Businesses are moving quickly to adopt remote work in order to expand their workforce, provide local support to clients, and hire top talent anywhere in the world.
Many were motivated by the coronavirus pandemic. Others had been planning a gradual shift from office work to remote work but accelerated the process in response to circumstances.
While remote work is nothing new, implementing the policy on a large scale requires careful planning. There are significant legal question, budgeting demands, and workforce management issues to consider, along with the ongoing challenge of maintaining your corporate culture and identity.
Turning your company into a distributed workforce too quickly without a plan can cause unforeseen problems later. The time to think the process through is now, especially if circumstances are forcing your company to adjust on the fly.
At the same time, remote work has many advantages and opportunities. With proper planning, you could move to the cutting edge of workforce management, especially in an era when the future of work is only starting to take shape.
Benefits of a Remote Workforce
There are many good reasons to switch to a fully or mostly remote workforce.
- It’s an easy way to scale globally, expand rapidly, and reduce labor costs. The big expense of a central office – along with the electricity bills, travel costs, and related expenditures – is either eliminated or reduced.
- It provides maximum flexibility in growth planning because it does not force a company to settle in any central location in any particular country. That’s particularly attractive in these times of volatility and uncertainty.
- You can hire talent anywhere in the world, not just among the people within commuting distance of your company. That opens opportunities to access people with new ways of solving problems and speak more languages, increasing the scope of your services.
- You can provide hands-on service to your clients by hiring a workforce wherever they are located. That could be a crucial edge over your competition. You always have the ideal workforce for any situation.
The Challenges of a Global Payroll
The mission of payroll is simple and straightforward – pay every member of your workforce correctly and on time, every payroll cycle. When it comes to a global payroll, the mission is exactly the same, but with complexity that makes it at three times more difficult.
Each country has its own tax and labor regulations that seem to be in a constant state of change. At the same time, governments have increased the liability on companies to comply with ever-stricter regulation on social benefits. With the passage of GDPR in Europe and similar legislation beyond, data privacy has become another payroll responsibility. Compliance has become a major challenge, and it grows increasingly difficult with every country added to the mix.
Adding new countries means adding more laws to navigate, and a host of other complexities. You are likely to have a new language, different salary and benefit expectations, and additional currencies to handle. Payroll managers have to reconcile numerous data streams in different styles and formats, also in different languages.
More specifically, payroll calculations rely on multiple data points and sources, employees (or their managers) need to report hours and expenses, departments within companies report on commissions and benefits and verify employee data. Payroll also need to know all the taxes to pay and the rates, which often contain complex formulas that vary from worker to worker. Even contracts are not static documents and are often updated over the course of employees’ time at a company.
Even with all of the information, It’s not as simple as writing a check to an employee at the agreed-upon rate. For each payroll cycle, companies need to transfer funds to three categories of recipients, with as many as eight different entities to pay:
- Employees – Every paycheck to an employee requires tracking salary, receiving accurate and timely time and attendance and expense reports, and upholding variety of contractual obligations, including commissions, bonuses, mandatory benefits like workers compensation insurance, and non-mandatory perks like travel costs and meal vouchers.
- Tax and Government Authorities – It is the employer’s obligation to withhold all federal and local taxes and social security taxes on behalf of the employee and deliver them to the proper authorities. In addition, employers pay their own tax on the employee. Some countries have as many as four different tax authorities, all of which have their own rates and requirements.
- Benefits Providers – All of the benefit employees receive are administered through their own vendors. Many countries obligate companies to offer pensions, and payments need to be delivered to an insurance company providing the pension. In most cases, every benefit offered by the company will have its own provider in every country. On average, employees receive between one and three benefits. That’s true for each employee in each country. What if your company hired in 10 countries? That would be 10 complex streams of payroll data to reconcile, each using a different reporting tool and its own style.
Each country has its own mandatory and non-mandatory benefits (pension system and superannuation plan) time off requirements, and overtime rules, all of which require constant monitoring because of constant changes. Transparency is virtually impossible, and employee satisfaction is difficult to monitor, leading to high rates of employee churn. Compliance and accuracy are time bombs waiting for a trigger.
