This is what the goal of international payroll services are supposed to address – the issues of local payroll being inefficient and not providing data for the euro or global HRIS systems. The goal of international payroll is to provide global reporting that is fed to the systems level. It is clear that a company that wants to manage multinational payroll set of business rules and controls to mandate a vendor set through service level agreements worldwide. The case that outsourcing is the only answer is another myth. Starting with a clean template and figuring how payroll should process and the solid business case as to why it needs to change does not mandate a move to outsourcing – no matter how many different vendors and methods companies have.
When it comes to managing multinational payrolls, it is clear that any global company is likely to experience a multitude of different payroll processes, technology, and vendor relationships. However, many of these international payroll services processes are not integrated. The sign of companies’ integration issues is ultimately the fact that global payroll managers in both local countries or for global outsourcing deals are not able to provide an overall cost or number of employees. This makes it nearly impossible to say if the state of a vendor set is providing you the value you think or even if a company is getting a bulk discount for the employees in each country. The issue that impacts the bottom line from a systems standpoint is the fact that all the vendors and internal payroll systems do not tie together, so the individual people at the local level cannot get the information they need globally or regionally.
Benefits of International Payroll Services
But to truly win from payroll outsourcing, companies must engage a quality provider who can reliably deliver service. This is not a small matter when dealing with service providers that must ensure 100% perfect pay accuracy each and every payday because the employees that receive their pay expect and trust in their employer to correctly pay them. And like any outsourced operation in a financial space, this is a table stake. There are numerous horror stories of how entire divisions of employees lost confidence in their ability to be paid correctly and on time when outsourced payroll went bad – even just once. Perceptron market studies confirm that five key challenges are of paramount concern to the international payroll department. When we see late, incorrect, or delayed pay errors, not only are gross changes quickly, but the employees can also become discouraged and quit working altogether. Moreover, any failure therein, regardless of fault, reflects directly on the quality of the employer. And the volume of gross widespread media and non-media stories have clearly elaborated these themes. Let us thereby acknowledge this policy first.
There are significant benefits to outsourcing your international payroll operations since these functions are nonstrategic and complex and usually consume significant resources, yet they do not generally result in increases in sales or market share for the company. In fact, they are often seen as “money pits” that consume cash without any business return. Outsourcing can transform a money pit into a strategic asset by introducing standardized processes, centralized controls and reporting, and most importantly, it can allow the company to focus on higher-value activities while the experts manage these residual functions.
Challenges in Managing Multinational Payrolls
Complex issues that are introduced through different countries’ tax matters typically entwine elements of tax treaties, tax contribution limits, employee withholding requirements, etc. Regardless of the issues underlying the payroll function (i.e., the size and talent level of a payroll staff and the sophistication of a payroll system), many operational payroll logistics are usually managed by employees with little to no understanding of payroll processing, form filing, legislation compliance, etc. In terms of the processing itself, a staffer may understand how to onboard an employee with all required/legacy entitlements but may eventually find themselves in a bind regarding the employee’s tax affairs.
It is essential that an effective and efficient international payroll delivery process be developed to manage a multinational payroll. Some firms develop their infrastructure by employing international payroll experts to address these issues, and many are hamstrung by the lack of payroll staff, vendors, technological tools, or experts who have experience working in many countries. The missing factors typically include the ability to understand and manage the local and in-country statutory requirements of all countries where a firm maintains a workforce. Some errors that are frequently seen cross-culturally fall into the category of typically non-tax issues. They include the lack of understanding of employment law (compiling and maintaining forms, addressing the needs of taxation, labor law regulations, etc).
Key Considerations for International Payroll Services
Whether you are a start-up company seeking a reputable global payroll service provider to complement your global expansion strategy or an established Fortune 500 company planning to outsource your current network of international payroll solutions, market research is essential while assessing the impact of international payroll services on your business. The United States has maintained its accreditation of being one of the most traded economies worldwide. As such, it is no surprise that our domestic wage and payroll tax processing services are perceived as easily receivable and comprehensible. However, for a U.S.-based company, managing international payrolls (processing wage and payroll tax filings for an employee or a group of employees working in a different country) is recognized as an unfamiliar engagement due to a myriad of nuances that a payroll professional encounters. Not only does the management of outbound and inbound international payrolls challenge the average payroll professional, but the distinctiveness of such a service also compels employers to thoroughly evaluate their company’s succession of ongoing compliance, internal communication, consistency, and risk tolerance.
Managing Multinational Payrolls: Strategies for International Payroll Services. Kevin Raker explores the key benefits, challenges, and decision factors you should consider as part of your due diligence when assessing the impact of international payroll services on your business. As a payroll manager or director, you’ll want to know the pros and cons of outsourcing versus managing taxes and compliance in-house. Key benefits of outsourcing international payroll services include key aspects of compliance for a multinational company, and decision factors to consider when evaluating international payroll service.
