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Why PEOs Are Important in a Global Payroll Strategy

By Gita Bhargava

PEOs (1)Virtual workforces have helped normalize global expansion for businesses around the world, and although all companies are unique, the challenges of global growth are somewhat universal. Many companies quickly become overwhelmed with the complexities of employment laws, salary or union negotiations, benefits, taxes, and other compliance regulations.

Streamlining a successful global payroll strategy can get significantly less complex when you add a professional employer organization (PEO) to your global mix. These providers help companies eliminate the burden of recruiting, local tax and compliance, payroll processing, benefits management, salary requirements, and work permits, etc.

When a company partners with a PEO provider, it still has control over the employees’ daily activities. The PEO handles all administrative responsibilities for employees, such as wages, taxes, and benefits.

The Complexity of Global Payroll

A successful global payroll has two main components: accurate/timely computations and payments, and local compliance. The latter increases in complexity due to different rules for each country.

Effective compliance management results in faster growth and better business security and continuity. Unfortunately, payroll professionals are exposed to greater risk due to governments’ increasing regulatory complexities. For example, some countries in the European Union (EU) require salaried employees to keep track of their time. If these salaried employees work more than their required hours, they might be entitled to overtime pay.

Noncompliance with local labor and payroll laws and regulations can result in severe penalties, which can be a significant setback for a growing company. Here are just a few examples of country-specific fines and penalties:

  • Hong Kong: Any company that has not set up a Mandatory Provident Fund (MPF) plan may be liable for criminal prosecution with possible fines of up to HK$100,000 and six months imprisonment; persistent offenders risk a penalty of HK$200,000 and one year in prison.
  • Australia: Misclassifying workers as independent contractors in circumstances where they are employees could make a company liable for a penalty of up to A$54,000 and A$10,800 per occasion for any individual involved in the infringement (such as a director or relevant manager).
  • Mexico: Companies must provide and record skills and competency training for employees. Failure to do so will result in significant fines.

How PEOs Support a Global Payroll Strategy

Companies that want to expand to new markets without creating their own legal entity or hiring multiple vendors should consider a PEO provider.

During periods of rapid growth, some businesses struggle to find a single vendor for all their global payroll needs. Instead, they hire different vendors, for different needs, in each country. As they continue to expand into new countries, it becomes cumbersome to manage multiple vendors worldwide because of growth in count and time zones.

These vendors might do a great job when filing annual returns or processing payroll, but they don’t assume any of the risks. They are simply providing a specific service for the client.

Centralizing or consolidating financial vendors through a PEO will eliminate management stress and free up time to focus on crucial growth initiatives. A PEO provider will assume much of the risk and can help companies successfully navigate the complexities of global payroll by providing the following:

  • Payroll funding: End-to-end delivery of global payroll funding services in multiple countries.
  • Payroll compliance: Fully managed payroll across jurisdictions. Includes producing pay slips, submission of statutory filings and payments, and generating year-end reports.
  • Global business support: Additional services that pair with payroll and help companies leverage other global expansion solutions.
  • Expatriate payroll: Access to full support, including hypothetical tax estimation and withholding, tax equalization, shadow payroll, tax planning, and more.
  • Ongoing compliance: Robust research teams keep track of regulatory changes as they occur, so companies mitigate any risk.

Using a PEO provider means companies can spend extra time and resources on compliance. Payroll professionals don’t have to worry about keeping up with day-to-day HR, payroll, accounting, tax, legal, or other challenges.

When using a PEO, Clients onboard employees fast with legally compliant employment contracts, gain access to comprehensive employee health insurance benefits, and ensure payroll is timely and accurate. PEO providers will fully manage the HR and payroll processes and leverage their infrastructure to provide these services.

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  • Gita Bhargava is the Co-Founder and Chief Operating Officer of Global Upside Corporation (GUC), a conglomerate of brands offering the most comprehensive accounting, human resources, payroll, global expansion, and HR technology solutions in the market. As the COO, Gita strategically oversees worldwide operations, Client services, and organizational performance.