Trying to bypass much of the complexity by hiring independent contractors instead of salaried employees comes with its own risks as governments crack down on misclassified workers at high rates. Immigration permit hurdles are also rising.
The only way to navigate a global payroll and benefit from the opportunities globalization offers is to automate payroll. With an automated system like Papaya’s, compliance is simple, data collection is streamlined, and all information is standardized into a single workflow. Payslips are automatically generated in the correct language and payments are delivered in the correct currency, and data errors are eliminated entirely.
Common Pitfalls and How to Avoid Them
Rushing into remote work at a large scale and hiring globally could trigger significant issues in compliance, spending, and management. These are best addressed right from the beginning, at the planning stage.
1 Accidental Non-Compliance
Compliance is one of the biggest challenges when hiring workers abroad, and one the most vulnerable parts of payroll process. The complexity of payroll in many countries is growing. Tax laws change often, so even if a company is fully compliant at the time of hiring, laws are liable to change and the company can suddenly discover that it owes back taxes on some employees, or even worse, fines for failing to pay new tax rates.
Beyond paying taxes correctly, compliance problems can take many forms. Companies can easily trip over the nuanced overtime regulations in some countries. Reporting deadlines are easy to miss, and bring a host of issues in their wake, including disgruntled employees who expect their paycheck to be correct and on time, every time.
Many companies outsource payroll to local payroll providers. In most cases, those providers collect and store the data on their own, In a crisis or emergency, the provider may not be available and the company will be unable to access the data to pay its workforce, leading to numerous compliance violations and harming employee trust.
While companies using manual payroll systems may be able to stay compliant when their workforce stays local, the challenge grows exponentially for every new country added to the payroll. Since hiring anywhere is one of the key benefits of a remote workforce, the only way to avoid accidental non-compliance is to use an automated system backed by a company with a local presence in the country. The experts stay on top of changes and the automated payroll system alerts you when you need to make a change.
The same is true for data privacy, which as emerged as a crucial area of compliance with the advent of GDPR and related regulations adopted in many countries. Payroll contains a great deal of personal data about each employee, including the name, address, and bank account information. A breach of payroll privacy could make anyone extremely vulnerable to identity theft, even if the payroll itself is protected. This is particularly true in a manual process. A cloud-based, automated payroll system could ensure data privacy and allow for safe channels for data transfer.
In addition, contingency planning for payroll means implementing a system that will work under any circumstance. That means relying on technology, not people who may not be available in a pinch.
2. Breaching Employee Rights
Employees enjoy different levels of government protection, often in the form of mandatory benefits. These vary from widely from country to country. France, for example, has a complicated policy on overtime pay that is based on limiting how many consecutive weeks someone can work more than a certain number of hours. Austria grants employees with more than 6 months of service 30 days of paid leave.
Like other types of global expansion, hiring remote workers in different countries is best done with support from a local payroll expert, such as an accountant or a law firm that specializes in employment law. It is better to get guidance in advance than to pay the penalties for violations after the fact.
3.Underestimating the real costs in budget planning
Just as mandatory benefits vary from country to country, so do local salary expectations. In addition to the base pay, some countries have mandatory bonuses. For example, in many South American countries, employees receive a 13th salary as a bonus. In Argentina, the bonus is paid in two parts, in June and December. In Brazil, employees a 13th salary and a mandated holiday bonus that often amounts to a 14th salary. In the Netherlands, employers are obligated to pay their teams an 8% holiday bonus.
Without advanced knowledge of the local customs, including mandatory extras, businesses are liable to underestimate costs and come up well above budget. Taking the time to learn about the unique salary expectations can make budget planning more accurate and eliminate unpleasant surprises at the year end.
More importantly, smart decisions come from being able to see the whole picture at a glance. If you have to rely on combing numerous streams of data to see the true picture of your workforce spending, you are relying on guesswork and estimates. Only a system that streamlines spending into a single dashboard and provides essential business intelligence equips you with the information you need.
