Emerald Technology Jun 22, 2022 11:12:58 AM 11 min read

How To Set Up International Global Payroll For Your Employees

Today you will learn what global international payroll is. This is a simple, 10 Step Guide to building global payroll and what to avoid in the process.

What Is Global Payroll?

When a business employs people, they need payroll. This is a process of calculating and paying each employee’s wages. It’s also the process of withholding health/social  and income taxes. 

Payroll can also include the correct payment of commissions, expenses managing benefits, etc. Employers are also legally bound to offer the employee payslips and keep track of hours worked and paid leave. 

When we think of global payroll, it is simply a payroll for every country that the company has employees working. Obviously, elements add complexity because labor and taxation laws can vary dramatically from country to country, and even state to state with the United States of America. 

The obvious issue with Global payroll is language. All spreadsheets, invoices and tax paperwork have to be filled out in the language of that host country. It is far more complex than payroll at home.

The goal is to merge all the payroll data from across the globe into a standardized format that can easily be read by the finance department at the head office while staying compliant.

When you employ staff overseas, it’s important to make it as simple and painless as possible, and this includes the payroll of those employees. It has to be manageable, simple and effective.

Is Global Payroll Complicated?

It can be very complicated. It has all the complexities of local payroll but with the added issues listed above. Even if your employees are all employed in the same country in the same tax codes, it can still be hard work keeping up with your legal duties for the H.R. and the finance department. 

Global payroll is even more complex because you have multiple languages and multiple tax codes / tax legislation to consider. That isn’t just a country-by-country basis. Tax codes differ from person to person too, so all things considered, global payroll can almost quadruple the time and effort put into your local payroll.

Ostensibly, it comes down to data points and collating them in a way the H.R. and finance department can make sense of. Bonus reports, expense reports, attendance and sickness reports, and any data concerning sales commission. Each of these reports arrive in different languages and different monetary denominations and, sometimes, multiple file formats.

Payroll is also responsible for not just one, but three payment tranches. The vendors of benefits, the tax authority and the employees themselves.

What Are The Different Models For Payroll?

If you’re going to keep on top of local tax legislation and payroll laws in the countries that you are based, you must have a local presence. This can take the form of two distinct models. The first model is an in-house model. Your company opens offices in those locations and you build an individual H.R. and finance team in that specific location to handle payroll at a grassroots level. This is the more costly approach, since you must build an entire team from scratch in every location that your business operates.

The second model is a partnership model, also known as an ICP (In-Country Partner). This could be an Employer of Record (EOR) that partners with your firm and handles all the payroll in the country that you now operate and have employees. 

The obvious advantage of an in-house, in-country payroll system is complete control over the network, but at the cost of the financial set-up costs, and ongoing compliance costs.

The advantage of working with an EOR is they are competing with other EORs to offer a more competitive service. They offer more accountability, transparency and flexibility.

A third system could be considered a platform based system, cloud payroll provider. But since you would still need an in-house department to use it, it falls back to the partnership model. 

Building Compliant Systems

The continuous challenge with global payroll, as with all payroll, is compliance. With tax laws and employee compensation laws changing on what seems to be a day-to-day basis, keeping the entire system compliant is the number one priority across every node of the network. An international payroll system can quickly become complex, so some companies will avoid international expansion just to avoid the legal complexities and pain and employing people abroad.

The advantage of partnering with a trusted local advisor is they are already performing payroll in the country that you wish to expand into. This means that what might take an in-house payroll team weeks, perhaps months to figure out, partners such as Emerald have already been doing for a long time with 100% success. Across multiple companies in multiple industries.

A quality EOR will understand the data behind the employee and show the client the true cost of those employees across a range of metrics.

So, let’s say you wanted to set up a payroll system. What would that look like?

A Step By Step Guide To Global Payroll

STEP 1: Register As An Employer (In Each Country)

The first step would be to register as an employer in the country of choice. You could also say that jurisdiction of choice because some jurisdictions like the EU, for example, have fairly uniform employment payroll legislation across multiple countries.

STEP 2: Research Local Employment Law 

If you want to avoid costly fines and legal violations, you need to research all the relevant local laws and regulations that apply to payroll where your business is based. You need to know these laws so well that they can be quickly integrated into your current payroll activity.

STEP 3: Collect Data

Data is the key to effective payroll. You will need the names of employees, their addresses and their eligibility concerning work permits, bank details, benefit status and tax codes and any other relevant information that you need to collect.

STEP 4: Data Protection

Once an employee is on board, you are now legally liable for their data, so your payroll system has to be airtight. Any gaps in the system that allow data to leak can also be heavily fined. Data usage compliance for employees has become a hot topic lately and is likely to get even more heated. Governments across the world will seek to protect personal information about the people you employ.

STEP 5: Employee Eligibility

This varies from jurisdiction to jurisdiction, but compliance laws concerning the eligibility of workers are also top of mind, especially at the federal government level. With migration happening faster and more often than ever before, it is absolutely vital that your global payroll system incorporate all the local legislation. Failing to observe these laws can look like human trafficking in some jurisdictions.

STEP 6: Payments Processing

Ok, so you have your payroll system in place. You have employees in place and the data being collected. You also made sure employees are legally supposed to be working where they are working. Now it’s time to process payments. The complexity of doing local payroll, paying hundreds if not thousands of employees each month, is exacerbated by a global payroll system because each jurisdiction may have distinct preferences.

Employee remuneration and benefits could be staggered across multiple dates on a weekly, fortnightly, or a monthly basis.

STEP 7: Payment Checking

The best way to lose quality talent in your business is to forget to pay them or pay them the wrong amount. When you’re working in multiple currencies across multiple jurisdictions, your global payroll system has to be absolutely airtight. Otherwise, you risk losing members of the workforce or spending countless hours catching up with missed payments and trying to figure out where the gap in the system is.

STEP 8: Local Taxation Compliance

Local tax laws can vary and what you have to do to stay compliant can vary dramatically, too. The burden is upon you as the employer to make sure that the local tax authorities have all the information they require on wage payments to local citizens. This allows them to keep accurate records and ensure correct deductions are made.

STEP 9: Legislation Compliance

The system is finally up and running. The next step is to keep on top of the ever-shifting sands known as employment law and tax law. This is a constantly developing animal and especially in the new economy.

STEP 10: Partner With An Employer Of Record

If this seems daunting, it should be. A scratch built international global payroll system for this is no easy feat. That’s why companies decide to work with an Employer of Record since an EOR is already performing this task in the country that you’re looking to expand into.

This means that you can carry on with building and growing the business while all of the technical aspects of payroll and employee legislation and legality falls upon us.  

Global payroll is probably one of the hardest parts of an international expansion plan. 

It pays to have a trusted advisor on your side during this period of expansion, from small startups to enterprise level firms. 

Our team are here to build your team.