With so much riding on payroll, it’s not surprising that the payroll department is one of the slowest sectors to adopt new innovations. When paychecks are incorrect or late, employees suffer the immediate consequences, but companies pay in the long run through loss of trust, and that leads to growing rates of employee churn.
In many companies, the tried and true tends to win out even when new alternatives appear that could save time and reduce costs. People feel safer sticking to the status quo that works because a new process could result in unforeseen errors.
It’s a reasonable response to the heavy pressure of payroll…but only up to a point. As payroll grows increasingly global, the old system of manual reports and spreadsheets becomes untenable.
In fact, the status quo is already at its breaking point. According to a biennial study of payroll complexity carried out in 2019, there is already more payroll data to manage. “The average number of data fields needed to calculate the payroll of a single employee is now 19,” the report states. “This is a rise from 17 in the 2017 report. More than one third of respondents stated that they manage at least 21 data fields.”
A global payroll solution requires new steps to unify and simplify the process. Keeping up with all the attendance reports and salary updates, not to mention the various tax codes, employment laws, and benefits, is overwhelming in a single-country payroll. A global payroll requires more advanced data consolidation and a clear view of all spending. When payroll spreads to several countries at once, it becomes difficult to track otherwise.
A global payroll is exponentially more complex, especially when a payroll is divided between people at all different types of employment options. Any given company may include some combination of full-time employees, short-term contractors, and part-timers.
Stages of Payroll Planning
Global payroll management is an operational role that begins after a legal entity is opened, employees have signed their employment contracts, and the HR department has completed the on-boarding process.
The groundwork for success, however, starts much earlier:
- Connect with Local Partners
Constructing a global payroll starts with researching the country where the hiring takes place to learn about the local customs, salary expectations, and common benefits. That information is necessary in order to make an appropriate offer to prospective employees.
Getting the offer right is a major challenge for companies exploring global expansion. It is essential to have a local partner on the ground to advise on all workforce related matters and keep up with changes in tax codes and labor laws as they happen.
Much of that information is available online. However, the payroll manager will not be a genuine authority on compliance in every country on the global payroll or be able to stay up on local legislative changes in numerous countries. The most reliable sources are those who have a vested interest in accurate information, such as those who carry out or advise on payroll in those countries. They will also have the knowledge of local cultures and markets. That knowledge can hasten the learning curve about these issues for external companies.
By the same logic, it is also advisable to have a local expert draft the employment contract. A contract is likely to include all of the legal aspects of employment as well as commonly practices employees in the local market. Only a local expert will be fluent in both.
- Ask the Right Questions
Having a local partner will go a long way to ensuring legal compliance. But taking a pro-active position in the payroll journey requires knowing which questions to ask the partner or to research in other sources. Formulating the right questions may even precede finding a local partner, but for the most part, “knowing what you need to know” is a parallel, early step in the hiring process.
The following questions are a good starting point:
- What are the standard working hours and number of annual vacation days?
- What are the mandatory benefits and non-mandatory benefits in the local market?
- What taxable items must appear on the payslip?
- What documents is the employer legally obligated to collect and hold for each employee?
These questions cover some of the variance that a company is likely to encounter when working in different countries simultaneously. For example, in some countries pension is part of social security, and in another country, it will be a benefit on top of social security.
Another example is medical and life insurance. In Italy, it is considered a taxable in-kind benefit. The amount the company pays is added to a payslip. But in the UK, it does not appear on the pay slip and requires a different form to complete.
That’s why the it is best to learn as much as possible about the particular country’s payroll procedure and pay slip. But a local partner remains essential to help a company navigate the differences that often appear from country to country.
- Collect the Necessary Documents
Once the decision has been made to expand to a particular location and employees have accepted the offer and signed employment contracts, the onboarding process begins.
Companies are responsible for collecting and holding documents related to the employee. These documents vary widely from country to country, but most include some variation of the following:
- Worker identification number/social security number/Tax identification number
- Work visa/I-9 Worker eligibility document/W4 form (or local equivalent)
- Bank Details
- Application form/CV/Contact information
- Health and Pension benefits record
- Employee handbook (outline of company policies)
Some will demand other information, such as a birth certificate, proof of address (such as a utility bill), or even mortgage information (when appropriate). The legal obligations vary widely from country to country. So it is important to consult with a legal expert to determine exactly what documents are necessary for any particular country.
The company is responsible for ensuring the safety and security of all employee documents. The information is highly confidential, and with GDPR and related regulations, the penalties for mishandling the information could be severe.
- Integrate Global Payroll Software with Your Management Systems
After ensuring legal compliance and onboarding employees, the next step is to implement a payroll and payments solution. With the growing complexity of payroll at all levels, a manual solution will likely prove untenable. For companies that resist changing to digital and automated processes, this is the time to implement a new process.
At many companies, parts of human resources and expense management are already being managed digitally. The payroll and payments solution should integrate with those to ensure the smoothest process.
HRIS – a human resource information system, it allows companies to improve workforce management, plan HR costs, track hours and attendance, and more. Having a global HRIS makes payroll reporting quicker and easier by replacing spreadsheets and manual calculations.
Expenses management – a system to monitor employee expenditures that companies need to reimburse. The system makes it easy to track employee spending and to account for all of the outgoing payments associate with business travel and other employee-initiated costs.
Single Sign-On (SSO) – a security procedure that allows people to use one sign-on to access all of their applications. It prevents people from exposing their user names and passwords repeatedly each time they use a different application.
Papaya’s Payroll and Payments Solution
Hiring abroad or managing a global workforce can be a daunting task. Our mission is for you to regain control by offering complete transparency through direct access to our local partners, a consolidated overview of your global payrolls, EoRs, and contractors, and fixed pricing without hidden fees. The Papaya platform integrates with your HRIS and ERP and ensures full legal compliance. Team members are paid in their local currency and receive payslips in their native language through our secure worker’s portal – Papaya Personal.
See how Papaya’s global payroll solution manages on all aspects of payroll, including hiring, onboarding, managing, and paying a global workforce.