Compliance with Local Laws and Regulations
Given such a variety of aspects about compliance with local laws and regulations, SSO participation is one of the most widely recommended payroll process solutions for multinational companies. SSO can complement a company’s reputation and financial performance by providing effective customer-relationship management and adding value to any sort of operating businesses. Meeting compliance with local laws can help the company in various aspects of its activity, including compliance with local country regulations related to taxes, social insurance contributions, minimum labor wage and working hours, labor and employment rules, payment methods, banking norms, and other environmental laws. Compliance with these aspects of local laws and regulations is secured by SSO through both its administrative outsourcing nature and integration within local, national, and international regulations. The former component is registered to SSO reporting automation, as its compliance and management help companies to fulfill their general administration tasks and to maintain updated records on the managed employees. Meanwhile, the latter component is determined by SSO experience in managing employees in a number of various countries and different databases, as it provides support to local legislations as well.
Managing foreign payrolls compliance with local laws and regulations in several countries can be particularly challenging for human resources and finance managers of multinational organizations. The list of documents and particularities needed for conducting local payroll could be different from one country to another, the terms and conditions of the payroll process could differ significantly and are commonly strict. There are a lot of laws, regulations, and rules that must be followed when establishing and administrating a foreign payroll process. Also, it is important to ensure compliance of the company’s operations with local legislation to avoid potential legal and financial risks.
Currency Exchange and Tax Considerations
Advice on exchange can range from that of the now-retired personnel assistant who recommended buying and holding multinationally derived payroll currency to his secretary, to that of drivers, when working overseas, warning against premature exchange for fear of in-country obligations to pay legal expenses with after-tax money. With 50% of UK listed companies expecting revenues to decrease as a result of Brexit, these rates appear to be the only certainty. Nevertheless, multinational payroll users remain cautious. In this survey of 282 multinational organizations, the greatest concern was inflation, particularly in energy and commodity prices, followed closely by exchange rates and the regulation of the sectors in which multinational organizations operate. With time zones slowly succumbing to regulation and the information flow likely to redound to secure global exchange rates, the fear of rate management may soon diminish.
It is important to note that exchange rate management can be very complex. Tax regulations enacted in recent years in response to multinational corporate tax evasion provide for government-to-government sharing of vital offshore-derived income data. The sharing of information by bilateral tax exchange agreements, the vehicle for such information transfers, has the potential to reveal otherwise inscrutable trends in exchange rate management practices and the variability of financial information updated upon in destination countries. Although multinational corporations know of the frequency of currency exchange to enable in-country compliance payments, rate management becomes particularly difficult when the work is decentralized.
Data Security and Privacy
In many jurisdictions, obtaining pay and payroll details by fraudulent means is the first step in committing identity fraud – often to procure financial products or perpetrate fraudulent transactions on consumers’ existing accounts. In addition, payroll data theft may be used in a number of other ways to steal and embezzle. In most industries, years of valuable research and intellectual property may be accumulated, although the finance industry by far predominates in most prospective attackers’ eyes. Data belonging to finance companies or teams are almost entirely oriented towards the management of the direct and indirect relationships between parties, both individual and organizational, managing and processing millions, even billions and tens-of-billions of individual transactions in the process.
Payroll and HR data are considered particularly sensitive by most companies and individuals. While many types of information are categorized as personally identifiable information (PII) or personal data – name, nationality, tax ID, home address, etc. – the companies’ records of their employees’ level of earnings are also believed to be particularly attractive to hackers. While they could, for a variety of uses, make use of basic personal data, their main interest would generally be to get their hands on salary and similar personnel data.
Strategies for Effective International Payroll Management
Although the transfer to shared locations presents a challenge, not separate company entities deal with their HR and payroll operations. Platitudes like “working as one company” take on new significance if legal mandates require that your company acts as though it really were one company. Global payroll solutions are central to support this, so unless decision-makers are prepared to spend time focused on fixing legislative/compliance issues (and officials do work with companies that do not keep agreed legislation), companies need to invest in technology, a long-term strategy called co-sourcing. Most salaried employees trust payroll information and link an application (in particular the HCM system) where they can find key information and the HR or payroll help desk to handle the rare issues that do arise. By enabling employees with this self-service element, there should be a noted decrease in the traffic that drives HR and payroll operating costs higher, with the resultant improvement in response times and customer satisfaction.
In order to meet the challenges with global workforce management, development companies need broad and flexible technology solutions that provide organizations with the tools and services they require to increase the effectiveness of their support processes and cost-effectively manage HR and payroll tasks. Instead of piecing together disconnected components, a global payroll solution can help companies leverage an integrated information system for all vital international payroll processes. A global payroll solution is a step towards a shared services model where a single system supports processes for the entire company, no matter how many entities, and vastly reduces the process element for HR and payroll professionals while ensuring compliance. Payroll information needs to be shared with processes in 3 key strategy components.
