Payroll professionals who are either responsible solely for U.S. payroll or with global payroll responsibilities all strive to execute accurate and timely results. To an employee, the most important part, of course, is getting paid. Yet, behind the scenes, payroll operations and payroll processing consist of various processes, inputs, and interdependent key relationships with other business functions.
In the United States, the final delivery of funds to the employee is executed by the payroll team. It is a fairly straightforward process and uses one currency. However, when funding global payroll, the actual movement of money comes with a wide range of complexities.
Understanding the complexities and the unique set of country-specific regulations will yield happy employees who are paid on time, while you stay in compliance with specific country regulations. It’s important to understand that you do not have to be an international currency expert to guarantee compliance with international money movement, but you must become aware of the available tools, resources, and services. These will go a long way toward guiding you through a very complex environment.
As companies expand their global presence, and as funds and people become more internationally mobile, the need to move money across borders efficiently, securely, and inexpensively intensifies. Paying employees can be challenging when operating across multiple regions. Funding international payments can be accomplished via three different methodologies. Employers have the option to decide which one is a best fit for their organization.
Three Methodologies to Fund International Payrolls
Global payroll teams will need to be educated on what and how employees can be paid in each country. Here are three methodologies to fund international payrolls with employees in different countries:
- Utilize in-country bank accounts to meet local requirements
- Fund employee bank accounts from a central account across borders
- Utilize a dedicated international payments provider—Many payroll providers that process payrolls globally will offer money movement services as part of their packages. The in-country providers (ICPs) are well versed in what is allowed in the respective countries in which they are processing.
One of the complexities with international payroll funding is that some countries require employers to establish an in-country bank account for payroll payments. Furthermore, other countries, such as Mexico, require payments for withholding taxes to be paid from a local “in-country” bank account.
Fed Global ACH Services
Electronic payments can play an important role in this process. International ACH payments through the Federal Reserve’s Fed Global ACH Services currently allow for the transmission of direct deposits to 25 countries, including: Austria, Belgium, Canada, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Mexico, the Netherlands, Panama, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, Switzerland, and the United Kingdom.
ACH credit payments may be sent to each of these countries, while ACH debit payments may only be sent to Canada.
In 2009, NACHA – The Electronic Payments Association created a new Standard Entry Class (SEC) code with coordination from the Office of Foreign Asset Control (OFAC) for International ACH Transactions (IAT). The IAT SEC code is used for both consumer and corporate international ACH entries.
An IAT entry is an ACH entry that is part of a payment transaction involving a financial agency’s office not located in the territorial jurisdiction of the United States. Specifically, an office of a financial agency is involved in the payment transaction if one or more of the following three transaction conditions is met:
- It holds an account that is credited or debited as part of a payment transaction.
- It receives funds directly from a person or makes payment directly to a person as part of a payment transaction.
- It serves as an intermediary in the settlement of any part of a payment transaction.
More Rules on U.S. Money Movement
Additional rules surround the movement of money from the United States to these countries, and companies need to be aware of them. Sending a direct deposit to an employee located somewhere around the world as we do in the United States to U.S.-based employees is not the same simple process payroll you may be accustomed to practicing.
Another complexity of international money movement relates to timing. In the United States, it is common to use an ACH or a wire to move money quickly. In comparison, with some countries it will take a few days. The delay is caused by the need to move through various countries’ government agency systems—and it takes time for the transaction to move through a system.
It is always best to understand these timeframes once you establish an international bank account for funding payroll and taxes. It is wise to share this information with other business partners in-country or out-of-country and to adjust internal operating processes as applicable.
Country-Specific Currency Requirements
Another important aspect to consider when paying and funding in-country employees is currency requirements. Some countries require solely local currency, not, for example, paying in U.S. dollars when covering salary remuneration payments and tax liabilities.
Some examples of country-specific requirements related to currency that pertain to foreign employees working in a specific country are as follows:
- Argentina—Employees must receive remuneration in Argentina pesos
- Brazil—Both employees and foreign employees must be paid in Brazilian reals
- Canada—Employers are allowed to make payments to foreign employees in foreign currencies
- China—Does not have a requirement regarding foreign employees for payment of wages
- Germany—For foreign workers there is no requirement that workers be paid in euros
- Ireland—For foreign workers there is no requirement that workers be paid in euros
- Italy—No special requirements for wages paid to foreign workers
- South Africa—No special requirements for payments to foreign workers
- U.K.—No special requirements for wages paid to foreign workers
*Data provided by Bloomberg BNA—HR & Payroll Resource Center
Additionally, tax payments in some cases must be made in the country’s currency for foreign employees. It is important to seek counsel with experienced consultants, local vendors, or local legal and accounting experts to verify country specific requirements if unsure of a local country requirement.
Compliance With International Banking
Lastly, it should be noted that employers need to keep an ever-increasing eye on compliance in the international banking process. Banks do have their own internal policies and must also adhere to regulations regarding money laundering, bribery, and even terrorism.
If for some reason an international bank is flagged or has limitations placed on it, this could impact individual payments and suspend banking payments. It is important to be aware of compliance requirements and do not assume all will be satisfactory. Employers should ask questions regarding international banking partners’ compliance policies and programs and build strong relationships at the local level.
In a global environment, you cannot overlook the complexity related to paying international employees. You must understand country-specific currency requirements, be proactive in understanding how to set up international bank accounts and the time allowed, always be diligent with your compliance programs, and become familiar with your resources, tools, and expert service providers.
Some believe that payroll is accomplished at the push of a button, yet all payroll professionals know the dedication, hard work, teamwork, and attention to detail required for a successful payroll operation. The desired result is always the same—make sure your employees get paid on time, accurately, and in a compliant manner.
The same can be said for successful international money movement.
Dee Byrd, CPP, PHR, SHRM-CP, is a Project Manager for PayTech, Inc., who has more than 25 years of global payroll management experience and has represented the payroll profession by speaking to the U.S. Congress in matters regarding multistate payroll taxation issues. She is an American Payroll Association (APA) Vice President, a member and past chair of the APA’s Electronic Payments Committee, part of the APA’s Payroll Cards Subcommittee of the Government Relations Task Force (GRTF), a member of the APA’s Global Issues Subcommittee of the Strategic Payroll Leadership Task Force (SPLTF), and a member of the APA’s Board of Contributing Writers. She was also the APA’s 2011 Payroll Woman of the Year.
Robert Gerbin, CPP, is VP, Global Payroll Leader with Wells Fargo Bank & Company. He is a strategic global payroll leader with more than 25 years of human resources and payroll experience and who brings a unique mix of industry and consulting experience within various industries. Gerbin is a recognized global payroll expert with experience in over 50 countries and transformation experience on five continents. He is a member of the American Payroll Association’s (APA) Strategic Payroll Leadership Task Force (SPLTF) and part of The Conference Board Payroll Executives Council.