If you’re managing payroll for teams across multiple regions, here’s a question: When was the last time you calculated your company’s total payroll costs? If you can’t remember, it’s likely that you don’t have a clear picture of how your payroll expenses are adding up.
For businesses with a distributed workforce, managing payroll isn’t just more complex; it’s often more costly. From compliance and data management expenses to payroll services fees for multiple vendors — the list goes on.
In this article, we break down typical payroll expense examples and the unexpected costs that payroll teams often overlook. We’ll also show you how to avoid these hidden expenses with a global payroll platform that helps you pay global teams effortlessly.
Known payroll expenses
Some payroll expenses, such as employee wages, taxes and benefits administration, are predictable. But the complexity of managing them across different regions often drives costs higher than anticipated.
Here we take a closer look to help you calculate the true cost of global payroll management.
Employee wages
Whether you’re paying hourly workers, salaried employees, or both, employee wages typically make up the largest portion of payroll costs. In fact, wages and salaries accounted for over 70% of total business expenses toward the end of 2024.
Wages also continue to increase, which contributes directly to higher payroll costs. This means that businesses must monitor the impact on their overall salaries expense; even small increases can have a significant impact on budgets and profitability, especially when these increases outpace revenue growth.
Regional wage variances and labor laws
Although employee wages tend to be one of the more predictable payroll costs, if you’re hiring across countries, you’ll also need to consider the fact that salaries vary widely depending on the regional context.
To attract top talent in competitive job markets, companies often need to offer higher salaries and consider bonuses, commission structures, and other performance-based incentives. But, when this compensation strategy isn’t carefully managed, it can lead to budget overruns, drive up payroll costs, and add complexity to payroll management.
Finally, companies must also consider local labor laws that govern wages. For instance, in Spain, employees typically receive their salaries in 14 payments over the year, which adds another layer of complexity to payroll planning.
Taxes across regions
Managing multi-state payroll or regional taxes means navigating a more complex tax landscape, and payroll tax expenses can quickly add up. Payroll taxes vary significantly by country, and the specific tax rates differ from region to region. For example:
- In the U.S., payroll taxes include federal income tax, state and local taxes, Social Security, Medicare taxes, and state and federal unemployment taxes.
- In the EU, VAT and social security contributions vary by country, which makes it essential to stay updated on regional regulations.
- The average employer social security tax rate in Europe hovers around 20%, though in some countries it can be even higher — significantly surpassing what employers in the U.S. are accustomed to.
Benefits administration
To attract and retain employees, companies offer a range of benefits, including health insurance, retirement plans, paid vacation allowances, and sick leave. Between legally required and discretionary benefits, employee benefits account for over $13 per employee, per hour worked in payroll costs.
However, managing the benefits administration cycle is a time-consuming process made even more complex when managing global benefits programs.
This is where Multiplier’s Employer of Record (EOR) service can help. By acting as the legal employer on behalf of your company, our EOR helps you offer your employees high-quality benefits from our network of trusted local providers.
As well as managing country-specific employee benefits, businesses also need to maintain compliance with local corporate and tax laws. For example, in the United Arab Emirates (UAE), end-of-service gratuity payments are a legal requirement for employees who complete a certain tenure, while German employers are often expected to contribute to employees’ pension schemes and health insurance.
Unexpected payroll expenses
Managing payroll costs is complicated enough. And if your payroll costs are running higher than they should be, it’s important to understand how each impacts your bottom line.
It’s often the unaccounted-for, “hidden” payroll costs that not only catch global payroll teams off guard but quietly drain budgets, too. And, as Sagar Khatri, Co-Founder and CEO at Multiplier, puts it: “It’s surprising how many companies can’t forecast payroll costs, understand payroll costs three months from now, or dissect costs at the department level.”
Compliance costs
For global organizations, payroll compliance is a major challenge — less than half have a clear, comprehensive view of payroll across all of their business locations.
Every country has its own tax requirements, labor laws, compliance rules, and reporting standards that businesses must comply with. And these regulations are subject to frequent changes, forcing companies to continually adapt to stay compliant.
As Menaka Karthikeyarayan, Global Payroll Director at Multiplier explained in a recent webinar on paying global teams, “From understanding employee benefits to minimum wage standards to tax obligations, compliance goes to the minutest details and it becomes very difficult.”
