resources

Global Payroll Uncovered: Strategies for Seamless International Payroll

May 23, 2024

Struggling with payroll for an international team? Discover how to navigate global complexities and simplify payroll across borders with our insider tips.

What Is Global Payroll?
Global Payroll Challenges
How Does Global Payroll Work?
The Benefits of Using a Global Payroll Solution
Considerations for Choosing a Global Payroll Provider
Take Control of Your Worldwide Operations With Paylocity’s Seamless Global Payroll

As businesses pivot to hybrid models and digital nomad setups, the question looms: How do you pay employees in Canada, Switzerland, Japan and beyond?

Let’s be honest: the thought of navigating payroll across different countries can be overwhelming. Each country has its own set of tax and labor laws, not to mention diverse expectations around benefits and payment platforms.

It’s a lot to juggle, and most companies simply don’t have the internal expertise or resources to manage it effectively.

This guide will break down how global payroll solutions work and share some tips on how to pick the perfect provider for your business.

Key Takeaways

Global payroll involves disbursing wages to employees or contractors who are located in a different country from your company's headquarters.
The distinct legal frameworks, cultural norms, currencies, and languages of each country can make paying international employees challenging.
To manage international payroll, you have options: handle it internally, or outsource to an employer of record, a professional employer organization, or a specialized global payroll service.

What Is Global Payroll?

Global payroll is the payment of wages to employees or contractors based in a different country from where your company operates. It encompasses a variety of tasks such as calculating regular paychecks, handling tax obligations, and overseeing schedules for paid leave.

If you plan on hiring abroad, you should have some sort of international payroll system in place. A dedicated global payroll platform helps ensure adherence to various local regulations and simplifies payroll management.

Global Payroll Challenges

Setting up a global payroll program is fraught with complexities, primarily due to each country’s unique legal landscape and culture. If you’re thinking of hiring abroad, be aware of the following:

Legal and tax complexities: Each country has its own unique tax and employer requirements that you’re obligated to fulfill. You’ll either need to be, or hire, an expert.
Data protection concerns: There’s a complicated patchwork of data privacy laws to consider, notably GDPR in the EU and Japan's APPI. Staying compliant with these is essential, or else you risk incurring substantial fines.
International payment management: You’ll probably pay your international employees in their local currency. This involves keeping track of currency conversion rates, budgeting for bank transfer fees, and making sure employees are paid via suitable channels.
Compensation considerations: Pay equity can be challenging when the cost of living differs widely from country to country. When hiring abroad, you must decide whether to equalize salaries in USD or adjust for local living costs.
Language and cultural barriers. Depending on where you hire, the language or working culture may be drastically different compared to the U.S. This adds another layer of complexity to paying international employees.

How Does Global Payroll Work?

When it comes to setting up global payroll, the big decision is whether to handle everything in-house or to outsource. Your choice will depend on factors like the size of your business and the resources you have at your disposal.

Let’s explore a few approaches you might consider to help make that decision.

In-House Payroll Operations and Workforce Management

Going the in-house route has its perks and its pitfalls. On the plus side, you keep full control over every part of the payroll process and maintaining strict digital security might be simpler since it's all within your existing systems.

However, the flip side is that you’re on the hook for all the complexities. You’ll need to navigate the different regulatory landscapes and comply with the laws in every country you operate in. This could mean setting up new legal entities in each country, which is no small feat and requires significant time, resources, and effort.

Employer of Record (EOR)

An employer of record (EOR) is a firm that hires staff on behalf of your company and handles all the legalities of payroll, from paying salaries to managing benefits, withholding taxes, and ensuring HR compliance.

For your team, the only real change is on paper — someone else is their legal employer. But for your U.S.-based operations, it’s business as usual.

Professional Employer Organization (PEO)

A professional employer organization (PEO) is a company you hire to take care of payroll and other HR tasks, while your company remains the official employer. The PEO functions as the co-employer.

PEOs are popular among smaller businesses because they handle the payroll needs of multiple companies, which often makes it more cost-effective than doing it all yourself. It's a way to leverage economies of scale to reduce costs while still managing the complexities of global payroll.

What is the difference between a PEO and an EOR?

PEOs and EORs seem similar but the difference lies in who is the legal employer of your employees.

A PEO co-employs your staff and handles HR tasks like payroll, benefits, and compliance, while your company remains the legal employer and retains control over daily operations.

