Global payroll is the process of managing payroll across multiple countries. Payroll technology varies widely from country to country, depending on the requirements for each region. If a company hires people in Europe or the United States, different payroll rules apply compared to Asian countries.
Usually, these differences can be attributed to the following:
- Tax laws and regulations—Some countries have withholding tax from salary income, while some do not have any direct tax and others withhold only when workers exit from the country. In some countries, a uniform rate of withholding tax applies to all the employees, while in others, the withholding tax amount/rate varies from employee to employee.
- Social security system—In some countries, employers and employees contribute to social security funds, while in other countries, only employers contribute. Some countries have government-regulated social security funds with voluntary employee/employer contributions. In other countries, the employees’ social security contribution is withheld as part of the withholding tax itself.
- Employment laws—A majority of countries have national employment laws or standards, while others have employment laws that are applicable at a regional or state level as well. In some countries—beyond the provisions of national employment laws— industrial agreements, bargaining agreements, or enterprise agreements also apply.
- Interaction with authorities—In some countries, physical reporting is done to authorities on paper, while some report through an online portal or via email. Many countries have been advancing to full integration with no manual intervention needed while reporting to authorities.
Considering the differences in payroll laws and regulations of different countries, it is crucial to get preliminary research done on the complexity and efforts involved. There have been multiple cases where the global payroll transition failed disastrously because of the inadequacy in initial planning, the risks were not identified in time, and proper testing was not done.
Adding a new country to the global payroll portfolio is tricky and often involves huge resources in terms of money and people. Thus, the cost of a failed project would be big. The organisation’s global reputation is also at stake. So, it is vital to consider the following key factors in the preliminary research to mitigate the risks involved:
Payroll Complexity Index
A good beginning point in the feasibility study would be to refer to a reliable payroll complexity index. A payroll complexity index is based on different parameters such as the following:
- Reporting frequency
- Taxation and social security deductions
- Regional and local variations and updates
- Data security
- Employee rights and benefits
- Unionization and works councils
This index gives a comparative payroll complexity position of one country compared to another.
Access to Laws, Regulations
When analysing whether to add a new country to the global payroll portfolio, it is important to understand the availability of official documents. Most of the countries provide free online access to the laws and regulations. Some even provide a relevant summary of the applicable laws and regulations for the benefit of employers and employees, like in Australia and New Zealand (ANZ) and European regions. However, updated laws are not available in some countries and, if they are available, they aren’t available in English as in most of the Middle Eastern nations. In such cases, a secondary source of information should be identified.
Liaison With Authorities
Liaison with local authorities can provide first-hand information on the statutory queries and upcoming updates. It can also help in resolving reporting issues. In most of the countries, authorities have started to have social media accounts which can be a source of reliable and timely updates. In many countries, ticketing system, email IDs, or contact numbers of the authorities are available to directly resolve any payroll issue.
Local Payroll Consultant
There are many countries where updated laws and regulations are not easily accessible, are available but not translatable, or a liaison with authorities cannot be established. A good local payroll consultant must be able to do the following:
- Have experience with payroll activities and reporting
- Interpret payroll laws and regulations
- Be able to contact the local authorities by visiting their offices to obtain first-hand information
- Be able to communicate the upcoming payroll changes timely and accurately
Remember how important it is to find a reliable local payroll consultant.
Existence of Other Global Payroll Vendors in Market
It’s always a good idea to know whether another payroll vendor is available in a particular market before an organisation attempts to add a new country. This becomes important as there can be challenges in establishing a local office in that country. Some of those challenges include meeting and addressing registration or certification requirements before selling a payroll product or not knowing that there can be restrictions in operating a local payroll while in a different country.
There have been instances where the payroll complexity was not adequately identified at the initial stage and later resulted in failed implementation of the project. If other global payroll vendors exist in a particular market, then it is important to understand the operation model. Is the vendor managing payroll in the given country through in-house technology by merging with a local payroll vendor or by contracting with a local payroll partner to process payroll at the back end? This analysis would give insights on the underlying complexities and additional efforts that might be required in assessing the market and approach.
When deciding to add a new country to the global payroll platform, it is important to understand the different types of taxes that impact payroll in that country. There can be Pay-as-You-Go/Earn (PAYG/PAYE) tax, a fringe benefit tax, payroll tax, employers’ levy, or professional tax, etc. It is also important to understand how these taxes are calculated, who must pay, and when are they leviable.
In some countries, these taxes are leviable at federal or state level or both. In some countries, no tax is withheld from salaries, like in Gulf Cooperation Council (GCC) nations. However, employers in some countries only withhold taxes when employees permanently leave the country, like in Singapore for instance. In some countries, additional taxes are paid by employers on the total wages paid, like state payroll tax in Australia. In some countries, employees must pay additional tax, like the professional tax in India.
