Running payroll in a foreign country is always a challenge. But as experienced payroll professionals know, some countries are more complex than others. The reason for this is that the regulations surrounding payroll vary significantly between countries.
When deciding where to expand next, businesses should therefore also consider the complexity of the local payroll system. This holds especially true for organizations that have only just started their international expansion project and are still new to global payroll management.
What are the most complex payroll countries? Which factors drive payroll complexity? Which country has the most complicated payroll? This article provides a deep-dive into payroll complexity levels across different countries.
Why is payroll in some countries more complex than in others?
There are numerous factors that need to be taken into account when evaluating the complexity of payroll processing in a foreign country. Payroll complexity notably revolves around the following factors.
Tax system: Each country has different tax rates and taxation rules that dictate how to calculate the payroll taxes and deductions that need to be taken out of employee paychecks. The more rules and exceptions there are, the more challenging payroll processing becomes. Additionally, payroll teams need to stay up to date with legal changes affecting payroll which often introduce new reporting requirements, new income tax thresholds, and more.
Different regulations on national, state, and local level: Tax rules and requirements are not just imposed by the federal government. In addition to federal laws and regulations, there might also be state, provincial, or municipal legislative frameworks affecting the taxation of wages and salaries.
Industry-specific payroll requirements: To make things even more complicated, some countries have additional rules and regulations in place that apply exclusively to specific industries or to companies of a certain size. The more additional rules an organization needs to comply with, the more complex the payroll process.
Labor union involvement: In many countries around the world, collective bargaining agreements have a direct impact on payment standards, mandatory employee benefits, and more. This also influences payroll complexity because adhering to these agreements is mandatory for businesses that operate in the respective sector.
Payroll and tax reporting: Both the frequency and the necessary requirements make tax filing and reporting an important factor regarding payroll complexity. The more often these reports need to be filed with statutory authorities, the more challenging the payroll process.
Data protection regulations: Processing payroll means handling very large sets of sensitive employee data. This means that organizations must make sure to comply with existing data protection requirements to ensure compliance. Since the rules are a lot stricter in some countries than in others, this leads to different levels of complexity. The impact of the European GDPR on payroll is just one example of how data protection regulations can be an additional burden on payroll teams.
Diverse benefits requirements: Each country is different with regard to employee rights and benefits administration. Just thinking about the different minimum wage requirements per country or the varying regulations surrounding overtime, PTO entitlement, and more is enough to make the head of even the most seasoned payroll professionals spin. Not to forget that some countries grant employees the right to additional benefits—of which some might be taxable while others are not.
Payroll cycle and frequency: While payroll is run once per month in some countries, others require a weekly payroll run. The more often payroll needs to be run, the more work for the payroll team. Plus, coordinating different payroll cycles can be challenging.
Rules for worker classification: Each country has its own rules when it comes to classifying workers, i.e. whether workers are legally considered as employees or contractors. Companies have to be familiar with the different categories and the respective taxation rules so they don’t risk penalties for employee misclassification
Good to know: The three key drivers of payroll complexity identified by surveys like the Global Payroll Complexity Index are mandatory deductions, social security calculations, and reporting.
How to identify the most complex payroll countries
When talking about payroll complexity around the world, the most cited ranking of countries with complex payroll requirements is the Global Payroll Complexity Index (GPCI). This biennial benchmarking survey is carried out by Alight and ranks the complexity of payroll processes across a range of 40 countries based on a number of different factors.
Factors that are taken into account in the evaluation process include tax regulations, mandatory deductions, social security contributions, number of data required and reporting requirements. The survey is repeated every two years to account for legislative and administrative changes to the tax and payroll systems of the different countries.
Looking back at the countries with the most complex payroll in 2021
The 2021 edition of the Global Payroll Complexity Index identified Europe as the most challenging region with regard to payroll regulations, with the top five most complex countries for payroll processing all being located within the borders of the European Union.
The ranking of the top ten most complex payroll countries in the 2021 edition of the GPCI was as follows:
France
Italy
Belgium
Germany
Spain
Poland
Russia
Switzerland
Japan
United States
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Europe remains most complex payroll region in the world
Jumping forward to 2023. In a global comparison, European countries are still found to have the highest payroll requirements. While in 2021, only seven of the top ten most complex payroll countries were located in Europe, the 2023 edition of the GPCI sees nine out of the ten top positions in the payroll complexity ranking taken by European countries.
Other key findings of the GPCI 2023 include:
The top ten countries are 29% more complex in terms of payroll than the remaining 30 countries ranked in the index.
There is a 91% complexity gap between the most and least complex payroll countries.
Overall payroll complexity across countries decreased by 6% between 2021 and 2023.
Which countries have the most complex payroll regulations?
Now, without further ado, let’s look at the current ranking of the most complex countries to run payroll in. Which countries are new in the top ten? Which country has the most complicated payroll? Let’s jump right in.
1. France
France remains the unchallenged leader in terms of payroll complexity. Already in the top position in the 2021 edition of the GPCI, the country has even added another 10% to its complexity score compared to 2021.
Here is a quick overview of the different factors that drive complexity in the French payroll system:
Highly complex social security system with lots of different bodies and social security levies that must be paid to different authorities and according to different deadlines,
Strong national labor unions and multitude of collective bargaining agreements,
High number of required fields for payroll reporting,
Different salary payment methods in use (i.e. bank transfer plus traditional cheques), and
Frequent legal changes.
