With the expansion of remote working and cutting-edge technology to enable it, ambitious businesses are looking all over the world to attract top talent. However, running a global payroll is a complex function and full of pitfalls. In this blog, PeoplePay flags up five common mistakes – and explains how to avoid them.
Go-ahead companies have increasingly been exploring talent pools worldwide, whether opening a workspace in a new country or taking on remote employees. Skills shortages can be filled with good candidates regardless of their location, with the added benefits of a diverse and multinational workforce.
It might seem straightforward to add remote hires to the payroll, but in reality many complications lie in wait to trip up even the most diligent finance departments. Minor oversights can lead to costly non-compliance issues.
We’ve put together a list of the five most common mistakes – read on to ensure your global payroll doesn’t fall foul of the law.
1. Failure to understand local tax laws
Each country has its own regulations for global payroll adherence, which may differ considerably. You need to check income tax, overtime pay calculations, how pension, social security and healthcare contributions are managed, what each country’s statutory sick pay rules are, worker classification and the rules surrounding payment of employees versus independent contractors. If you don’t account correctly for all these issues, you may find that the cost of hiring an employee is actually much higher than you budgeted for. HR departments must keep a close eye on changes in government tax policy for every country the business operates in, and react immediately. There will also be different deadlines and requirements for filing tax forms to the relevant authority.
2. Inattention to local employee benefits and employment laws
Again, these are country-specific. For example, in the UK, statutory maternity leave is paid for 39 weeks. In the US, it’s 12 weeks of unpaid, job-protected leave. You’ll need to look into pension contributions, health insurance, sickness pay, provision of a company car or travel reimbursement. What about national holidays and faith-based days off – will your overseas employees be expected to work these to align with the home business, and if so, are you obliged to pay extra rates? A benefit which is non-taxable in one country may be taxable in another. You also need to ensure any benefits package is a genuine benefit in that country, as if it doesn’t meet local standards, you’re unlikely to attract or keep workers.
3. Misclassification of workers when hiring international contractors
This is one of the most misunderstood subjects with a high potential for penalties. When starting down the cross-border hiring route, businesses are often unsure whether to hire people as employees or independent contractors. However, it’s crucial to understand how the local government defines an employee. Criteria such as the nature of the work and the amount of external input the worker requires, the degree of integration into the business, the resources and equipment available to the worker and the likely length of the task must be taken into account. Permanent establishment (PE) rules must be checked, especially for longer-term contractors who are working solely for you, to ensure that the business location (which can include a contractor’s home) doesn’t bring your company under compliance obligations for local corporate tax or employment laws.
4. Not ensuring that data security aligns with the host country
Different countries have very different rules surrounding cybersecurity. In the UK and EU this is governed by the GDPR and Data Protection Act. In the US, there is no national privacy law, and instead HR departments must navigate an array of local, state and national privacy laws. Australia has the Privacy Act and Canada the Personal Information Protection and Electronic Documents Act. Violations of these carry stringent penalties so it’s vital your global payroll arrangements adhere to local criteria.
5. Inaccuracy due to currency fluctuations and exchange fees
Businesses operating a global payroll should check frequently to prevent fluctuations in currency exchange rates impacting the salary budget. If this isn’t done, it could result in inconsistencies which could contravene local regulations and other compliance laws, as well as irregularities when calculating tax. On top of this, it could mean financial losses for your company.
Administering a global payroll is probably one of a finance department’s most challenging duties – but it’s also one of the most important to get right.
At PeoplePay, we take the stress out of global payroll and compliance, whether you have one overseas employee or thousands. Our service spans 140 countries and our friendly and professional team ensures your business is reliably supported when it expands overseas, saving you time and resources.
Whether you’re breaking into new markets or already administering an international payroll, our fully-managed, cost-effective service keeps everything running smoothly and ensures you’re always in line with local laws. Why not contact us and find out how we can take the payroll pressure off?