Global payroll management: Best practices

Thanks to new technology and modern business practices, hiring foreign staff and establishing a global payroll have become significantly easier than before.

However, global payroll isn’t just about sending paychecks on time. Your chosen payroll solution must shield your business from the many challenges of juggling international regulations. 

To help you craft the best international payroll process to suit your business needs, we’ve collected a few things you need to consider when planning your financial strategy: 

What to consider when managing international payroll

Before you hire foreign staff, it’s worth understanding some of the general complications (outside of local and international compliance regulations) that businesses must contend with when establishing an international payroll. 

It’s not just labour and tax laws that vary between countries. It would be wise to also consider additional costs like onboarding, currency exchange rates and payroll management fees.

International payroll best practices

 There’s no ‘one-size-fits-all’ solution to global payroll processing. Your chosen payroll management solutions will depend on a variety of factors, including, but not limited to: 

• Available resources (both monetary and human resources)
• Where in the world you choose to hire from
• How many staff you intend to hire from abroad
• What kind of employment contract (temporary, contract, part-time, full-time) 

Training an in-house team to manage your international payroll is one viable solution. Another is outsourcing payroll administration to a third party. Each has associated pros and cons. Ultimately, it’s up to you to decide which path best aligns with your business needs. 

New hire onboarding

When hiring international staff, remember you will need to train them to follow established business practices such as data security measures, and incorporate them into your chosen international payroll system.

If you choose to do so in-house, ensure your global payroll software is intricate enough to track changes in contracts (for example if staff are promoted or change their work hours). Also ensure you pay staff according to relevant national laws and regulations. 

Currency exchange rates

Moving money across borders can be costly. Exchanging foreign currency through the bank may be the most straightforward solution for your business, but it’s certainly not the cheapest. 

Working alongside FX brokers is often the best way to save money, but you’re spoiled for choice as to which one is best for your business. Be sure to choose a reliable partner to help facilitate your international transactions and limit the risks involved. 

It’s also recommended to establish a financial strategy to support your international ventures and adequately manage any exposure to global currency fluctuations. 

How to ensure local compliance 

Regardless of where in the world you hire from, you will either need to register your business as a new legal entity or hire a third party to manage payments on your behalf.

There are several ways you can do this. Again, like most global payroll concerns, the best solution for your business will depend on several factors. Here are some possible ways you can create a foreign legal entity and hire staff from abroad:

Create a local subsidiary

A local subsidiary is a distinct legal entity owned by your organisation in a foreign country. This is a popular solution for those who want to tailor their services and brand identity to suit local target demographics. 

Opening a local subsidiary can spread liability and accountability across senior executives and business operations. In addition, your subsidiary can figure out how to best handle difficulties using the talent and resources at hand rather than relying on established practices incompatible with local contexts.

Local subsidiaries are also beneficial if you denominate expenses in the local currency, and limit your exposure to FX risk. 

Open a branch office

A branch office is an extension of your company, but unlike a subsidiary, it’s not a separate legal entity. You don’t need to file separate tax returns or comply with local tax laws. 

Branch offices can only be created in countries with existing tax agreements. For example, a US-based business cannot create a branch office in Brazil, Argentina, Chile, Vietnam or Singapore.

Hire a third party

Professional employer organisations (PEOs), an Employer of Record (EOR), or a Foreign Subsidiary as a Service (FSaaS) are all viable third-party solutions that help businesses hire international employees. Hiring one of the options above forgoes the need to register your business as a legal entity and has the advantage of ensuring local compliance on your behalf.

Expect to pay for the convenience. The services often charge an initial set-up fee. Depending on the level of support provided, they may also charge a flat monthly rate or a percentage of your employee’s wages. 

4 steps to ensure correct global payroll management

1. Promptly file tax records with relevant authorities

The most important step in global payroll management is to ensure that tax filings are always submitted on time to the relevant authorities. 

Most revenue authorities are conscious of potential tax reporting errors and closely scrutinise payroll data. Many businesses struggle with reporting timelines in different tax jurisdictions. Deferred incentive plans and stock schemes account for most errors when filing tax records. In addition, different fiscal years and pay dates often result in delays when reporting between countries, as data may not be readily available or complete. 

Be sure these discrepancies are accounted for when constructing your global payroll solution. 

2. Create strong data collection and security measures 

To file tax records, businesses must collect sensitive information from staff, including name, address, family status, date of birth, and bank account details. If your team lives and works in the EU, you’ll need to ensure your practices comply with GDPR law. 

As such, you’ll need to take measures to ensure that all data is kept safe from loss or theft. Best practice for data protection usually advises keeping all information in a single, secure server to avoid sharing information via email and to avoid duplicating information as much as possible.

3. Update any changes in employees’ details

Once you have collected personal information, you must look for changes and make regular updates. This can include home address, marital status, salaries, paid leave and benefits.

You’ll need a system that tracks these changes and feeds it to the appropriate team. How often the information is collected and transferred to the payroll system is a vital process and needs to be carefully considered.

In addition to regular weekly or monthly updates, there are also unplanned changes in tax law which must be accounted for. Global political events can often change how government authorities monitor tax filings or classify workers. 

4. Conduct regular internal audits

Once your global payroll process is in place, it’s important to conduct regular checks to ensure no errors compromise payments. There are a couple of different ways to approach this:

• Compare the previous month’s salary with those generated in the current month.
• Track expected net salary in a spreadsheet and check that your payroll system is outputting the correct figures.

Neither method should reflect any sudden change. Be sure to investigate glaring discrepancies. They may indicate that you have entered information incorrectly.

Our international payments solution

Global currency markets are inherently volatile, and exchange rates can vary widely within days. In addition, the fees charged by banks can significantly add to your annual costs. 

You can save time and money by incorporating our online mass-payment solution via Web App or API integration. This way you can easily send payments to thousands of recipients overseas at just the click of a button. 

Using the CurrencyTransfer platform allows easy communication between teams and offers better rates than those offered by banks. Sign up today, and we’ll put you in touch with our financial experts to help you with your global payroll scheme.