Remote work has paved the way for businesses to engage in international hiring. And while this has diversified their workforce, it has also introduced some challenges in processing pay and compensation.
Global Payroll compliance is a complex requirement for every business. It will cost you time and money when not adequately maintained. Every company must observe the varying labor laws, taxes, and social securities in each country to remain compliant. Failure to do so will cost any business their time and money.
This tedious process has led businesses everywhere to invest in tools such as an EOR or PEO services that ensures compliance and helps with payroll strategy. 36% of organizations worldwide have leveraged the expertise of payroll solutions to mitigate legal compliance risk. Though this task can easily be outsourced, having sound knowledge of global payroll processing will be beneficial when deciding on the best tools for your business operations.
To help you better understand how compliance operates on a global scale, we have prepared this document that should guide you through the basics and best practices to follow.
Understanding Global Payroll Compliance
Global Payroll Compliance is a process of managing employee salaries while observing the appropriate tax codes, designated work hours, bonuses, and other minimum benefit requirements in a given country, state, or region. Employers are expected to comply with any changes in the labor policies and apply them efficiently in the immediate payroll period. In this way, workers are financially protected during their employment, wherever they may operating.
To give you an idea of what a global payroll consists of, we have listed the following components:
- The Basic Wage or Base Salary is the amount the employee earns every payroll period before any adjustments are applied. This remuneration must be indicated in the employee’s contract and must follow their country’s ruling on minimum wage. The base salary will be the standard for further calculations in the final payroll.
- Taxes are statutory deductions that employees and employers must pay for every payroll period. These taxes may include federal taxes, social security contributions, national insurance, etc. Each country will have different sets of taxes based on its labor code. Tax rates or contributions may vary between an employer and an employee.
- Overtime Pay and other bonuses are additional payments that employees have rightfully earned. Overtime pay is the amount paid to employees for the extra work they perform. The pay rate usually depends on a national ruling or the collective bargaining agreement. On the other hand, other bonuses may or may not be statutory. An example of a statutory bonus is a 13th-month pay, which some countries observe on certain months in the year. Non-statutory bonuses may include transportation or clothing allowances, food subsidies, or even sales commissions.
- Other Deductions are non-statutory deductions that employees and employers may contribute to every payroll period. Examples of these deductions include corporate group insurance, medical insurance, loan reimbursements, etc. These are benefits that companies offer besides the minimum tax requirements from the nation’s employment laws. Payroll compliance does vary from country to country. And dealing with each component is quite a burden for your HR team. However, solutions such as EOR and PEO services ensures that these requirements are applied to each employee. Ultimately, it helps businesses navigate their way through these rules.
Importance of Payroll Compliance
It is a top priority for businesses to be on track with the regulatory requirements to operate. In case of a conflict, violators are penalized and fined, which may damage the company’s status in any country.
In addition to avoiding sanctions, global payroll compliance ensures businesses are on track with their finances and employee satisfaction. Ultimately, this will help companies operate seamlessly, establish financial integrity and promote employee retention.
Ensuring Global Payroll Compliance
Now that we have established the components of any payroll system and why it is important to follow them, we can discuss the steps for ensuring global payroll compliance. Below are the following:
Step 1: Review the labor laws in your employee’s place of residency
Upon onboarding an employee from the same or different country, employers must draft a competitive job offer that will include the minimum benefit requirements based on the region’s labor code. Employers must provide such benefits for compliance and to secure the potential employee’s acceptance.
The talent market is competitive. Employees are given a lot of options and positions to choose from to further their careers. As a result, employers use a competitive compensation package to entice these potential employees and ensure retention. Therefore, having a constant review on the labor regulations helps keep your talent acquisition strategy timely and effective
Step 2: Ensure accurate employee details
Once you have secured your employee’s acceptance of the position, it is crucial to accurately take note of their details. This will include their social security numbers, contact information, copies of certifications, national IDs, or other documents necessary for their payroll processing. Ensure all the information is correct and current to prevent any complications during payroll processing. It will help your HR team when crediting the tax deductions and contributions to the right employee.
Step 3: Enroll employees in the system
Using the correct information, employers may enroll a newly hired worker into their payroll system. For global payroll compliance, conversion rates and currencies must also be considered upon enrollment and shall be indicated in the employees’ contract.
Whether you manually or electronically process your payroll, it is essential to standardize it by creating a workable schedule for cut-offs, calculations, and salary release. Simultaneously, you must customize each employee’s payroll template based on the labor regulations in their respective region.
Step 4: Review employees’ work hours
Before sitting down at your desk and crunching on the numbers, employers and their HR departments must finalize each employee’s working hours during the payroll period. It should include any overtime hours rendered, unpaid leaves, and undertime hours. In some cases, employers will even have deductions for employees coming in late to the office. Having a final account of all of these will make the next step of the process easier and error-free.
