When it comes to running global payroll correctly, the stakes couldn’t be higher. “Payroll mistakes impact both external reputation and internal costs,” explains global payroll expert Anna Lettink. “If you continue to make mistakes, employees will pack up and leave.”
Unfortunately, the complexity of global payroll means there’s a great deal that can go wrong if companies lack the right systems and processes for paying international employees.
In this article, you’ll learn about some of the most common errors in global payroll and how to address them. You’ll discover expert insights and practical tips from:
- Anna Lettink, Global Payroll Expert and HR Tech Strategist
- Sagar Khatri, Co-Founder and CEO at Multiplier
- Michael Nierstedt, Payroll Product Director at Multiplier
The six most common global payroll mistakes
The complexity of payroll means that mistakes happen frequently, even in a domestic context. Research from the Global Payroll Association, for example, found that 25% of employees in the UK have had the experience of being paid incorrectly.
Global payroll management presents employers with a vast range of additional compliance responsibilities. There are far more mistakes to make, as well as more serious consequences if something goes wrong.
Here are some of the most common errors in global payroll and the steps you can take to fix them.
1. Failing to comply with local tax and labor laws
One of the most fundamental global payroll challenges is that companies must comply with the tax and labor laws of each international employee’s local country.
This means:
- Making the correct tax deductions
- Complying with overtime and benefits laws
- Calculating employer tax contributions
- Registering with local tax authorities
- Updating calculations with changes in local tax laws
These requirements present companies with a significant challenge when it comes to payroll. Each country has unique tax laws, contribution rates, and reporting requirements. These often change annually and governments frequently introduce new regulations.
Lettink explains: “Every country is different and that means when you want to pay people correctly and on time, you have to know what you’re dealing with. The rules are often changing and are very specific and detailed. They often deal with concepts that are very normal to the working population, but very strange to people who don’t sit inside that country.”
Failure to comply can lead to serious consequences, including financial penalties from local tax authorities and even legal action.
2. Misclassifying contractors as employees
Classifying an independent contractor as an employee (or vice versa) is one of the most serious mistakes to make in global payroll.
Laws on employee classification vary by country; this means while someone might be classed as a contractor in one country, in another they’re an employee and entitled to certain benefits.
Employee classification also has a significant impact on the amount of tax that employers and workers pay, which means that getting it wrong can have serious financial consequences.
Companies face heavy fines for misclassifying workers, along with back payments for unpaid taxes and social contributions. They can also face the prospect of legal action from misclassified contractors seeking employee benefits they missed out on.
3. Making mistakes with paying wages in a local currency
One of the biggest global payroll issues is paying employees in their local currency a legal requirement in many countries.
This can create challenges in payroll processing. Daily fluctuations in exchange rates can mean employees might receive less than they are expecting from one month to the next.
Even when there is no official payroll discrepancy, employees sometimes receive their wages late if companies make international bank transfers, which are subject to delays.
For employees, these errors are among the worst payroll mistakes a company can make, as they affect when they get paid and how much they receive each month. As Sagar Khatri, Multiplier’s Co-founder and CEO, says: “You’d be surprised how often employees get their salaries delayed, but this can ruin an organization’s reputation[…]When employees don’t get paid, it’s all they think about all day.”
4. Failing to set payroll up for different pay frequencies
Different countries around the world have different employment practices that affect how often employees should be paid. In Latin America, for example, there’s a “thirteenth salary” end-of-year payment due in December.
Paying different employees at different pay frequencies is no small challenge. Some countries have biweekly pay, for example, while others have semi-monthly pay cycles; many payroll systems can’t account for these variations.
In some countries, calculating employees’ pay dates incorrectly can amount to a breach of compliance. This can result in hefty fines and tax issues. It can also damage employees’ trust in their employer and hurt the company’s reputation as a reliable employer.
5. Neglecting international data privacy and protection laws
Data privacy and protection laws differ by region. If you employ EU citizens or residents, for example, the software you choose must comply with the General Data Protection Regulation (GDPR).
Neglecting this aspect of compliance is a common mistake in payroll. After all, data privacy doesn’t relate to paying wages or complying with tax laws.
However, the repercussions of breaching international data privacy and protection laws are serious. They include legal penalties, including heavy fines, loss of employee trust, and reputational damage.
6. Juggling multiple local payroll providers
When companies expand into new countries they often engage a different payroll provider in each location. This means that companies that expand globally end up engaging multiple local vendors around the world.
Without a centralized view of all payroll data, it’s easy for teams to end up facing an increased administrative burden, higher operational costs, and inefficient ways of working. Inconsistent processes can also lead to errors in payroll and compliance challenges.
As well as spelling serious consequences for the company, these issues can also damage employees’ trust in their employers. As Michael Nierstedt, Multiplier’s Payroll Product Director, puts it: “The experience in your organization is often equal to the worst provider you have so that can be really limiting when you’re trying to provide a good employee experience.”
How to avoid common global payroll mistakes
There’s no doubt there’s a huge amount to consider when it comes to managing payroll for an international workforce. As Khatri puts it: “We need to step back to really appreciate the depth of complexity involved in global payroll.”
So it follows that to avoid common global payroll mistakes, you also need a multi-faceted approach.
Start by considering your core payroll solution. With a well-integrated global payroll platform, you can centralize all important information, maintain compliance, reduce administrative errors, and ensure employees worldwide are paid correctly and on time. A solution like Multiplier will provide automated calculations for taxes, wages, and pay frequency across regions; you can make payments using the same solution in over 100 currencies.
Commenting on this innovation, Nierstedt says: “More companies are getting the payroll provider to manage the foreign exchange rates on their side. This streamlines their processes and since it’s all automated, you lower the risk of errors.”
Beyond software, you also need to prioritize strong governance. By introducing policies to prioritize data security and proper employee classification policies, you can maintain compliance and protect sensitive information.
Pro-tip: You can also enlist the help of an Agent of Record solution to ensure that all your workers are correctly classified.
Classify, pay, and support your employees correctly. Book a demo to find out more.
Common global payroll mistakes FAQs
How long does a company have to correct payroll when it’s wrong?
In a global context, the time frame for making payroll corrections depends on the country’s labor laws and contractual agreements.
Different countries have strict time limits for correcting payroll mistakes, especially underpayment issues. In the US, specific deadlines vary by state.
It also depends on the type of payroll mistake:
- Underpayments must usually be corrected by the next payroll cycle
- Overpayments often require employees’ consent for recovery
- Tax and social security reporting corrections may have extended deadlines but carry increasing penalties over time
What are the most costly payroll mistakes?
Worker misclassification is typically the most costly payroll mistake from both a financial and reputational perspective.
Financial penalties include huge back payments for unpaid wages, benefits, taxes, and social security contributions. There are also additional financial penalties, sometimes amounting to millions, depending on the scale of the misclassification.
Employers face legal action from governments enforcing labor laws and even the possibility of criminal prosecution in cases of deliberate tax evasion.
