With global expansion comes the need for global payroll. Getting a globally distributed workforce paid correctly, on time, and in the right currency is an immense challenge faced by more and more businesses. No matter the company size, the task remains incredibly complex.
Compliance, standardization, automation, reporting… The challenges of international payroll processing are numerous. So numerous and versatile that even experienced HR and payroll teams struggle under the pressure.
But what exactly are the challenges linked to running payroll on a global scale? And more importantly: How can they be overcome? In this article, we will run you through eleven global payroll challenges and point out possible solutions. First of all, let’s look at what running global payroll actually means.
What does global payroll mean?
Global payroll – sometimes also referred to as international payroll – can be seen as a by-product of global expansion. As soon as you expand your operations to different countries and start employing talent all over the world, you also have to take your payroll processing to the next level. This means that, instead of running payroll solely in one country, you have to manage the payroll process in various countries around the globe, i.e. in all your hiring destinations, while complying with all the different local labor and tax laws.
However, global payroll should be more than just managing payroll in various different locations. For payroll operations to be truly global and efficient, they should be standardized across all the different locations and finally centralized in one single place. But in order to achieve a truly global payroll solution, companies have to overcome numerous challenges.
1. Ensuring compliance on a global scale
According to the Global Payroll Management Institute (GPMI), the number one global payroll challenge faced by companies is compliance. Every country has its own compliance calendar which needs to be observed in order not to miss any deadlines for filing reports or making tax payments – otherwise organizations face hefty fines. Social security contributions and tax rates also vary greatly between jurisdictions and so do the rules for tax deductions and benefit administration – not to mention the number of different authorities and institutions that are involved. Another important compliance aspect to consider is employee misclassification.
Making sure to comply with local tax laws and regulations and keeping track of any legal changes is challenging enough when running payroll in one single country. Now multiply the necessary effort with the number of countries where an international company has employees working for them and you get a picture of the compliance challenge ahead.
Solution: By working with local experts, you can minimize compliance risks. What’s more, outsourcing your international payroll frees up resources within your own company which will allow you to focus on your core business and keep growing.
2. Choosing the right payroll partner(s)
So you have decided to solve the compliance challenge by contracting local vendors in each hiring destination to run payroll for you. This automatically leads up to the next challenge businesses face when implementing global payroll which is choosing the right payroll provider. There are loads and loads of payroll professionals out there which offer their services in one or sometimes even several countries. Comparing their service features and pricing and making sure they fulfill all the necessary criteria a good payroll partner needs to meet is a very time-consuming and daunting task.
Solution: At Lano, we work with a network of trusted payroll partners which covers over 130 different countries. Skip the lengthy selection process and choose the perfect payroll provider for your organization from our pre-selected network.
3. Handling multiple payroll service providers and systems
As promising as outsourcing payroll for your global team to local payroll providers might seem, it can also create a whole new challenge. In this year’s “Getting the world paid” survey, the GPMI found that 43 percent of companies with global operations work with between two and five payroll partners. Another 19 percent even have to manage between six and ten providers. Having to coordinate multiple payroll vendors means having to deal with various different processes and systems which is complicated and inefficient.
Solution: With software solutions like Lano’s API, you can integrate all your different providers – your existing as well as your new ones – into one single platform and avoid having to deal with multiple systems.
4. Lack of transparency and visibility
Another international payroll challenge which is closely linked to working with multiple payroll vendors is the resulting lack of transparency and visibility. The payroll data that will come to you from each provider is likely to be presented in different formats, which makes it hard to keep track of employment costs and draw comparisons between different countries. Yet data transparency and detailed insights into the cost of your workforce are crucial when it comes to taking well-informed strategic decisions for your business.
Solution: One key concept that comes into play when setting up and managing global payroll is standardization. A standardized format for all your payroll data across all the different hiring destinations is the first step towards better data transparency. Using a software solution like Lano means no more opaque and fragmented data sets. To further increase visibility and gain deeper insights into costs, you need to set up an accurate reporting system.
5. Inefficiency and error frequency in data handling
Payroll processes still mainly rely on manual processes such as entering data into excel sheets. In fact, the 2020 Deloitte Global Payroll Benchmarking Survey showed that 30 percent of organizations identified manual data entrance as the most time-consuming aspect of payroll processing. This becomes even more pronounced when you have various payroll data sets from different payroll providers which need to be entered manually into your central HCM and finance systems.
Not only does this mean wasting valuable time – and resources – on dull administrative tasks, but it also creates more room for errors. Whenever tasks are processed by humans, the error frequency is a lot higher compared to tasks carried out by machines.