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2. Germany
Compared to the 2021 edition of the GPCI, Germany climbed up two positions in the ranking of the most complex payroll countries in the world. Judging by this ranking “improvement”, it seems like German payroll is on a roll to gain in complexity—rather than to reduce it.
There are multiple reasons why processing payroll in Germany is a lot more complex than in other countries. These reasons include:
Many mandatory deductions, such as income tax levies and social security contributions,
Large amounts of data involved in the payroll process and the number of required data fields for processing,
Strict reporting requirements and different deadlines for payroll and tax reporting (some reports need to be filed monthly, while others need to be submitted quarterly or even annually),
Important role of trade unions and collective bargaining agreements, and
Complex tax system with six different tax categories which account for the employee’s marital and family status.
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3. Switzerland
Similarly to Germany, Switzerland has climbed up the ranks in the Global Payroll Complexity Index—up five positions compared to 2021 where it was ranked eighth most complex country in the world to process payroll. Payroll management in Switzerland is complex for a number of reasons, including:
Need to work with three different languages when processing payroll,
Varying regulations that apply in the 26 different cantons (including different minimum wages),
Complexity of the social security system, and
Extensive requirements for payroll data retention and recording.
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4. Italy
Italy is yet another country that is constantly in the top spots for payroll complexity. And given the multitude of labor laws, the complexity of local taxation rules, and the different reporting deadlines throughout the year, this is hardly surprising.
Similarly to France, Italian unions are quite active and the number of collective bargaining agreements has a feasible impact on payroll complexity. As the CBAs are renewed on a regular basis, companies with remote employees based in Italy need to keep track of all the changes concerning their industry.
Peculiarities like the fact that it is compulsory for employers to set aside a certain percentage of each employee’s wages every year to be used as severance pay if needed add an additional layer of complexity.
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5. Canada
Between 2021 and 2023, Canada’s payroll complexity score literally went through the roof. While the country was ranked number 30 in the 2021 edition of the GPCI, it has now made it into the top five most complex countries for processing payroll.
When calculating payroll taxes in Canada, employers have to keep in mind that taxes are levied not only on the federal but also on the provincial level. Minimum wages are also set by each province individually which complicates things for international companies with several remote employees located in different regions across Canada even further.
Other factors that influence payroll complexity in Canada include:
Number and frequency of mandatory deductions,
The impact of labor unions, and
Different payroll cycles ranging from weekly to monthly.
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6. Poland
Although payroll complexity in Poland decreased by 3% between 2021 and 2023, the country is still in 6th place in the GPCI ranking. The decrease in payroll complexity is due to several changes that were introduced over the past couple of years, including a reduction in the number of data fields for payroll processing and a simplification of the social security calculation process.
On the other hand, there are several factors that continue to drive complexity. These factors include statutory reporting and data retention requirements, and the fact that payroll-related reports need to be submitted to a variety of different bodies and authorities.
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7. Turkey
Between 2021 and 2023, payroll complexity in Turkey has risen significantly, leading to the country moving up no less than 29 ranks in the Global Payroll Complexity Index. While much of the complexity in Turkish payroll actually stems from the difficult business registration processes that are required to even be able to process process, there are several factors in payroll processing itself that drive complexity, such as:
Complex rules surrounding severance pay,
Number of data fields required for payroll processing,
Mandatory payroll deductions, and
Strong influence of unions.
8. The Netherlands
There are several changes that have led to the Netherlands re-entering the top ten of the most complex payroll countries after having dropped to the 16th place in the 2021 ranking of the GPCI.
For one thing, there is a new pensions act which has brought about a significant overhaul of the national pension system. For another thing, there are new rules surrounding transition (i.e. severance) pay which have created new complexities.
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9. Belgium
Belgium is one of the countries in the GPCI that show a significant decrease in the complexity of their payroll system—a decrease of 19% between 2021 and 2023 to be exact. This decrease in complexity is due to several different factors, notably some recent changes affecting the taxation of individuals and a reduction in the number of fields required for payroll processing.
Despite recent improvements, payroll in Belgium remains complex to process and manage. The country’s tax system distinguishes between white-collar and blue-collar employees, and social security contributions are calculated differently for both groups.
In addition, there are regional discrepancies in payroll regulations and the different language policies that apply in different parts of the country don’t make it any easier for foreign employers to manage payroll for their remote workers in Belgium.
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10. Slovakia
Slovakia has risen 16 positions in the GPCI ranking since 2021 due to an increase in payroll complexity which has been triggered by several factors. For one thing, employers now have to work with more data fields for payroll processing than before. For another thing, there have been several legal changes affecting payroll in a way that did not help complexity.
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How to navigate the most complex countries for processing payroll
Running payroll in any of the countries listed above is a challenge for any company, but even more so for multinational organizations that have only just completed their incorporation process and still lack the necessary expertise to run local payroll confidently and compliantly. This is where Lano comes into play.
Through Lano’s global network of experienced in-country payroll partners, businesses can quickly find local experts to help them run payroll for their international teams. Find the right payroll provider for your business with ease and outsource payroll for your local employees with confidence.
What’s more, thanks to Lano’s global payroll consolidation platform, managing multiple payroll providers and getting access to real-time, consolidated global payroll data is easier than ever before. By connecting all your local payroll providers to the Lano plattform, you can streamline processes, automate data flows, and get a holistic view of your global payroll operations.
Book a demo with one of our global payroll experts to learn more.
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