them. When it comes to international expansions, payroll processing is definitely the most common one. Luckily, there are ways to untangle the mess that is global payroll, making sure your business runs smoothly, however international it may be.
What is international payroll?
Once a company decides to either hire employees or international contractors that aren’t based in the same country or decides to expand entirely to new markets, the entire payroll process needs to be upgraded. This process of paying employees or independent contractors is called international payroll, or very frequently, global payroll. In order to establish such a complicated process, every business owner first needs to know where to start. What are the key components of every international payroll solution?
What are the key components of international payroll?
A unique tried and tested, one size fits all payroll solution for multinational companies hasn’t been invented yet. This is why each time a business decides to expand outside of their original country, they need to start from scratch. In order to help you bridge the gap, we have decided to compile a list of key components, necessary in order to successfully swim the international waters without the fear of drowning. Let’s dive in!
Local laws and regulations
Just because you had something in mind, that doesn’t mean you will be able to turn it into a reality. Not to be the one to crush your dreams, but considering the realities of the new market is the number one step in your journey to international payroll. Employment laws in this new market can be less strict and in favor of the employer, especially compared to the US, but you need to be aware of them in order to make the best possible decision for your business. Global payroll management is a daunting task not because of the issue of payments, which can easily be resolved, but because coordinating every country’s particular set of laws and rules can dishearten anyone. However, once you make an informed decision
Employee salaries for your international employees can be paid weekly, monthly, or even daily, based on your agreements and based on local laws and regulations. It is important to be aware of the minimum wage, and any other limitations and rules that are present in this new market. It is quite possible that the way you will distribute earnings will be different than for your home country employees, but in most cases, you can unify the process by using an external payroll service, combined with digital wallets.
Before you make an offer to your new hire, make sure that you’ve taken into consideration their gross salary, exchange rates, and fees for service providers. In addition to this, some countries may be very accustomed to different payroll practices, such as giving employees a 13th salary, so make sure you have all the necessary information before proceeding. This is why paring up with a domestic agency that will perform market research and give your ballpark numbers for positions you are offering can help you tremendously.
Read more about how to set the compensation for international employees
Learn all about employment regulations in our global hiring guide
Taxes - domestic and foreign
Just like you have tax obligations with local payroll, your budget needs to account for tax withdrawal for international payroll as well. Although in almost every country you can count on income tax, both federal and regional, the amount can vary significantly, as well as payment methods. Your company will be obliged to obey both foreign and domestic tax laws, so make sure you aren’t missing anything or that you aren’t double-taxed, which can easily happen. Luckily, most countries now have digitalized tax filing, so you would be able to manage and oversee the entire process from your home country.
Social security for both parties
In many countries social security is obligatory for the employer, contributing to healthcare, pensions, disability, sick leaves, and job-related injuries. The obligations are far greater than in the US, so make sure to consider this when you choose which internationals will be joining your team.
Although it isn’t so common, employees contribute to social security as well. This is important to have in mind when making initial offers and calculating the actual cost of every employee.
Benefits for employees
Last but not least, benefits have become a significant part of an employee package, and what is considered a luxury in some countries is the cultural norm. How you will deliver certain benefits and what they will be is something you should definitely decide before you embark on the journey that international expansion will be. Local laws may offer certain discounts, tax deductions, and other types of benefits for foreign employers who create new jobs and develop the local economy, so don’t miss out on that.
Read more about the perks and benefits for remote workers
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What are the most common challenges of global payroll?
Just because the process of international payroll processing is daunting, it doesn’t mean it can’t be done and it most certainly doesn’t mean it shouldn’t. Expanding internationally is the future of every business, and one shouldn’t avoid it for the sake of staying in their comfort zone. After you consider the key components of every international payroll system, let’s take a look at the possible challenges (there is some overlap!).
We are aiming to better prepare you to deal with all the possible challenges and if you don’t think you will be capable of handling all of them you can always hire a payroll expert that will help you deal with all of them. You can also consider partnering up with an employer of record (EOR, for short, sometimes also called global PEO), or a similar entity that can streamline the process for you.
Local laws and market realities
We’ve already mentioned the importance of this challenge, and we’ve circled back to it because it is incredibly important. The knowledge about the realities of the local market will make or break your international expansion. Do you need to establish a legal entity? Can you pay in foreign currency? What are your obligations as an employer? Will you be in charge of workforce management? Do you have to?
In order to have successful new market penetration, you should know the answers to all of these questions. This will enable you to create a budget, a pricing plan, make a real-time decision based on the most relevant data, and be ready for every other payroll challenge you can possibly encounter.
