February 02, 2022
What does global payroll even mean?
The challenges of global payroll
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Payroll management is a vital part of every business with a substantial workforce. But throw remote employees and globally distributed contractors in the mix, and it gets a little more complex.
In this article, we want to explain the differences in local and global payroll and shine a light on the unique challenges of global payment systems.
While the term payroll may be confusing to some people, it actually describes a rather simple concept: Paying your employees and contractors. So basically, making sure everyone receives their wage or individual rates on time. This is most commonly handled by the HR or finance department of a company.
If you add the word “global” to this though, it gets slightly more complicated. Now, the respective department has to manage not only local payments for employees, but also international transfers to remote workers and contractors who live in different parts of the world.
There are a few additional challenges to consider when managing a global payroll.
Complying with local tax regulations and labor laws is not a unique challenge of global payroll management, but it is made even more complex when you have a distributed workforce that is spread out all over the world.
Just because your employees live in a different jurisdiction to your business’ place of registration does not mean you can just ignore those regulations and only focus on complying with your local laws. As the employer, you must comply with the common labor laws in your employee’s place of residence. That includes following guidelines around minimum wages, social contributions, and potential bonus payments.
Another factor in global payroll is the exchange of currencies. If your employee or contractor is located in the US, they naturally want to be paid in USD, even if your business uses Euros as their default currency.
Not only can keeping track of all the different currencies quickly become overwhelming, but it can also lead to additional costs for exchange fees. And while this is still manageable for a handful of remote employees, you will probably want to find a more sustainable solution for the long run if you plan on extending your workforce.
When paying global employees, you should also be aware of potential fees when it comes to ordering international payments. Not only do many banks charge additional fees for sending money to a different country, but there might also be difficulties in getting the funds transferred in the first place.
Some financial institutions might work with IBAN codes, while others only allow SWIFT payments. And while there are ways to make transfers work even between two differing banking systems (e.g. by using a third party payment provider), you are very likely facing extra fees for every single transaction.
Finally, keeping track of the different payment requirements for all your employees is simply overwhelming. Not only do you have to ensure you are complying with local laws and tax regulations, but you also have to keep track of payment details and find the cheapest offer for every single international transfer.
To sum it all up, no matter how efficient your HR or finance department is, manually managing a global payroll is simply not productive.
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Luckily, there are a few global payroll providers out there that can make your life a whole lot easier. Lano, for example, is offering not just one, but two different solutions to help streamline your global payroll.
The first global service we offer allows you to quickly and easily hire employees around the world, using our Employer of Record solution. We have an extensive network of global partners that hire employees for you. This not only ensures compliance with all local laws and regulations, but also allows you to quickly scale your workforce without having to set up a local entity in your hire’s country of residence.
In addition to that, our global payroll software makes managing international payments easier than ever before. You can find all relevant information in one centralised dashboard and manage bulk-payments in different currencies with one click, while getting the most competitive exchange rates using your own Lano wallet.
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