Payroll is always a complex process, even for businesses that only have a domestic payroll to run. But as soon as an organization starts operating in multiple jurisdictions and hires workers all over the world, payroll becomes even more complex.
Global payroll comes with its own unique challenges and peculiarities. In order to successfully navigate these challenges and manage payroll successfully on a global level, businesses need a deep understanding of what processing a global payroll really means and what it entails.
So, what exactly is global payroll? How is it different from local payroll processing? And what are the different global payroll models international organizations operate with?
When businesses go global and expand their business activity into new geographies, running a single local payroll isn’t enough anymore. Suddenly, there are various localized compliance requirements and payroll regulations to consider, different tax laws to abide by, and differing deadlines for statutory payroll reporting to meet. That’s where organizations enter into the global payroll space.
In the most basic sense, global payroll—also often referred to as international payroll—means processing and managing payroll and paying employees across different geographies. But the real meaning of the concept goes well beyond this simplistic understanding.
Global payroll management refers to a way of processing payroll on an international scale that allows businesses to streamline processes across locations and consolidate various local payroll processes, data, and more in a standardized global system.
If done correctly, global payroll enables multinationals to ensure international compliance, guarantee timely payments to international employees, and save time and money through streamlined and standardized processes. Another concept that is often used in the same context is multi-country payroll.
When comparing global and local payroll operations, the biggest difference is the increased level of complexity that comes with processing payroll on a global scale. The factors that make international payroll more complex include:
Increased payroll compliance risks due to different country-specific compliance requirements (e.g. employment laws, compensation rules, tax laws, and more)
Standardization issues for processes, payroll data, and more
Payments in different currencies
The basics of payroll remain the same, but global payroll needs to handle more regulations, requirements, and more countries, which leads to more complexity. In this sense, global payroll could be seen as various local payrolls merged into one.
Global payroll management is the administration and coordination of payroll processes, data, payments, and taxes across all countries where an organization has employees. Just like global payroll processing, managing payroll across different jurisdictions is infinitely more complex than running a domestic payroll.
Therefore, global payroll largely relies on software and technology to guarantee the efficiency, accuracy and timeliness of payroll operations. There are different types of global payroll solutions that can simplify payroll management for multinationals, ranging from global payroll aggregators to unified global payroll platforms.
Successful global payroll management combines a robust payroll software system with the necessary expertise in the form of a skilled payroll team consisting of experienced local, regional and international payroll professionals.
To avoid having numerous local payrolls that all follow different rules and procedures, businesses should put into place a global payroll policy that outlines the standard procedures, data requirements, and more that must be met by every local payroll.
Finding a way to consolidate payroll processes across various geographies is an important part of managing global payroll. In addition, multinationals should also keep the following aspects in mind:
Accuracy and timeliness of payroll must be ensured everywhere
Cultural differences and practices
Data security when transferring payroll data across international borders
Compensation and benefits differ from one country to the next
Local payroll knowledge
When selecting an operating model for their global payroll, businesses can choose between three different approaches:
Additionally, organizations need to decide if they want a centralized or decentralized payroll management system.
Keeping global payroll management in-house means that an organization handles all payroll-related processes for all their geographies, entities, and employees itself. The main advantage of this approach is being in full control over the entire payroll operation, from payroll processing to payroll data handling to payroll security.
On the downside, the business needs substantial experience in fields such as tax laws and compensation rules, as well as local expertise for each payroll country to avoid compliance issues. Plus, it takes time and money to build an internal global payroll infrastructure.
That’s where payroll outsourcing comes into play. Payroll services can take over most payroll processes and make sure their clients’ global payroll is fully compliant. Outsourcing also frees up internal resources and comes with the often needed expertise and support.
But it also means giving up control over the entire payroll operation. What’s more, choosing the right payroll service provider can be complex and time-consuming.
The hybrid approach to global payroll combines in-house payroll management with outsourcing. For instance, payroll for some geographies could be kept in-house while payroll for countries with small employee populations or where no internal expertise is available could be outsourced.
A hybrid global payroll model offers the necessary flexibility to adapt the solution to the individual circumstances of each geography and allows fast payroll setup in new markets without slowing down the progress of the global expansion project.
The Lano Academy is for informational purposes only and should not be construed as legal advice. Lano Software GmbH disclaims any liability for any actions you take or refrain from taking based on the content contained in this article.
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