The method of tax calculation also varies from country to country. For instance, in India, annual tax rates are applied on estimated annual taxable income to calculate monthly withholding tax. In Australia, different PAYG tax schedules are used as per the nature of income earned by an employee. In Norway, withholding tax is determined by an employee’s tax card. In some countries, annual tax rates are applicable, but they are applied on the actual cumulative income rather than the estimated annual income.
Pay frequencies also impact payroll complexity. In some countries, such as in the Republic of South Africa and Australia, withholding tax calculation varies per pay frequency and the tax tables are accordingly applied. Pay frequency may also impact reporting obligations where payroll reports are submitted on or before the payday.
Huge penalties revolve around employment law compliance. If an employer fails to pay correct salary or wage amount to employees—besides large penalties and fines—the employer’s reputation may be tarnished or the employer may risk imprisonment. This further creates liabilities for the payroll vendor.
It is important to understand the extent of how employment laws impact payroll. Of course, other factors should be considered, particularly in parts of the United States, Australia, and regions of Europe where employers need to ensure compliance with collective bargaining agreements, awards, industrial agreements, or enterprise agreements.
These agreements provide for better benefits to the employees, and they are updated regularly. Employers must ensure that the benefits they provide across the different classes of employees are at par with these agreements. The employment agreements and enterprise agreements should also be updated when the national and local employment laws are updated.
Method of Report Filing, Specifications to Develop a Report
When adding a new country to your organisation’s global payroll platform, it is essential to understand which reports are to be filed with the authorities, which are submitted to the employees, and which are to be kept as records. There can be huge penalties for misreporting, late reporting, or not maintaining the reports for the required time period.
Global payroll professionals will most often identify the reporting requirements but when it comes to developing the same in payroll software, many other factors are missed. These issues may be because of the report format, the mode of filing, and/or the inter-linkage among different payroll reports, particularly, when the payroll reports to be filed are in the format of txt, csv, xml, etc. It is important to verify the specifications provided by authorities and to understand how the information is filed (i.e., through manual upload or download or by integration of payroll software with the official portal). Minute details such as date formatting, decimals, mandatory or optional fields, permitted values, or length of fields should be carefully considered to avoid report rejections at the time of filing.
The best ways to avoid errors while creating payroll reports in these formats are to have a direct connection with local authorities and/or to use the official test environment—if available.
Local Office Registration to Sell Payroll Product or Offer Payroll Services
It is important to understand if any local office registration is needed before a payroll product is floated in a foreign market. Some countries do not need a company to have a local office to manage or process payroll across borders, while others require the registration of a local office for business and tax purposes.
Most of the European countries require companies to establish a registered local office before any payroll services or products are rendered/sold locally. It is also important to understand the types of local office—branch or subsidiary—that can be established and the legal requirements and obligations of the same.
Certification of Payroll Product
Some countries do require certain certifications/recognitions to be obtained by a payroll software before it is sold in the market. In some countries, even if such payroll certifications/recognitions are not mandatory, they are highly preferred and sought after by the users. Some examples of these requirements can be HM Revenue and Customs (HMRC) recognition in the U.K., whitelisting of Single Touch Payroll (STP) enabled payroll software in Australia, and Inland Revenue Authority of Singapore (IRAS) validated payroll software in Singapore for Auto-Inclusion Scheme (AIS) for Employment Income.
The payroll department handles a lot of sensitive personal employee information and companies are legally required to protect sensitive information, including client and employee-related information, to make sure that such data is encrypted and only shared via a secured network.
The European Union’s General Data Protection Regulation (GDPR) has led to a new surge in data security and rules related to the protection of natural persons with regard to the processing of personal data and rules relating to the free movement of personal data.
International companies need proper procedures for adhering to data security laws and protecting employee information while managing multi-country payroll.
Tracking Statutory Updates
Maintaining compliance is a constant challenge for a global payroll provider. A few measures can be taken to always ensure payroll compliance and to timely track and incorporate legal updates. As a reminder, these measures include the following:
- Subscribing to updates by authorities through their official websites
- Automatically tracking legal updates using a tool instead of manual tracking
- Partnering with local payroll consultants where the official sources are limited or are not updated timely
- Liaising with authorities and officials by visiting the offices and/or following them on social media such as Facebook, LinkedIn, Twitter, etc.
- Connecting with global and local payroll associations
Adding a new country to a global payroll platform is not an easy task. Aside from understanding the local payroll requirements, it is also important to integrate the same with the global platform to make the user experience seamless. A well-defined approach towards adding a new country can also shorten the learning curve for global payroll professionals. The above are only some of the key factors that can help in successfully maintaining multi-country payroll operations and providing an extensive coverage of possible scenarios.