Solution: With a unified global payroll solution like Lano which will automatically consolidate payroll data for your whole global team in one single system, you will save a lot of time and eliminate one major source of errors which is manual data processing.
6. Complying with data protection and security regulations
Employee payroll data is very sensitive, hence the need for appropriate data protection levels. While you may be compliant with data security regulations in the jurisdiction where your headquarters are based, running payroll in different locations around the world means having to comply with the required data protection levels in each country. Given the various different data streams that are coming to your central system from different payroll providers and going back out of there, data security can quickly become a rail pain in the neck.
Solution: A good payroll service provider will offer a high level of data protection, so you won’t have to worry about data security during the actual payroll process. When it comes to transferring the payroll data for your entire global team to one central system, you can ensure security by trusting software solutions like Lano which guarantee compliance with major data protection regulations such as the GDPR.
7. Getting your global team paid in the right currency
Yet another global payroll challenge uncovered by the GPMI’s latest survey is the moving of funds across different hiring locations and getting employees paid. Issuing international payments in different currencies is a problem faced by many organizations that operate on a global scale. Not only do you have to make sure to have the right amount of money available in foreign currencies to pay your global team (without ending up paying huge conversion fees and being exposed to bad exchange rates) but you might also have to calculate additional processing time for the transaction to go through.
In many cases, this can be solved by having your local payroll partner making the deposits to your employees on your behalf. However, in some countries, the laws mandate that the employer has to make the payments from a local bank account in his own name, which means additional time wasted on setting that up and taking care of the processing.
Solution: Instead of just outsourcing payroll to an in-country partner, you can opt for an Employer of Record solution. The EOR provider will employ your workers in a new market on your behalf which not only includes employment contracts and compliance with local labor laws but also the administration of the entire payroll process.
8. Soft challenges: Time zone differences, cultural practices and language barriers
Going global always comes with cultural differences, language problems and time zone issues. Naturally, these challenges also affect your global payroll. The reporting and tax filing in each individual country will have to be done in the local language. What’s more, payroll works differently in each country and you will have to understand the cultural practices linked to employee benefit management – for example whether or not it is standard to provide food or transport vouchers to employees. Payroll-related communication is also more complicated and slower across different time zones.
Solution: You can make sure to comply with local payroll practices by working with local payroll partners who have knowledge of the cultural differences and advise you on this. Having your payroll done by an in-country partner also solves the hurdle of dealing with payroll in the local language. Time zone issues can be compensated by using asynchronous communication tools like Slack. And as for slower reaction times to urgent queries, just make sure to select a payroll partner with excellent customer service.
9. Tracking the right metrics for global payroll performance
Measuring global payroll performance is a challenge of its own. Of course, the usual payroll KPIs such as accuracy, timeliness, service satisfaction and cost still apply. But one question that is raised more and more often in the discussion about global payroll is whether factors such as accuracy or timeliness should be replaced by other indicators such as employee experience or integration level when assessing international payroll performance.
Solution: Using a service provider like Lano not only allows you to choose the best fit from a worldwide network of excellent payroll providers (which will tick all the boxes for KPIs like accuracy and service satisfaction), but also meets requirements that are specific to global payroll processes such as a high level of integration and easy access for employees to their personal payroll data.
10. Keeping track of payments to your entire workforce – including freelancers
When expanding internationally, most companies decide to first test the waters by working with local freelancers before taking the plunge and hiring full-time employees. This means that they don’t only have full-time staff around the globe whose data they need to track in order to keep an eye on human capital costs, but that there also is a team of international freelancers which represents a significant share in the overall workforce costs.
Solution: With Lano, you can visualize payroll data for your entire global team, including your international freelancers and contractors, on one single screen.
11. Long and slow implementation process
One of the major pain points of global payroll is that it is incredibly slow and difficult to set up. Deciding on the best operating model for your global payroll can already take several weeks – if not months – not to mention the duration of the actual implementation process. Especially for businesses which are in the middle of their global expansion project and need to scale fast, this can become a real problem.
Solution: Rather than facing the challenge of setting up global payroll on your own, you should go for a global payroll solution like Lano. Use our services to get your global payroll running in no time. Don’t waste time comparing an endless list of different payroll providers and trying to integrate them into your workflows. Instead, benefit from an easily accessible network of in-country payroll partners and one smart platform which automatically consolidates all your payroll data in a standardized format and easily lets you integrate existing systems and providers. Get in touch with us today to learn more about how we can simplify global payroll for you.