Compliance and tax regulations
Payroll operations can’t be separated from the issue of taxes and compliance. Methodologies you were using so far may not be applicable - payslips, checks, vacation days, pensiones… All of that varies from country to country and learning about it in advance will save you a world of trouble. Luckily, there are many markets with conditions and regulations that favor the employer, so you will definitely enjoy working there, once the initial dust settles over.
Fees for third parties and exchange rates
Payroll function is very often outsourced, and for a good reason. Most entities dealing with global payroll services have global teams, offices in different countries, use of automation, and experience working with payroll providers across the world. There is no doubt you will benefit from hiring them, but there is a downside as well.
Working with a third party comes at a cost. The service they provide is crucial for your business, so the fee showcases that as well. If you add the exchange rates and digital wallet fees, you can see why companies are so hesitant to expand. However, the benefits significantly outweigh the cost and if you carefully plan the expected costs you will definitely be able to deem this project a smashing success for your company.
Since GDPR hit, data protection became a very important concern for companies. This is especially true when you are entering new markets and sensitive issues such as payroll data are now visible to more and more employees. Distributing compliant payroll to every employee scattered across different time zones is not an easy task. Every decision needs to take into consideration that laws are being obeyed, so the expansion won’t be more trouble than it’s worth. Luckily, there are many automatized systems, as well as entities educated in this matter that can help you keep your company risk-free.
Expansion of company’s HR department
Even when you decide to hire a whole bunch of international experts, entities, digital wallets, etc. you still need to dedicate resources in-house to oversee the entire process. The human resources department is usually understaffed and overbooked, so piling this on top of their day-to-day operations, especially if you choose to burden employees responsible for country payroll, might be more than they can handle. You can help your local HR if you outsource most of the heavy lifting and allow them to just supervise through some sort of HRIS, HRM, or ERP. That way the task won’t be so time-consuming, but you will still be able to oversee human capital management and keep track of your investment.
Cultural differences and communicational barrier
Now, this is one of the challenges that can’t easily be fixed with slick new software and some automatization. On the other hand, you can overcome without spending a single dime. Open communication and expectation setting is the most important steps when it comes to international cooperation. Cultures, background, educational and social levels may differ, but if you choose to do business in good faith and build solid partnerships you will be able to reap all the benefits the global talent pool has to offer. And it has to offer plenty!
Ways of managing international payroll
If you are interested in outsourcing the process of global payroll while still maintaining some sort of control, responsibility, and oversight, then choosing international payroll software is the best option for you. There are many options available on the market, you just need to make sure that you choose one that is equipped to handle the level of global payment that you will be requiring. They, of course, need to be compliant with all the necessary laws and regulations, and their record-keeping needs to be impeccable. If they can, in addition to that, offer in-country expertise and presence, then you will surely be getting your money’s worth.
Since global payroll solutions are the new hot topic, the need dictated the market so now you can choose to partner up with a company that can be responsible for the entire payroll process. This is possible domestically as well but it is way more useful when you are dealing with international employees and all of the complications that entail. If you choose to use this type of service you don’t need to get yourself familiar with the wide variety of payroll policies, you can hand over the responsibility and direct your attention elsewhere.
Before you decide on which service provider you will hire make sure that you know not only their fees but that you’ve also read testimonials, a fine print of the contract, and that you’ve properly calculated their fees. You have many quality options to choose from so don’t make the decision on a whim.
Money transfer companies
If you only want to find a solution for the issue of international money transfer, you just need to choose the best option for yourself. The market is rapidly expanding and more and more companies are pitching their own solutions. Unlike ten years ago you now have a lot of different options to choose from. PayPal and Payoneer are still leading the market, with a presence in numerous countries and the ability to use several currencies. Due to their flexibility and innovation, they are also among the companies that have the highest fees. In addition to them, you can also choose TransferMate, Halo Financial, Paysera, CloudPay, Wise, Revoult, and many more. All of them offer some sort of benefit, you just need to look for the one that suits your needs and is best for you financially.
Have you considered hiring with Deel?
You can use Deel not only to transfer payments (for employees and independent contractors alike), but you can also count on our experts and get the latest info on our blog. You can have a different payment method than your employee, you can use several available payment methods and as of recently, your contractors can even request a Deel Card. Deel also offers a lot of different local payouts, making your international payroll service as affordable as a domestic one. And last but not least, you can take care of all the accompanying documents - invoices, receipts, and even tax forms, all through our software. Every need that you have in terms of international payroll will be met in one place, swiftly and easily. Sign up here to request a demo and see for yourself.