What is Global Payroll? How does it Work?

Payroll is the process of calculating and disbursing payment of wages to employees after the deduction of taxes and maintaining other variables like bonuses, benefits and compensation.

Apart from this, it also involves other critical functions like record keeping of employees, tracking work hours and paid time off and making the necessary payments to stakeholders by providing them with a definitive timeline.

The process of Global Payroll works similarly to a local payroll process, except the functions are to be repeated for each country and involve more complexity, as the tax and labour laws vary widely from country to country and need to be implemented on an international level. The amount of data that needs tracking in the global payroll process can be overwhelming.

What is the Definition of Global Payroll?

Global Payroll is a process that combines payroll data from various streams from different parts of the globe into one place. It determines large amount of data and calculates the payments to be made to employees dwelling in other countries in local currency with 100 % legal compliance.

Global Payroll is also popularly known as multi-country payroll, regardless of whether the company has its entity in the place they are hiring, through an Employer of Record (EoR)/international PEO or global PEO.

What sets global payroll apart from local payroll, is the step where it is managed and executed for different countries simultaneously, managing the hires and orderly paying a workforce abroad quite simply.

How does International Global Payroll Work?

International global Payroll refers to the adherence to abroad pay and taxation regulations to pay salaries to the staff in foreign countries. It is the act of keeping a record of all accounts of the workers that are payable, along with managing their compensation, benefits etc., by following legal compliance.

There are two international global payroll solutions businesses use-

Hiring an International Payroll Provider/PEO

An international payroll provider specialises in handling global payroll- paying employees, gathering and processing payroll records, and taxes on an international phase. PEOs are employed to eliminate your need to research state and federal regulations related to compliance, across the globe. While PEOs can help simplify global payments to employees, they do not necessarily attempt to solve other employment-related problems that employees residing in other countries may face.

Using an Employer of Record (EoR)

An employer of record is a company that hires and employs talent independently, without your involvement, thereby eliminating the need to establish a local entity. An EoR also manages the maximum of an employee’s life cycle functions like onboarding, employment contracts, benefits, and more. EORs are instrumental to businesses that want to hire global talent in different countries as they break the barriers to global employment.

What are the Challenges of Global Payroll?

Some of the main challenges associated with global payroll are-

Compensation for foreign/remote workers

• It’s hard to decide how to make fair pay to employees living abroad. Some of the questions you need answers to are-
• Do you pay the same to everyone/ should you consider the cost of living for employees living abroad?
• How can you compensate equitably, if an employee in one country receives a government benefit and one residing in another doesn’t receive any from their respective government?

Classification of employees

Make a clear classification of your workers, as employees or contractors, depending on the nature of their employment. Failing to do this right can result in your company being subject to fines, penalties etc. Reviewing employment relationships is imperative to stay compliant.

IP and invention rights

Intellectual property laws will vary as remote employees can work from anywhere. To abide by these, you need to understand the local laws to prevent the risk of losing IP rights, legal battles it can lead to or loss of reputation to stay compliant.

Tax management

Efficiently manage the taxes of remote workers. You assume the responsibility of knowing where to pay income taxes and who is settling the payments. Employers usually pay wages after the deduction of taxes, but contractors, on the other hand, are responsible for their taxes.

Risk of a permanent establishment

A permanent establishment is a company that has an ongoing presence in the country and the tax status it is subject to. The local government’s understanding of your business operations decides if permanent establishment applies to your company. Whether or not you involve an EOR or PEO has no relation to your permanent establishment risk. But a good EOR can guide you to comprehend and manage the risk of exposure.

What are the Benefits of Global Payroll?

Some of the reasons you should want to consider outsourcing your payroll management to a global payroll service provider-

100% compliance with laws in countries across the globe

You would certainly think hiring talent from multiple countries would mean more paperwork and documentation to take care of. Not necessarily. Having remote workers makes it much easier to abide by a particular country’s legal requirements, including taxes and benefits.

Access to the entire Payroll

It’s not easy to stay compliant on a global payroll scale or handle foreign social programs. The right global payroll service provider will have all the information you need to remain compliant and understand the payroll customs of the countries you hire in.

Cost and time efficient

Setting up your entity in each country can cost thousands of dollars and is very time-consuming. Global payroll is not just a faster alternative but is also a less expensive one. A global payroll service provider lets you hire international candidates swiftly in a short period.

Error-free, timely payments

Making timely payments is very critical to keep your employees happy. If you are trying to expand your business in new countries, managing in-house payroll operations can cause chaos and delays leading to unhappy employees. An international global payroll service provider can manage your payroll efficiently and see through timely payments.

More productivity

Handling payroll in-house takes away precious, critical time that can otherwise allow you to focus on core business operations. In-house human resources team usually has a wide range of functions like recruitment, training and development, employee engagement, onboarding etc. that they need to execute besides payroll. Their focus needs to be on one major aspect: people.

What are the Types of Global Payroll Providers?

We established the difference between a PEO and EOR earlier in the blog. To understand in-depth about the same, global payroll service providers can be divided into two categories-

Partner-dependant providers

If you tie up as a partner-dependant provider, your payroll is managed entirely by a third-party company that has an establishment in the country you are hiring. It’s not a desirable move to partner up with a third-party provider as there is limited control over some very important aspects like payroll, and IP protection and sometimes can even have hidden costs.

Owned- entity providers

These types of providers ensure that they operate only in countries where they have ownership over their legal entities, meaning having full access and visibility into payroll, benefits, taxes and contracts of employees.

When Should you Outsource your Global Payroll?

Yes, you can manage your Payroll in-house. But under certain circumstances, it works best for you and your organization if you outsource it. What are those?

Expansion of business on an international scale

To manage payroll on an international scale, you need to have the right resources, exact process and sufficient staff in place. If you’re lacking in any, it’s best to outsource it to a global payroll service provider.

To Ensure 100% Compliance

If you’ve expanded globally then depending on the location of your employees you will be subject to different employment laws, which can be hard to keep yourself updated with. Outsourcing this function to an expert can ensure full compliance.

To Save Time

To manage payroll in-house your employees, must go through training to understand the variables and differences involved between a local and a global payroll process, which is time-consuming and can also deliver inefficiency. Outsourcing lets you skip the training as well as provides you with accuracy.

What are the Global Payroll Trends?

Some of the best practices of global payroll include:

• Choosing the perfect global payroll provider for your business
• Making employee experience a priority
• Classification of the type of employment of all workers
• Create a suitable compensation plan
• Make smart decisions on whether you need your entity or not
• Secure your intellectual property

How to choose your International Payroll Provider?

Opting solely for either an owned entity provider or a partner-dependent one comes with benefits and drawbacks. But what if you could access the best of both worlds?

Simplify Payroll with Alp Consulting

Benefits of outsourcing your global payroll management to Alp-

• Our comprehensive global payroll coverage can benefit your organization as we have entities set up across the globe. In case we don’t in some countries, we’ll help you find the perfect third-party service provider for that country.
• Our trusted network of in-country partners to supplement our global payroll offering.
• We offer you a single point of contact to ensure your employees’ payroll data is safe and secure.
• We give you complete access to our centrally managed payroll and HR database that gathers and organises all payroll data in one secure location.
• We offer a global payment solution, that is cost-effective and takes care of 100% compliance as well as improves payment delivery assurance.

As your business expands into more countries it’s essential to choose the best global payroll option for your business. Alp can be your perfect partner as we specialize in the field.