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Calculating wages, paying taxes, filing reports… Running payroll requires a lot of work. Even more so when it has to be done across various geographies. Global payroll is undoubtedly one of the biggest challenges companies face when expanding internationally. With so many different tax calendars and compliance requirements, there is a lot of room for errors in global payroll. Errors which can quickly become very costly - and that on many different levels.
First of all, there is the financial cost linked to rectifying payroll errors and paying penalties for missed tax deadlines or wrongful documentation. Then there are the indirect negative consequences of payroll errors: Lacking accuracy when processing payroll puts employee trust at risk and is likely to lose you your best talent in the long-term - not to forget the resulting employee turnover costs.
Global businesses should therefore strive for an optimized payroll process, which can be achieved by simply avoiding these 10 common global payroll mistakes.
Payroll processing is not just about calculating how much tax you need to withhold from your employees’ salaries or how much you need to pay in social security contributions. One major aspect of payroll is reporting taxes to the authorities. As operating in several countries means dealing with different tax systems, this increases the pressure on your HR and payroll teams who have to make sure not to miss any important deadlines. If you decide to manage payroll for your entire global team in-house, you can avoid this by creating a global payroll and compliance calendar which reminds your staff of any important dates concerning payroll.
The misclassification of workers as independent contractors is not a mistake that is unique to global payroll but also frequently happens to companies operating in one single market. However, the risk of misclassifying employees increases exponentially when working with a globally distributed team. The reason for this is simple: Every jurisdiction has different rules with regard to employee classification. The more countries you have on your payroll list, the higher the risk of misclassification. However, there are two ways of avoiding this risk: Companies can either invest more internal resources to ensure compliance or rely on payroll experts to help them in this matter.
According to Deloitte, 73 percent of businesses with international operations outsource at least some part of their global payroll process. One crucial aspect in payroll outsourcing is choosing a payroll provider which offers the right services for your business needs. Yet, that’s where many business leaders go wrong. Decision makers often lack a clear understanding of what makes a good payroll partner and what services are really valuable for their organization. The result: They choose the wrong partner and end up having to make do with a solution that’s not right for them until they can get out of the concluded service agreement. Read our related blog article on how to choose the right payroll provider for your business to avoid going for the wrong one.
Outsourcing payroll services to in-country partners is a very popular way to handle global payroll - as the 2021 “Getting the World Paid” survey showed, 26.6 percent of organizations questioned for the report outsource payroll for their foreign workforce to local providers. However, handling multiple vendors becomes more and more difficult with an increasing number of providers. The multitude of data flows between external service partners and the central HCM system as well as the missing standardization of processes makes it hard to maintain an efficient workflow and guarantee data transparency. In order to make global payroll more efficient and transparent, global businesses can opt for a software solution like Lano which allows them to effortlessly connect multiple payroll providers and visualize data for their global teams on one single screen.
No matter which global payroll model you choose, you always need to have a proper legal presence in each hiring destination. Whenever you want to hire remote employees in a foreign country, you need to either establish a local legal entity or - if the law allows - get registered as a foreign employer before you can start processing payroll. As registration processes tend to be long and complicated, companies have to critically assess whether international business incorporation is really necessary for them. If all you intend to do in a new market is hire a couple of employees, it is often safer and easier to simply do so via an Employer of Record (EOR) who will hire foreign talent on your behalf and deal with all the legal implications including employment contracts and payroll.
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Payroll data is private and thus highly sensitive. For this reason, it should be handled with great care. Especially for companies that run payroll in multiple countries, insufficient data protection is a major pitfall. That’s because there are many different rules and regulations regarding data security around the globe. What’s more, global payroll processing often involves transferring data between various systems which exposes you to increased data breach risks. Luckily, data security in global payroll can be ensured by either strengthening your own data protection measures or by outsourcing payroll to a trusted payroll provider with high data security standards.
Tax filing and reporting is only one aspect of payroll where timeliness is important. The other one is, of course, paying your employees. Paying remote employees in different countries is slightly different from paying a workforce that is located in one single jurisdiction. Depending on local regulations, you will have to set up a local bank account from where you can pay your employees or, if you’re lucky, you can deposit their wages directly from your foreign bank account or have your payroll provider issue the payments. In any case, you will have to allow additional time for the transaction to be processed as cross-border payments usually take a bit longer.
This brings us to yet another global payroll trap companies may fall into: paying their globally distributed team in the wrong currency. In most countries, it is mandatory to pay employees in local currency - regardless of whether they are hired under a foreign employer or under a local legal entity. For instance, remote employees in India need to receive their salaries in Indian Rupees.
There is a double challenge to this: First, you need to make sure to get the currency in each country right - the bigger your global team, the more likely to miss one. Second, you have to find a way to pay salaries in foreign currencies without paying horrendous fees and losing money on exchange rates. This is where solutions like Lano wallet come in handy. Digital multi-currency wallets allow you to issue international payments in various currencies while guaranteeing attractive exchange rates.
Many organizations still rely on spreadsheets when processing payroll. Not only does that slow down the entire process but it also increases the error frequency in payroll. Even more so when processing payroll on a global scale and having to manually enter payroll data for different geographies. Rather than doing payroll the old-fashioned way, businesses should opt for a payroll software that allows them to standardize their payroll processes and which automatically consolidates payroll data in one platform.
Getting your entire global team paid on time and in the right currency is undoubtedly the main point of international payroll processing. However, it would be wrong to assume that payroll is nothing more than just calculating wages and sending out paychecks. Another important aspect of global payroll which is often overlooked is the administration of global employee benefits. Perks and benefits play an important role when it comes to attracting and retaining global talent. That’s why, with all the hassle of getting your global payroll up and running, you shouldn’t forget to think about which additional benefits you want to offer your global team.
Running global payroll is challenging. Not only are there tons of compliance challenges to deal with, but making sure payroll data from all the different geographies is securely transferred and properly added to the central HCM and finance systems also takes up a substantial amount of work. Not to forget that there is a lot of room for human error while manually entering external data into the internal database.
With software solutions like Lano, you can simplify global payroll by bringing all your in-country providers together in one smart platform. Benefit from our network of experienced payroll partners to speed up payroll set-up in new markets and use the Lano API to connect already existing providers to our platform. No more wasting time on endless spreadsheets and manual data entrance thanks to automated data flows between your service providers and our centralized platform. What’s more, you can visualize payroll data for your globally distributed team on one single dashboard.
Get in touch with our payroll experts today and find out more about how to successfully manage global payroll with Lano.
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