Step 5: Calculate the pay
The vital step in payroll processing is accurately calculating an employee’s pay. After finalizing the employees’ working hours, employers must apply the deductions and additions based on their country’s taxes, benefits, and other factors included in their contracts.
The best practice is to create a breakdown(every debit and credit to their base wage) in the employee’s payslip and fill them up as you calculate their pay. In this way, you will only have to go through each employee once, and you can be assured that your payroll records and their payslips are accurate.
Step 6: Maintain a payroll record
Businesses must keep track of their money flow, including their company’s payroll. Payroll records must be stored in an organized filing system for easy navigation. At the same time, it must be kept securely and confidentially to protect employee data.
Most companies seek the help of payroll service providers like PEO and EOR for risk-free payroll transactions. These services offer a data-protected platform that organizes your payroll transactions. The best business practice is to back up your files to ensure that every expense gets recorded and accounted for.
Common Payroll Compliance Mistakes and How to Address Them
Global Payroll Compliance can be automated with the help of technological tools and services. But payroll processing is not always fool-proof since it involves human intervention. Mistakes will inevitably occur, but there are ways to prevent them.
We have listed below some common mistakes that even your HR department is guilty of committing and some tips on handling them:
Employee benefits vary from regular to part-time employees. If your HR department misclassified an employee’s status in the system, that employee might be getting more or less in their paychecks. It will be a severe violation of any labor code and can result in legal consequences for the business.
- How to prevent it: You may review Steps 2 and 3 in this document. Ensure that the contract and what was populated in the payroll system coincide.
- How to fix the mistake: The HR department should have transparency regarding the error. Adjustments should then be reflected within the payroll period or in the next.
Global payroll compliance involves handling a lot of varying payroll taxes and contribution rates which might get into the mix during the payroll process. Committing mistakes in this area will affect your employees’ benefits and monthly payments. Ultimately, it may result in an audit of your business for wrongfully observing taxation rules.
- How to prevent it: Employers may create payroll templates based on the employees’ place of residence. In this way, they need only to fill in the figures and amounts based on their contract. You can do this in an excel document or in any payroll tool your business uses.
- How to fix the mistake: Employers must apply the corrections once the mistake is consulted with the employee.
Missing Payroll Schedules
Setbacks are unavoidable in any business – the same is true when releasing employee wages on a schedule. It may be due to the volume of your HR transactions or the need for more staffing in the department. Regardless of the reason, it will be inconvenient for workers who are used to receiving their salaries on a definite date.
- How to prevent it: With the advent of technology, most payroll processes are automated, which should be the case for any small to large enterprise. Empower your HR department with tools to make payroll processing a breeze. In the case of global companies, you can check out EOR and PEO services that will unburden your payroll concerns!
- How to fix the mistake: Employers should release a company-wide announcement regarding the changes in payroll release schedules. This way, employees can sort out their affairs whether they receive their salaries earlier or later.
Unorganized Payroll Record
Documenting the ins and outs of your business expenses is always a tedious exercise. But overlooking the task of keeping a payroll record might prove more harm than good for your business. Payroll records are handy when creating talent market reports and dealing with significant business decisions (such as an expansion). Moreover, this data will benefit employees should they need to recall their tax contributions, previous earnings, bonuses and other payroll deductions and allowances.
- How to prevent it: There are ways to automate record-keeping to unburden your HR department with more paperwork. Your business should look into technological solutions for better payroll documentation.
- How to fix the mistake: Start keeping a record now if your company doesn’t have one. Doing so will provide insights into your business operations and financial performance.
Employee Data Breach
Countries worldwide see Employee Data Protection as a serious affair. For example, EU nations are following the European General Data Protection Regulation (“GDPR”) to complement each of the participating countries’ rules on data protection. Employers whose workers belong to any EU region will have to answer to the country of residence and the GDPR. Any data breach will have serious legal consequences for any company, ultimately affecting business.
- How to prevent it: Any employee paperwork or documentation should be stored in a secured facility to which only selected personnel will have access to. Moreover, assigned personnel should have a clause regarding their responsibilities to protect such data in their respective contracts. Businesses should have a data breach protocol that lists all the anticipated risks of these infractions and how to address them. This should be shared with all employees to create awareness.
- How to fix the mistake: If a breach occurs, the best thing to do is inform all the parties involved and consult with legal counsel on the next steps. Working with the authorities will quickly mitigate the breach and prevent it from worsening further.
Avoid Legal Risks with Multiplier
Complying with varying labor regulations across the world is a challenging feat. But with Multiplier, global payroll compliance is made easier using our PEO and EOR solutions.
Our team of experts has ensured that regulatory requirements in 150+ countries are embedded in our solution. Generate locally compliant contracts upon onboarding employees worldwide through our compliance management tool. Allow your business to set up competitive benefits package for your employees with the help of our experts. Access your business’ payroll record whenever through our SaaS-based platform. Punctually pay your employees in their local currencies through our payroll management solutions.
Book a demo now to learn more about our services.