Consistently, people discuss the “last mile” as the most complex or difficult part of a journey,connection, interface, or service. It is the one piece of the process that cannot be automated, that is not a simple hand-off, utilizes older infrastructure, needs to consolidate disparate components, or requires a different modality.
Payroll in some countries has no last mile at all. It is highly integrative from HRIS changes all the way through to online government filings. In other countries, the last mile can be very, very long. Payroll is highly manual and complex, from hand-keying changes into Excel spreadsheets to requiring train trips to far-flung provinces to hand-deliver compliance paperwork.
The trick of the global payroll professional is to ensure you have a good handle on the compliance requirements for each location and are up to speed on how long that last mile is. It is also important to know where the pot holes are along the way. Below are some of the problematic areas that can get in a global payroll professional’s way.
Taxability of Pay Elements
This is paramount to ensure local compliance. Pay elements may be subject to wage tax, but not to social insurance. Some might be completely tax-free, and yet others may need to be grossed up because the company wants to provide certain payments to their employees on a net basis. As payrolls are outsourced, many companies lose their visibility to the set-up of pay elements and do not have internal documentation to refer to as internal employees rotate to new positions. The retention of this knowledge is critical to ensure payrolls are calculated properly.
These change, are often open to interpretation, and sometimes are retroactive. Local country knowledge is imperative for the proper application of collective agreement requirements for the payroll calculations. In some cases, it may even be prudent to have an employment lawyer review the latest collective agreement changes to determine how they will affect local payrolls.
These types of calculations cause angst to most payroll professionals, both on their home and host payrolls. Typically requiring special taxability handling at the pay element level, these calculations are fraught with compliance concerns. The most common are missing data, exchange rate inaccuracies, incorrect assignment of taxability at the pay element level, and timing of benefit-in-kind inclusion. Local tax professionals scrutinize expatriate programs to ensure that the payroll program is set up properly to minimize the potential for compliance penalties, which not only include money but often loss of business permits as well.
Gross-ups are often calculated manually. Some countries like to handle gross-ups on benefits in kind as off-cycles, but other countries cannot handle off-cycles easily. Gross-ups inside regular payroll cycle calculations can be tricky, especially if they are on a pay element-by-pay element basis.
These types of programs typically have country-specific requirements regarding vesting and taxability based on the equity type and program.
Manual filing submissions are an ever-changing arena. WPS in the UAE, e-social in Brazil, and RTI in the U.K. are just a few examples of countries that are automating various payroll processes. But in many, many countries, there are still manual components to the payroll compliance. It is so critical for companies to have proof that the manual filings were submitted for audit reasons as countries are becoming more aggressive auditing companies that are headquartered outside their borders.
Compliance is an amalgamation of the preceding items, which create even more complexities when payrolls include a combination of these situations. Sometimes what merely appears as a pothole in the payroll process can turn into a crater that drags a company down into a myriad of paperwork, audits, lost business permits, and potential penalties.
The world is slowly automating the last mile in payroll, country by country. But there will always be the requirement to analyze, audit, and confirm that compliance is in place. That’s what keeps our employees and our companies safe.