4. Misclassifying independent contractors
A great way to save money on employment costs is simply to hire independent contractors. These are self-employed workers hired for short term projects. As independents, they do not receive government protection like other types of employees (no overtime pay, no pension payments, no minimum wage). Employers pay no employee taxes to hire them.
Sounds like a great deal. After all, the gig economy continues to grow as more people opt out of traditional employment. And it is – as long as you don’t treat them like employees. If you direct the contractors on how to do the job (not just the result but also the process), exert financial control over them, and if they provide a permanent or regular service, a court may rule you in breach of contractor misclassification.
Countries are cracking down on classification violations at a high rate, both to protect contractors from exploitation and to collect the proper taxes from employers.
Developing a Long-Term Remote Work Strategy
Moving to remote work is more than simply changing from an office environment to a distributed workforce. In the long run, taking advantage of the opportunity remote work offers means building a global vision.
This starts with implementing automated tools that will allow your company to grow. For a global company, that means choosing a workforce management platform that can serve as a one-stop-shop for your entire global strategy. It must be able to handle the entire life-cycle of your workforce, from on-boarding to termination, and cover all types of workers, including regular salaried employees and independent contractors. It must also be capable of cross-border payments.
The workforce management tool must be able to bring all of the payroll data for all of the countries together into a single stream that provides a grand overview of the entire global team. Without that unified viewpoint, it becomes impossible to keep track of payroll spending. It leaves you guessing and estimating – precisely what you want to avoid as you grow in global scale.
Implementing these tools from the start can prevent you from getting overwhelmed by the complexity of global growth. As workforce management grows more complicated, good long-term planning can keep it simple, smart, and secure, and it can keep you in control of spending.
Building Company Culture in a Distributed Team
A distributed workforce, which may include employees in many locations spanning a variety of time zones, require a different type of management to coalesce into a single team. With no central office, management must make a special effort to infuse the workforce with the company’s unique culture and identity.
Planning for long-term success means working to build a One Office mindset. That starts with making the employees feel that they are a priority for the company. If management adopts a unified mindset, the workforce will follow suit.
The mindset should be backed up with regular “all hands” meetings where everyone hears the same message from senior management at the same time and has an opportunity to ask questions. The gap between meetings should never be too long.
Just as importantly, everyone should use the same communications tools. That means everyone will always know how to reach everyone else, even if they are in a different time zone.
Finally, even a distributed team needs to meet face-to-face once or twice a year. Depending on the size of the company, plan at least one company-wide off-site meeting so that people can interact in person and deepen their level of interaction.
Hiring new employees can be a challenge when there is no central office for people to visit and meet with management. However, the truth is that hiring is one of the biggest advantages to a distributed workforce. Talent can be found across the globe – with as much as 40% of the global workforce already working remotely.
The challenge is getting the word out when you need a new employee. Use all of the communications tools available – social media channels, newsletters, job boards, and even your corporate blog, if appropriate. Offer your existing employees an incentive to help you find suitable employees and they will use their own networks. For tech firms, many companies find employees through recruiters.
Finally, it’s easy to find inspiration from companies that have thrived in distributed work. Gitlab is the largest fully distributed workforce in the world. InVision is another large company with employees around the world and no central office. Both have gone through the trial and error of the method, and are extremely generous with advice that can be helpful at any stage.
Get the Papaya Experience
Papaya Global is the payroll and payment platform for the new world of work. It is the ideal solution for managing distributed teams.
Papaya offers a total workforce management solution supporting all types of global workers (payroll, EoR, and contractors) in over 100 countries. The automated, cloud-based SaaS platform provides an end-to-end solution, from onboarding to on-going management and cross-border payments.
The automated platform ensures payroll compliance, provides benefit management, and ensure data privacy in compliance with GDPR. Papaya’s knowledge center provides updated information on salary benchmarks, mandatory benefits, tax rates, and more – everything you need to know before hiring overseas.
Contact us for a strategic consultation. We can help with budget planning, compliance, and a plan for management and communication for your distributed workforce.