How to manage global payroll: a guide

Managing a multi-country workforce is a complicated task that depends on a range of factors, so we’ve broken it down into four clear sections to make things easier. Get your ducks in a row from the start and you’ll find everything becomes a lot easier.

Partnering with a specialist in global payroll services will take away a lot of the hassle, but it still pays to know the basics of how it works before you hand over the reins. For one, it’ll mean you know which questions to ask when you’re talking to an outsourcing service and for two it’ll mean you know just why they’re so useful to have on your side.  

1. Sort out your scheduling
2. Understand tax compliance
3. Organise international payment systems
4. Stay compliant with local labour laws

Sort out your scheduling

First off, you’ll need to think about organizing your payment calendar to make sure that you don’t miss deadlines or accidentally trigger miscompliance penalties. Rather than having one overarching schedule, you will have to tailor payment schedules for different sections of your workforce. 

Scheduling is not just about paying your workers, though, as you will have to make payments to institutions such as tax authorities and social security funds, which may have differing deadlines. For example, in India, this means paying income tax withholding in the first week of the following month and social security payments in the first fortnight. 

While monthly salary is the global payroll standard, different countries have different deadlines and norms for payment, so there may need to be flexibility built into the system. For example, Colombian workers may expect to be paid fortnightly as is usual in many fields there. That will incur extra costs, as will any weekly payroll you are running.

European workers typically have an annual salary, divided into 12 equal payments. However, in Latin America there is usually a monthly salary paid 12 times, plus a 13^th payment as a mandatory annual bonus. In some countries there is even a 14^th salary!

Working across borders means dealing with time differences and global payroll is just the same. Remember that payments made on one working day may arrive on another if time differences are large. That could mean late payments and consequent fines, so make sure you keep on top of this, ideally paying a day or two ahead of the deadline to avoid mishaps. 

Technology is an integral part of this, as it can help you automate the key schedules and map time differences automatically. Modern payroll software platforms make all of this much smoother and remove most of the headaches related to international payment processes.

Understand tax compliance

Next, it’s time to look at the always thorny area of tax compliance. Every country has its own peculiarities, although most jurisdictions will require you to register with the local tax authority, withhold taxes from employees and in some cases make employer contributions as well.

A key part of compliance involves reporting to the local tax authorities, in some cases after each payment. This will often have to be done via the official platform operated by that jurisdiction, for example the Indian efiling portal for income tax and EPFO Unified portal for social security by a local payroll specialist.

This is where local experts and accredited professionals in the field are really worth their weight in gold. While some jurisdictions have relatively stable tax codes, others are volatile and have frequent updates and adjustments. Global payroll requires worldwide expertise everywhere you have salaried workers.

Tax withholding is often the employer’s responsibility, such as PAYE in the UK, and requires paying a portion of the employee’s gross salary directly to the tax authority. In some jurisdictions, such as Hong Kong, this responsibility falls on the employee. However, it is generally under the purview of the employer on a global level. 

Withholding is particularly tricky if you have a lot of employees with variable pay thanks to commissions and/or performance bonuses, as tax codes usually consider annual pay while withholding must be done monthly, requiring estimations to be made and potential rebates.

Employer contributions, on the other hand, are payments calculated from an employee’s gross salary but paid separately, again directly to the local tax authority, social security or other institutions. This means that in countries with high contributions, such as Brazil, the true cost of employing a worker will actually be 135-144% of the gross salary.

Luckily, modern accounting software programs take most of the strain out of this process. However, even the best software is only as good as the people managing it, so you need to make sure that you have worldwide payroll experts making sure your books are in order.

Organise international payment systems

How to actually pay your workers isn’t as straightforward as you might think. While direct payments into workers’ bank accounts is the most common, you may have to provide physical paychecks or even cash in some locations where bank accounts are less commonly used.

To keep your records in order, direct payments are by far the most convenient option, especially for international transactions. However, it means you need to be extra careful with scheduling to avoid late payments.

The bread and butter of global payroll is full-time salaried employees but also includes hourly-paid workers and contractors. On top of that, you may be paying performance-related bonuses and/or commissions for sales. This means it will likely vary from month to month.

International payments may involve delays or lags between the money going out of your account and onto the employee’s bank balance. That needs to be managed carefully to avoid missing tax compliance deadlines as noted earlier.

Money laundering controls will also come into play, as money entering or leaving some countries is subject to checks and controls to ensure it comes from legitimate sources. Again, this can lead to delays or rejected payments, so make sure everything is in order.

Make life easier for your employees by setting up a system that can pay them on time and without hassle for them with local authorities. While it may create a little extra work for your payroll accountants, few employees will tolerate persistently late payments, not to mention the consequences of missing compliance deadlines.

Stay compliant with local labour laws

Finally, you have to make sure you are across the labour laws in every jurisdiction you operate in. This covers areas such as minimum wage, overtime rates, mandatory benefits and severance liabilities. Benefits vary widely across countries, meaning that you will have to tailor employment packages to jurisdictions in order to stay in compliance.

Regardless of your global pay structure, you will have to pay at least minimum wage in all the jurisdictions where you operate. In nations such as the UK, this may be hourly, while much of South America it is monthly. In the US, meanwhile, it varies according to state. 

Your workers need to be correctly registered as employees to be on your payroll. The precise definition of who is and is not an employee does vary, so you need to make sure you are not misclassifying workers. In some countries, there are punitive sanctions for this.

Again, this is where you need expert guidance in every location where you operate. Changes in regulation are common in some areas, meaning you have to keep on track of all the updates in real time. Minimum wage in Argentina, for example, can change monthly.

With long-serving employees, you will potentially need to review and update contracts to reflect changes in labour laws. Also, if you are moving employees between regions, you will may well have to adjust their compensation package to stay in line with local regulations.