Centralizing Payroll Operations
It is estimated that large companies, when they move to implement global payroll services, typically realize some centralization or consolidation of their payroll operation within the first phase of implementation. This initial step is often seen as the only logical way to advance; most payroll operations contain so many disparate processes that only by true consolidation/internal support structures can the buy-in for a strategic direction happen successfully. Going forward, the ‘preferred solution’ for many global payroll initiatives includes at least a component of standardization and centralization. The goal of centralization is not only to strip out repetitive activities and drive down costs; thus transforming the payroll function into an effective service delivery engine with advantages in leveraging the results of global payroll benchmarking. While all these benefits are very attractive to large companies, the challenges of redeployment, the introduction of risk, and the manageable inertia that can come with the delay in transaction and financial processes will hold many companies back from full-scale end-to-end integration models. Other delivery options are the retained payroll model delivered by an outsourced model and a self-service model.
The payroll advocates at several international payroll education sessions do not agree that implementing a shared services model to handle payroll is the ideal solution to the problem. The focus on payment accuracy, statutory compliance, and tax reporting require a depth of local expertise and resources that are difficult to substitute in the short term. This is true, especially for a function as sophisticated as payroll. The payroll cookie-cutter no longer fits the global bill. Design considerations will be organization size, cross-border relationships, the players, benchmarking, centralizing for efficiency, service delivery models, transaction process control and security, the centralized service model, the output centralized model, and key operating issues and insights.
Centralizing payroll into ‘centers of excellence’ has been a concept for those companies moving towards shared services, where the payroll expertise from various parts of an organization are housed under one roof in a main operation, thus eliminating band-aid programs or functions that may lack resources, knowledge, and optimization. Typically, this approach entails top-down governance, process standardization, process optimization, and performance metrics, all while being able to support the strategic transformation within Human Resources preparatory to a full-fledged shared services delivery model.
Partnering with Local Payroll Providers
Insurance is critical for pay assignments, and businesses face various hazards during engagements, such as the failure of software, the loss of personal information, ethical hacking attacks, the use of forged personal information or the personal information of employees, duty/compliance gaps, legal steps to make mistakes, incorrect execution of payroll activities, or acts and liability for damages. The insurance policy covers legal risks to the business, state, to the company and its errors and omissions. When selecting a supplier, it is important to understand which risks are shared, which insurance coverage is provided by the supplier, and which liability is outsourced.
In some cases, if a business is too small to set up in-country staff in certain areas, it is possible for an expatriate employee to be set up as the only employee for the payroll process, which would link to the ex-pat’s contractual employer, from whom the ex-nominee can be paid and which can pose a risk to the business from a regulatory point of view. Outsourcing allows a company to shed back-end responsibilities and allow an external company to execute the necessary functions in the background. The services that can be outsourced over payrolls include payment, deduction and settlement management, tax administration, cost filing, legal compliance and withheld amounts deducted to the bank account according to the contract of employment.
Implementing Robust Payroll Software
A review must also occur on personnel with a stake in the payroll process to make sure they fully understand the strategy. Fostering a culture of acceptance for the change amongst the user groups – the people who will be using the payroll software once implemented – is important to ensure project success. The people driving the project forward – the IT Business Analysts, who are intermediaries between functional payroll SMEs and the technical IT team – must be comfortable in the techniques used to deliver the payroll software and possess the skills required for requirements analysis. Refinement of the chosen implementation strategy is quite important to maximize the software interaction potential with the various types of data management systems that the client organization operates, and source systems that will send data to the payroll system once employed. Note that consulting with the various interfaces well ahead of development will greatly accelerate the development process later on when the functionalities are launched.
Multinational payroll processing can be complex. By leveraging payroll optimization strategies such as implementing robust payroll software, outsourcing payroll functions, and consolidating HR and payroll functions among other strategies, companies can be successful at managing their international payroll functions. Whether these strategies involve executing them by engaging in an in-house payroll software implementation, outsourcing the software to be centered internally, or fully outsourcing international payroll processing to a third party, once the strategy has been decided upon, it is important to heed advice on how to execute these strategies to achieve the desired global payroll results. If any of these implementations are performed, the organization should take the time to review the organizational culture and business practices to ensure it is ready for change.