In contrast, an EOR serves as the legal employer of your staff, taking on all employment-related responsibilities such as payroll, benefits, taxes, and compliance.

Global Payroll Provider

A global payroll provider is a specialized service or platform that manages the payroll functions for employees across multiple countries from a centralized system. This type of provider ensures that businesses comply with the varying tax laws, labor regulations, and currency conversions required in each country where they have employees.

These providers typically utilize cutting-edge technology like cloud-based systems, real-time data analytics, and integrated HR services to streamline management. This tech integration does more than just reduce the administrative load of global payroll — it also delivers valuable strategic insights that can guide business decisions.

What are the two types of global payroll providers?

Global payroll companies fall into two broad categories: the ones that contract work out country by country and the ones who do it all themselves.

Global payroll providers use a network of third-party companies and outsource payroll work to them. These companies have a wealth of local knowledge and expertise because mostly, they’re staffed by people who live in the country they operate in.

Native payroll engines own all payroll service operations in different countries rather than using third-party contractors. If you go this route, it’s vital to ensure the provider has outposts in any country where you’re likely to want to do business in the future.

The Benefits of Using a Global Payroll Solution

Let's dive into why opting for a dedicated global payroll solution is a smart move. Here are some of the key advantages:

1. Universal Payroll Compliance

Managing compliance with different regulations in each market can be a major headache. With a global payroll solution, however, you can sit back and relax. The experts handle everything for you, staying current with all regulatory and fiscal changes to ensure your company always remains compliant.

2. Local Knowledge

It’s not just the tax rules and regulations in each region you need to know about when rolling out operations there. There are often cultural differences around work you might not expect.

For instance, in Mexico, it’s legally mandatory to pay employees annually a 13th monthly salary, called the Aguinaldo. A global payroll provider, armed with deep local knowledge, ensures you don’t miss details like this.

3. Cost-Efficiency

Setting up separate entities in each country to manage payroll means replicating costs — more paperwork, more recruitment fees. It adds up quickly and becomes an expensive ordeal. By outsourcing to a provider with an established network, you can achieve significant cost savings.

4. Higher Productivity

Freeing your in-house HR teams from the complexities of international payroll lets them focus on more strategic tasks that require a human touch, like building strong employee relationships. This shift not only boosts productivity but also benefits your workplace culture.

Considerations for Choosing a Global Payroll Provider

When selecting a payroll partner, the best choice will depend on the exact nature of your company. That said, there are a few factors that are always important:

Markets Covered: Verify that the provider you select offers the services you need in the locations where you operate. Consider other markets where you may want to expand in the future as well.
Customer Service: Reliable customer service is essential. If issues arise, you'll want them resolved quickly. Look at reviews and testimonials to gauge how responsive and effective each provider is.
Automation: Consider the level of automation in the provider’s systems. Higher automation usually means fewer chances for human error, making the process smoother and more reliable.
Data Security Procedures: Don't overlook the importance of data security. Inquire about the security measures each provider uses to protect sensitive information.
Self-Service Elements: Check if the provider allows your employees to access and manage their paystubs and bank details independently through a self-service portal. Payroll systems that support self-service can greatly enhance efficiency and employee satisfaction.
HRIS Integration: Ideally your global payroll provider should seamlessly integrate with your existing HRIS to ensure data synchronization and streamline processes across multiple regions. This integration facilitates real-time data exchange, enhances compliance, and improves overall efficiency in managing international payroll complexities.

Take Control of Your Worldwide Operations With Paylocity’s Seamless Global Payroll

Choosing the right payroll partner for your international operations is the best way to ensure you remain compliant with regulations and generate cost efficiencies.

Paylocity’s Global Payroll solution delivers exactly what you need with features including:

Fully integrated global payroll with real-time access to aggregated data across 100+ countries
Access reports by country or across all countries with our easy-to-use reporting tool.
Dedicated US-based support team to answer any queries about international payroll issues

Request a demo today to see how Paylocity will help your business achieve seamless payroll management across all your international operations.

Save Time with Stress-Free Payroll Solutions

Payroll doesn’t have to be complicated, but it does have to be right. Stay compliant, collect employee data, and streamline tax filing – all while putting time back in your day with our automated payroll software. With the assurance of an error-free workflow, you can get back to what matters most – your people. Learn how our modern solutions get you out of the tactical and back to focusing on the bigger picture.

Get Payroll Software