Global payroll compliance is one of the main challenges of managing multi-country payroll. The reason for this is simple. Payroll is subject to many rules and regulations, and with a growing number of payroll countries, the complexities organizations need to handle increase. And so does the risk of becoming non-compliant in one or even several jurisdictions.
What are the most important payroll compliance aspects businesses with a global payroll have to be aware of? And how can businesses ensure global payroll compliance across all geographies?
The payroll and compliance challenges that come with having employee populations in multiple geographies are numerous. The main compliance concerns are payroll taxes, compensation and benefits, data security, payroll registration, reporting, and payments.
Payroll taxes vary from one country to the next. That doesn’t only refer to the tax rates levied on employees and employers but also to the nature of the imposed taxes and contributions. Every country has a different tax system, and running a global payroll means being familiar with the tax requirements in every country where the business has employees on its payroll.
Cross-border payments are a challenge for businesses on many levels. Not only are they slow and expensive without a global payments solution, but many countries have strict rules when it comes to payments linked to a business’s payroll processes. For instance, payments to local employees and authorities might have to be issued from an in-country bank account. In some cases, there may even be restrictions on payments in foreign currency.
Global payroll compliance begins way before the actual payroll processing. Registration requirements and deadlines vary from country to country, but they all have to be met so that the organization can process payroll compliantly. This includes registering as an employer (either through a local legal entity or as a foreign employer), getting all the necessary identification numbers, and registering new hires in a timely manner.
Employee benefits are also subject to country-specific variation. Ensuring that employees receive all the benefits they are legally entitled to under the laws of their country of residence is another crucial part of global payroll compliance. This includes annual leave, sick days, pension fund payments, and more. To remain compliant, businesses should develop a global benefits strategy that ensures legal requirements are met everywhere.
Most countries have laws that regulate how much employees must get paid. To avoid lawsuits and fines, organizations with a global workforce must respect the minimum wage rates in every country, apply the correct pay rates for overtime, and always be alert for legal changes. A global compensation strategy can help minimize compliance risks with regard to employee pay and ensure the proposed compensation packages are competitive.
Global payroll reporting is another major part of global payroll compliance, since an oversight in statutory reporting will have direct consequences on the business. Every country requires businesses that employ staff to file different payroll reports at very specific moments throughout the year. Since filing requirements and deadlines vary from one country to the next, organizations can only stay compliant if they have a detailed global payroll and compliance calendar—or work with a network of experienced in-country payroll providers.
Global payroll compliance doesn’t only concern aspects that are directly related to payroll. One aspect that is often overlooked in this context is data security. Cross-border data transfers require businesses to comply with the data protection regulations in every country where payroll data is collected, stored and used—international data protection standards like GDPR included.
The reason why global payroll compliance is a challenge for organizations is that it becomes more complex with each new country that gets added to the global payroll system. Even though global payroll solutions can simplify payroll management across geographies by improving data transparency, process efficiency and operational overview, payroll will always be local, which means that legal requirements have to be met in each country individually.
Ensuring compliance throughout the entire payroll process in several countries at the same time while simultaneously keeping up with legal changes requires an experienced team and lots of resources. In small and medium-sized businesses that work with a global team, these resources and capacities often aren’t available. And even large multinationals with well-equipped HR and payroll teams often struggle under the payroll compliance burden.
Ensuring global payroll compliance requires knowledge, expertise, a dedicated payroll team, and a good internal IT infrastructure. If these four factors are given, the organization can work out a centralized compliance governance framework, including:
Global compensation strategy
Global payroll and compliance calendar
Global benefits strategy
Strong payroll security standards
To make sure, requirements are met on all levels, it’s best to include all the different stakeholders and departments that depend on payroll in one way or another. If, however, one of the above-mentioned requirements isn’t met within the organization, it’s necessary to get external help.
Outsourcing payroll to in-country payroll partners or to a global payroll provider that covers the necessary geographies is one way to ensure compliance in global payroll. Alternatively, businesses can use global payroll platforms with in-built compliance functions and reporting capabilities that support the internal payroll team.
Global payroll tax compliance
Correct payroll set-up
Statutory benefits compliance
Compliance with compensation laws
Global payroll reporting
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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