Best Practices for International Payroll Services
The J. Peterman Company has partnered with General Information Services, Inc. (GIS), a leading provider of international payroll and global employment technology. This technology allows J. Peterman to run multiple foreign payrolls on one real-time international payroll system. Believe it or not, running multiple foreign payrolls using a local service provider or in-house results in several separate payroll databases. Imagine the constant reconciliation issues created by having to maintain these multiple databases. Because J. Peterman has employees in the Israel office who are paid in shekels, it corresponds to an Israeli bank account. Believe it or not, this was another conversation. So, J. Peterman co-chief Claus Kosta didn’t do a lot. When I run payroll, I need to see 2 invoices, 2 lines, and feeds. So, that’s just one of the features that come with working with an international payroll service provider.
I’m sure you’ve heard of the groundbreaking J. Peterman catalog. You know, the company made famous by the Seinfeld sitcom. Actually, the company has generated tens of millions in revenue using mail and online sales channels. In the recent internet age, websites have only brought in about 16 million dollars a year to boot! Even more impressive, the distribution center in Kentucky is run 24 hours a day, seven days a week. And yes, given these working hours, the company has a lot to spend on multinational payrolls. Imagine the challenge of producing payroll in an environment where the next payee may be one of many time zones.
Standardizing Payroll Processes
These processes will also help to ensure that your employees receive a fair and consistent level of service anywhere in the world and will enable your company to become benchmarked against such practices by organizations that have to collect information enabled by organizations that already actively practice such key values. With standardized processes, you can rationalize data collection methods and centralization acknowledgment administrative procedures in such a way that productivity and recognition in the level and sophistication of services are delivered to the workforce. It will enable you to project a professional image of maturity and coordination, just as if all your employees were to share the same office space, but globally separated.
By standardizing your multinational payrolls, your company will not only gain a much wider view of and more control over your global business costs, but you will also be able to provide your human resources and business clients with a high plateau of services anywhere in the world using global data. This will enable your company to appear more consistent and mature from a global understanding of complexity management and overall data management. This approach is also absolutely critical to leverage any type of global data management/reporting, as illustrated in Figure 1.
The conception of printing two payroll reports might not generate questions, but when considering over 100 countries’ processes, automation, standardization, and consistency of results might suddenly find themselves in the front seat of affordability concerns.
In order to provide your company with the key benefits of both process automation and global business visibility, it is critical to standardize your company’s global payroll operations and align with industry-standard best practices wherever appropriate. By following a set of standardized payroll processes, you can gain several strategic business benefits such as better visibility and more accurate cost control, improved production and business efficiency, and higher employee satisfaction through more timely, accurate, and standardized data.
Regular Auditing and Compliance Checks
Since the process of weekly or monthly payments run on one-on-one basis, they create a secondary control environment. As that work gets completed, time passes. These newly prepared payrolls are once again reviewed for the purpose of line by line checking. So every week some control environment is improved upon and even when one payroll for a particular country has already been audited, compliance checks continue during which significant defects are identified for the payrolls that are being addressed. Every month it may be 5 payrolls seen and verified what the auditors had seen. The errors and inaccuracies that are continuously increasing despite internal or external controls should thereby be identified at an early stage.
The first phase is the rollout and the formal testing within the new environment, and the second phase is the regular audit pace and the compliance checks. The period was chosen by the organizers to explore the operation of the payrolls, worker behavior, and compliance of employers. 4.2 Regular Auditing and Compliance Checks: After the implementation phase, regular audits would have to be carried out at predefined intervals in order for on off compliance with the various obligations and payroll accuracy to be ensured by the organization. One key objective in regular auditing is to support reduction and correction of payroll errors.
Continuous Training and Development
It really is easy to neglect the payroll team within a company and their payroll needs, as most companies do not actually see the importance of payroll until it goes wrong. Therefore, they really need to fully understand and appreciate the difficulties and responsibilities of their payroll requirements. Your international colleagues are often pulled into heavy technical conversations and payroll delivery supporting them to help with payroll queries and can help in the development of employees in areas which may have been previously hidden. Sharing knowledge can prevent a range of issues as the best method for preventing mistakes is through having open communication between departments. Trained payroll staff handled correctly are generally happier and more focused within their job roles, offering better service. They are much more likely to interact positively with other employees, and understanding the processes of the company as a whole, they are in a great position to be able to make a positive difference in the provision of payroll.
Continuous training and development are crucial factors in the happiness of any foreign payroll team. Training is a great way for the team to feel valued and supported within their role, as well as enhancing efficiencies. Employees who feel valued go above and beyond in performing for a company. Ongoing training is also essential for keeping track of payroll changes, as legislation is updated regularly. This ensures the company’s foreign payroll services are up-to-date as well, along with correct payments to HMRC. Furthermore, the payroll team members can facilitate employee growth where the company might see an area for improvement. It is good to use the latest methods for delivering training and to use it in a way that allows team members who may not be based in the office to take part in programs rather than exclude them. In the long run, it could be a big part of encouraging the rest of the company to appreciate the department.
