Guide to Global Payroll
What is Global/International Payroll?
Payroll is an activity that includes tallying each worker’s wages, determining their exact income and taxes, managing benefits, expenses, commissions and bonuses, and sending the appropriate payment to the worker, with a payslip. The process also entails maintaining workers records and sending payments to all the relevant parties (like tax authorities) and keeping track of paid time off and total work hours.
Global payroll is a similar process that is done on a global scale and with extra levels of complexity. Labour and tax laws vary extensively in different countries and jurisdictions. Keeping track of various information streams – different expense invoices and spreadsheets in different units of measure and different languages – can be overwhelming.
A multi-country payroll works in the same way as a local payroll regardless of whether an organization has a presence in the jurisdiction where it is hiring, working via an employer of record (EoR) also referred to as hiring independent contractors or internal PEO. The main difference between a global eor and a local payroll is the ability to process salaries for employees in different countries simultaneously. This makes it easy to pay and hire employees abroad.
What Makes Global Payroll So Sophisticated?
A local payroll can be sophisticated, specifically at a company with thousands of workers, even if all of them are in a single location and are subject to the same legal and tax codes. However, a global payroll can be at least 3 times more sophisticated, and when there are multiple jurisdictions involved, it can be simply overwhelming – unless there is a unique solution.
Tax codes and labour laws are not only different in each jurisdiction, but also from individual to individual. Every worker’s tax rate is dependent on various factors, including family status, age, and wage structure. Legislative amendments occur without warning. Currencies and languages are different from country to country, and so are requirements for bonuses. Many countries require companies to pay a 13th salary as a bonus.
The amount of information that needs to be gathered and processed with a global payroll can be immense. Every department in each country must provide commission and bonus data, expense reports, as well as attendance and time reports. Wages can change each month, and therefore the tax rate could vary. Benefit packages also need to be tallied. On top of this, there are variable costs like bonuses and expenses that also must be tallied in the gross to net income.
All those reports are written in different formats and in different languages. After they are all consolidated and calculated, there is still another level of complexity. Payments must then go through no less than 3 parties (benefits vendors, tax authorities, and employees), and sometimes as many as ten.
For an international payroll manager looking to coordinate all these smaller payrolls into one gigantic international payroll, it’s an extremely tedious and time-consuming job to provide an accurate gross to net global payroll on time with no errors.
A good international payroll solution should offer solutions to all these challenges. A complex multi-country payroll platform brings together multiple streams of data, automates workflows, and processes the data to make it simple and easy to understand. When combined with in-country stakeholders and a fully-fledged project manager to keep up with any changes in labour laws and tax codes, the end result is a perfect global payroll system that works perfectly every month.