Compliance audits are another cost businesses must be prepared for. Regular internal and external audits ensure payroll practices align with legal standards. When audits uncover discrepancies, the cost of rectifying errors — including back payments, legal fees, and additional fines — can escalate quickly. Plus, the time and resources needed for these checks and balances compound total payroll costs.
Even beyond the costs of non-compliance, companies often face costs just to stay in line. Organizations managing international payroll often hire localized vendors, but this means paying for experts across regions and paying for a core payroll team to manage relationships.
Pro-tip: A global payroll platform offers a more cost-effective solution by reducing administrative overhead and automating compliance — without the expense of multiple local partners.
Costs of paying international employees
There are plenty of benefits to hiring foreign workers; improved creativity, market insights, decision-making, and employee retention just to name a few. But, on top of paying international employees, you’re also faced with navigating different currencies, fluctuating exchange rates, and paying a premium on payroll fees.
Payroll outsourcing costs
Many businesses rely on multiple vendors to manage payroll across different regions. And this often means facing these unexpected expenses:
- Setup and implementation fees
- Paying for extra payroll processing fees
- Paying higher payroll service costs per employee
Getting a clear picture of payroll outsourcing costs in this context is not straightforward. Fees for different services (like tax filings and compliance support) and payroll service costs per employee vary from vendor to vendor.
Businesses using multiple vendors also spend more time and money on managing separate contracts, payment schedules, and accessing customer support — all of which add more costs to the equation. As Menaka Karthikeyarayan explains, “When you’re using local vendors with different systems, it’s hard to get a centralized view. And this can cause major problems.”
Navigating exchange rate variations
Fluctuating exchange rates are a direct cause of unpredictable and inconsistent payroll costs.
While exchange rate volatility directly impacts how much a business pays in conversion fees, a large and sudden drop in a foreign currency’s value can increase payroll costs significantly from one day to the next.
For example, if your company is based in the U.S. but you pay employees based in Spain in Euros, your payroll costs might suddenly spike if the Euro weakens against the dollar.
You can also expect additional administrative costs involved in tracking exchange rate fluctuations and adjusting payroll in line with these constant changes.
As we’ll explore more later in the article, a global payroll solution helps you avoid these costs by paying employees for you in their local currency.
Data management costs
Accurate payroll requires seamless global payroll data management, but trying to achieve this high level of precision is often the cause of unexpected payroll costs.
Managing sensitive payroll data across different regions — including collection, storage, and processing — can demand extensive administrative work and investment in technology.
But, using outdated or disjointed systems increases the risk of errors as well as the costs of fixing them. This leaves businesses paying for:
- Custom integrations and reporting mechanisms to comply with regulations.
- Payroll errors arising from siloed payroll systems,
- Additional payroll service fees for add-on modules related to global payroll data management.
- Costs of enhanced data security features to protect global payroll data.
- The administrative costs of manually syncing payroll data.
Reduce payroll costs with a global payroll platform
Unexpected global payroll costs impact businesses of any size — from small startups to large, multi-national corporations. No business is immune to the steep penalties for non-compliance or the high costs that come with inefficient, fragmented, and expensive payroll processes.
But you don’t need to spend time managing multiple local vendors, staying ahead of evolving tax laws or manually fixing payroll errors. You can use a global payroll platform like Multiplier to calculate multi-country tax, benefits, and compensation automatically in line with local laws.
As Khatri says, “If you have operations in ten countries and you’re using ten payroll vendors, it doesn’t have to be that way. You can use one payroll vendor for 150 countries and different types of workers.”
Using local experts and offering 24/5 support, Multiplier brings your global payroll processes into a single, sustainable workflow. Then we pay your employees in their local currency, so you only need to pay your invoice.
In a single dashboard, you’ll also be able to assess the true cost of global payroll. With Multiplier’s detailed reports, you get insights into payroll expenses across your workforce, helping you track spending and make informed financial decisions. We also use in-built fraud protection to protect you against losses.
There are no hidden surprises — just a fixed rate to manage your global employees. If you’re ready to see how Multiplier can help you simplify global payroll, book a demo today.
