Global payroll refers to the end-to-end payment-related services that a company must provide to its international employees to comply with the regulations of each worker's home country, including payment, taxation, benefits administration, minimum wage adherence, and labor laws.
While hiring international employees can be a cost-effective way to expand a company’s talent pool, it carries complexities that can grow increasingly complicated when hiring multiple employees overseas.
What is the difference between global payroll and local payroll?
Global payroll and local payroll involve the same operations but differ in scope. Local payroll encompasses a company's payment-related processes for domestic workers within that company's nation. Global payroll entails the same processes but applies to payroll for international employees, considering the global employment laws and regulations in each employee's nation of residence.
While the tasks are the same, navigating compliance across nations makes global-managed payroll more challenging. Some factors that must be considered in global payroll include:
- Regional and federal taxation rates
- Taxation deadlines
- Required benefits
- Minimum wage
- Currency exchange rates
- Data security compliance
- Available payment methods
The complexity grows when employers hire a single worker abroad. Expanding that to include multiple international employees from several different countries quickly makes it evident why a global payroll provider is a more efficient means of paying international workers than conducting their payroll operations in-country or in-house.
What are the main challenges of global payroll operations?
Each country has unique labor requirements. Companies tapping into the global workforce must comply with the regulations of each employee's nation of residence. That means companies with a multi-country payroll must keep track of a wide range of overseas legislation and requirements. Some factors that global payroll operations must consider are:
Tax regulations: Like domestic employees, international employees must pay their taxes on time and in full. Employers must, therefore, remain compliant with the tax regulations of each employee's home country. Some important tax regulations include:
- Federal tax rates
- Regional tax rates
- Local tax rates
- Tax deadlines
- Payroll tax
- Tax withholding regulations
Employers must familiarize themselves with the nuances of the taxation system of each country from which they hire their overseas employees to comply. For example, some benefits, such as work-from-home stipends, may count as taxable income in some countries but not others. The result is that global payroll management is much more complicated than local payroll and requires a deeper understanding of multiple payroll systems before managers can streamline their operations with automation.
Benefits administration: Global payroll employers must also provide their workers with the employee benefits their home nation requires. For example, employees from Costa Rica must receive a Christmas bonus called Aguinaldo, and employees from Brazil are entitled to 30 days of PTO. Other benefits that vary by country include:
- Parental leave
- Required minimum wage
- Social security contributions
- Required break times
- Maximum allowable number of hours worked per week
Besides risking compliance violations, failure to offer these benefits may make it difficult for incoming talent to feel comfortable working at an organization.
Payment methods: Before hiring any employee, employers must first be able to pay them. There are several factors that global payroll services must consider to pay international employees, such as:
- International and local currency exchange rates
- Available payment methods
- Bank fees
- Intermediary fees
- How long it takes for employees to receive payment
Another critical factor is whether federal or regional authorities require documentation that verifies the employee's payment. If so, payroll teams will need to provide that as well.
Data security: Employers retain their employees' sensitive personal data, but federal and local authorities may require companies to secure their payroll data differently. For example, employers that hire from nations that are part of the EU must secure their payroll data according to the General Data Protection Regulation (GDPR). Failure to do so may result in costly compliance violations and could risk exposing their employees' sensitive data.
Options to manage global payroll services
While many challenges exist in implementing effective global payroll administration, companies have several global payroll solutions to simplify the process:
Freelancers and independent contractors: Hiring freelancers and independent contractors is an easy, short-term solution to circumvent international payroll complexities. Because they're self-employed, fewer regulations exist for hiring these workers. Companies may negotiate directly with them and have fewer variables to consider.
The chief drawback to hiring freelancers and independent contractors is that they work for themselves and are not directly part of a company. They may be suitable for short-term or one-off projects but not for building a sustainable workforce.
Foreign subsidiaries: Some companies may open a branch of their business on foreign soil and process their payroll there. This allows them to establish themselves in the employees' home country, turns global payroll processing into local payroll processing across multiple nations, and can be helpful for companies looking to broaden global expansion. However, setting up a legal entity abroad it is the most time- and resource-intensive solution.
Professional employment organizations (PEO) and employers of record (EOR): The most efficient global payroll solution is outsourcing human resource and payroll-related operations to a PEO or EOR. Both offer payroll services and are responsible for managing international teams. The PEO acts as the co-employer for the workforce, while an EOR serves as the full employer for the global team. Both of them provide services, including:
- Tax compliance
- Benefits administration
- Onboarding
- Ensuring employee engagement
- Recruitment and acquisition
- Offboarding
A key distinction between PEOs and EORs is responsibility for compliance. When an employer hires a PEO, they retain the responsibility for complying with the laws of the international employees' home nation. EORs, however, assume the responsibility for payroll compliance themselves.
What are the benefits of working with a global payroll provider?
Working with an international payroll provider eliminates many hurdles to global hiring. Some of the advantages that global payroll providers offer are:
- Talent acquisition: Global payroll providers know where to look for the employees needed.
- Resources: PEOs and EORs have global payroll software to conduct their payment-related responsibilities efficiently.
- Risk mitigation: Opting for an EOR means being less likely to be subject to costly compliance fines.
While complementing a local workforce with a global one comes with a unique set of challenges, global payroll providers can help companies overcome these obstacles to obtain new talent and expand successfully.
International payroll requires considerable attention and ongoing administrative effort. Whether it’s basic payroll management or full-scale benefits administration with accounting services, we’ve got you covered. Customize Revelo’s payroll solutions to fit your needs.
