Entering new markets, hiring from a global talent pool and building a brand that has worldwide recognition is an exciting opportunity for any employer. However, it also brings one of the most daunting administrative challenges; managing payroll for staff in other countries.
Sending money to employees overseas is rarely as straightforward as a direct deposit. Exchange rates, local tax requirements and benefits/compliance regulations can vary and change quickly. If mismanaged, these variables can result in compliance violations and unhappy employees.
The four main complexities of global payroll
1. Currency exchange and rate fluctuations
For workers being paid in their local currency, a company must account for exchange rate fluctuations when paying a fixed salary in AUD. When converted to euros, yen, pounds or other currencies, the purchasing power of an employee’s pay may be eroded, leaving them feeling underpaid.
Businesses also need to factor in transaction and currency conversion fees, cross-border wire transfer charges, and the time it takes to process multi-currency payroll.
2. Tax laws for employers in different countries
Every country has its own payroll tax and reporting laws. For instance, in Australia, the business is responsible for Single Touch Payroll (STP) compliance, but in other countries, payroll taxes may have to be filed monthly, with separate contributions for social security and pensions, and income tax withholding.
In-house payroll teams in Australia will need a solid understanding of the tax laws in each country in which they employ people. Mistakes can have serious consequences, including financial penalties or even restrictions on doing business in that market.
3. Employee benefits and statutory contributions
Most employees also expect certain benefits to be part of their package. These may include healthcare insurance, pension contributions, annual leave and more. These costs can range from 20%-30% of an employee’s overall compensation.
Employers may be required to make social insurance payments or provide mandated leave allowances. For example, in Japan, employers are required to contribute to social insurance on behalf of their workers. In France, an employer covers a percentage of their employees’ health benefits.
For Australian businesses, the HR and payroll teams will need to ensure these benefits are managed and paid accurately and on time, to stay compliant.
4. Employment laws and employment classifications
Australia has its own Fair Work regulations, and so do many other countries. Confusion over employment versus contractor classifications can result in legal issues, including payments instead of notice, and more.
Working hours, overtime, vacation days and severance obligations are other areas where employment law may differ significantly from one country to another.
Why payroll outsourcing is the smart choice
Outsourcing the payroll function is a good way to overcome manual payroll errors while ensuring compliance with tax and other regulations. Choosing an expert payroll provider in Australia that specialises in multi-country payroll outsourcing is often the best route. This is because it allows employers to reduce friction and focus on the core function of their business.
- Comprehensive local expertise: Outsourced payroll providers in Australia specialising in cross-border payments have local tax experts and human resources in each country where they do business.They stay updated on the regular legislative changes that would otherwise make you fall behind and not be compliant with your clients.
- Scalability and flexibility: Whether you onboard one employee in Singapore or 50 employees in the UK, your payroll needs to scale up and down to accommodate your business's needs without you having to scale your internal resources.
- Automation and technology integration: Payroll providers have invested in creating customised software to make remote work seamless for employees. Cloud-based applications mean HR teams and finance in Australia can access systems to manage time tracking, benefits, and payment processing in multiple currencies.
- Employee satisfaction and retention: By being paid on time and in their preferred currency, with the correct benefits attached to the salary, workers are more likely to trust you as an employer.
- Reduced costs and risk: In-house payroll has hidden costs in terms of training, upgrades and maintenance, non-compliance fees, and headcount. Managed payroll outsourcing will reduce all these costs for an organisation. There will be an inherent reduction in risk as there is less possibility for errors or non-compliance. Pricing models are also predictable and transparent for managed payroll services.
Preparing for the future with a global payroll strategy
International payroll is becoming a “must-have” for many businesses, rather than a “nice-to-have” option. More employees are working remotely, and an increasing number of employers are looking to hire staff from overseas. Hence, you need a global payroll strategy to future-proof your business.
Here are some best practices to achieve it:
- Partner with one or more trusted payroll providers in Australia. They offer expertise, experience and advanced software.
- Technology is key. Use the cloud to integrate seamlessly with time tracking and other tools.
- Keep up to date with compliance changes. Employment laws, tax requirements, and reporting obligations can change frequently, so it’s essential to monitor these changes and update processes as needed to remain compliant and avoid fines or reputational damage.
- Keep communication open with employees. Workers appreciate transparency and will understand some of the challenges around being paid in different currencies or dealing with rate fluctuations.
- Regularly review payroll packages and payment structures. The laws and employee expectations change over time, and these need to be reviewed periodically.
Running payroll abroad is more complex than a spreadsheet and a currency converter. For Australian businesses expanding their operations overseas, outsourcing services offer agility, accuracy and peace of mind, providing the know-how to manage a payroll for foreign employees anywhere in the world.
There is much more to international payroll than meets the eye. With cross-border employment, companies are faced with the real challenges of tax, compliance and getting it right in a foreign environment. The consequences of getting it wrong can be costly, both in financial penalties and employee dissatisfaction. For a business that is just starting out on its globalisation journey, integrating outsourced accounting services with your payroll gives you a seamless base to build upon.
At Global Remote Partners, we offer payroll and compliance services customised to meet the unique needs of each of our clients. Our experts take care of every detail to ensure accuracy and provide peace of mind for our clients to expand into new markets with minimal risk. Partner with us today and let Global Remote Partners manage global payroll so you can focus on growth, not administration.