What Is Global Payroll? How It Works and What To Expect
Global payroll refers to all of the activities involved in managing payroll for teams with internationally located members. This might include managing payroll in different currencies, navigating the relevant regulations based on the workers’ locations, providing the appropriate benefits, withholding the applicable taxes, and more.
Global payroll helps ensure you follow labor laws in different countries and pay your global workforce fairly and accurately.
Our guide will teach you about global payroll (also called international payroll) so you can decide if it’s the right approach for your business. We’ll also review some common methods for using global payroll and discuss its benefits and challenges.
How does global payroll work?
When paying domestic and international workers, you need to keep track of hours, tax withholdings, health insurance, and other applicable benefits. It’s also crucial to keep track of wages and other important details.
Your business’s global payroll process will depend on whether you manage it in-house or with a professional employer organization (PEO). In-house operations give your company more control of the day to day processes, but take more effort and expertise. A PEO, in contrast, allows you to outsource your payroll operations to a third-party company—meaning less work for you, at the cost of some control.
Here’s a quick rundown of each option. Both have pros and cons, so consider how your business operates when choosing which is right for you.
In-house global payroll process
Using an in-house team to manage your global payroll process lets you retain control of the operations. It allows you to process workers from a single source, control payroll data, and manage issues like wages, benefits, and bonuses directly.
However, there’s one caveat to the in-house international payroll system: to use an in-house global payroll process, you either need to establish a local entity in each country where you have workers, or you need to partner with an employer of record (EOR).
An EOR allows you to hire international workers without setting up a local entity and takes care of compliance requirements and related details (note that an EOR differs from a PEO). Either option ensures legal representation for workers in different countries and keeps you in compliance with local employment laws.
You’ll need to decide if you have the resources to handle in-house global payroll before committing to the task. If you’re ready to onboard new Human Resources (HR) talent or a payroll team, consider hiring one or more freelancers with experience in the field to ensure accurate payroll administration.
Global payroll using a third-party company (PEO)
A third-party company, or professional employer organization (PEO), is a great alternative if your payroll team needs support to perform the HR-related duties required of an international business.
This approach allows you to outsource your global payroll needs to a company that can handle everything from health insurance to local employment laws, so you don’t have to worry about noncompliance.
Although you’ll still be responsible for hiring and monitoring your domestic and international talent (unless you’ve partnered with an EOR), the PEO will take over global payroll responsibilities.
A global payroll solution is a viable option if you’re comfortable offloading HR responsibilities related to your international staff to a third party. But remember, this largely removes your access to payroll data and employee data. You must also consider pricing for each service provider.
4 key advantages of global payroll
There are several advantages to conducting global payroll, from keeping track of independent contractors and other global workers to complying with local laws related to each country’s employment requirements. We explain some other benefits.
Consistency and standardization
Global payroll systems provide a standardized process and framework for payroll administration, ensuring consistency across countries and regions and minimizing the risk of compliance issues. This central payroll system ensures you treat all your workers fairly and with payroll-related legalities in mind.
Efficiencies and automation
By streamlining payroll processes using automation, global payroll solutions can reduce manual processes, minimize errors, and increase efficiency. It also frees up valuable time and resources for HR and finance teams.
A central platform ensures a simple and efficient process for your payroll experts—even when working with people in several countries.
Access to real-time data
With a global payroll solution, you have access to real-time payroll data and information, providing greater visibility into payroll processes and the ability to make informed decisions quickly.
This can also provide an accurate picture of your business’s worth and what you can spend on recruiting international talent.
Implementing a global payroll solution can lower business costs by reducing manual labor and increasing the accuracy of payroll processes. Global payroll management can also improve compliance and reduce the risk of penalties and fines, further ensuring cost savings for your business.
For instance, it’s important to classify your workers correctly to avoid fines (i.e., are they independent contractors or employees?). With the right system, you can redistribute business expenses as needed.
4 key challenges of global payroll
Although using an in-house or outsourced international payroll system can have many benefits, companies can face challenges when conducting global payroll (it’s much more complex than local payroll). We explain some primary concerns.
Domestic and international taxes are an important concern for companies, as foreign employees can complicate tax processes by having different requirements. This is also another instance where it’s important to classify your workers correctly.
Independent contractors are typically responsible for their own taxes, while you’ll likely need to withhold taxes for full-time employees.
Global employment laws
Different countries have specific employment laws regarding each type of employee (e.g., permanent employees, freelancers, independent contractors). Your payroll experts need to understand each country’s laws and requirements, so you remain compliant and can continue to use international talent.
For instance, countries may have different laws regarding forced or child labor, workplace discrimination, and sick or parental leave. Additionally, the General Data Protection Regulation (GDPR) changed how businesses can access and share employee data in the EU.
International payment processes
International payment transfers and processes can be more costly than those for domestic employees, making this a concern when you pay multiple employees frequently—it can add up.
When deciding if global payroll management is right for you, consider currency conversions, exchange fees, cross-border fees, local regulations, and more.
You’ll need to determine whether you have the capacity for in-house global payroll services. What capacity does the HR team have for this type of transition? How many international employees does your company need or plan to hire? These questions can be useful when deciding how to move forward with international payroll.
Different types of payroll providers
You have some options when managing international payroll operations or outsourcing to a global payroll solution. We present a rundown of each:
- In-house payroll. Your team of HR, payroll, and legal experts handle all aspects of global payroll, including compliance with multicountry labor laws, collecting employee data, and completing the payroll process for a global workforce.
- Payroll service bureau. A payroll service bureau prepares and manages everything related to payroll but doesn’t take any legal responsibility regarding international labor laws. It can also print checks and pay slips, if needed, and provide payroll-related local expertise.
- Online payroll providers. This automated approach to outsourcing your payroll responsibilities includes electronically withholding taxes for workers and creating tax documents each year. This service uses a web portal or app.
- Human Capital Management (HCM) solutions. HCM is often responsible for HR functions, like preparing and maintaining employee records and providing benefits to workers. It’s also responsible for onboarding and training talent and ensuring company policy compliance. In short, HCMs are like outsourced HR teams.
- Global payroll providers. Global payroll providers take on the legal responsibility of international payroll for your business—and much more. They ensure a central, comprehensive hub for workers to access payroll data, review benefits, and receive customized care depending on their country of residence. Qualified global payroll providers have the local expertise needed to ensure your business can use talent worldwide while treating each remote worker with the same care as an in-office employee.
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