PEO

What is Global Payroll?

Global Payroll is a process of calculating employee wages, withholding taxes, administering benefits and bonuses, and delivering payments to your employees in different countries in compliance with local laws.

Global payroll involves tracking employees’ working hours and paid time off, keeping payroll records, delivering payslips to overseas employees, protecting their data, and organising international payroll data.

Some would say paying international contractors is a part of global payroll, especially if a company and contractor have an ongoing partnership.

Independent contractors are not typically on an employee payroll: companies only cover payroll taxes and employee benefits for employees, not contractors.

However, paying foreign contractors introduces its own complexities, and many global payroll providers, like Valueleaf, can help you pay contractors abroad.

Global Payroll vs Local Payroll?

The difference between local and global payroll is that with a global payroll, you have to account for various labor laws, provide local mandatory benefits, calculate wage conversions and send payments to a range of different countries.

As an example let’s say you hired people from France, Argentina and Singapore  These countries have different:

• Minimum wage laws
• Payment methods and set payment dates
• Payment currencies and exchange rates
• Tax regulations, rates and deadlines
• Social Security rules and regulations
• Employee classifications
• Statutory employee benefits

Understanding all of the above for one international hire is a big task. Doing it so for a global team spread across countries is even more challenging. Non-compliance penalties are steep, so it’s not surprising that many companies prefer a global payroll solution to streamline global payroll and save time, money, and the effort of handling all of this in-house.

What are the main challenges of Global Payroll?

When embarking on any global expansion exercise, hiring and paying international employees is a complex task. You need to comply with a whole new set of labor laws each time you hire an employee from a different country.

Examples of specific areas of compliance include:

Employment laws: When you hire someone in a foreign country, you must adhere to the employee’s country’s labor laws.  Labor laws determine the employee’s minimum wage, maximum weekly working hours, and statutory employee benefits (such as paid time off, maternity leave, social security or pension provisions). All these aspects of employment vary by country and even by employee.

Tax regulations: When you hire an international employee, you must learn about the country’s income taxes, payroll taxes, tax deadlines, tax withholding regulations, VAT, GST and much more.

Data management and security: Payroll involves sensitive employee data, like social security numbers and bank account information.

For example, if you handle payroll data for EU employees, you’ll have to meet GDPR standards.

International money transfers: Whatever method you use, international money transfers involve fees that can add up.

You need to pay attention to:

• The payment methods available in each employee’s country of residence such as SWIFT and similar money transfer services, debit cards, cryptocurrency, and so on
• Currency exchange rates: employees must be able to receive payments in local legal currency
• Other types of bank fees, such as transfer fees and intermediary bank fees
• The time necessary for global payroll to process, money to be transferred, and your employee to receive their payment

Also, international money transfers sometimes require additional documentation from the employer so that the employee can prove the transaction is legitimate, like invoices or transaction statements.

How can you handle Global Payroll services?

There are three main options available to pay your international workers:

Hire an independent contractor: Hiring independent contractors or freelancers is more affordable and less demanding than hiring full-time employees in terms of payroll. You won’t need to manage income taxes, social security or statutory employee benefits. Instead, you pay invoices one at a time.

Use an employer of record (EOR): An employer of record (EOR), sometimes called an international PEO, is a company that takes care of global hiring (employment), payroll management, and compliance in the employees’ country of work. EORs set up local entities worldwide and act as the legal employer in country, providing, payroll, benefits, HR, legal, and compliance for the people you hire.

Using an international EOR allows a client to expand their operations, and hire the best talent on a global level, quickly and compliantly, without the need to setup their own local office or entity.

The EOR is responsible for generating contracts, onboarding the employee, providing payments, deducting taxes, and helping with workforce management and compliance wherever you hire.

Open a foreign subsidiary and outsource to a local payroll provider: Your last option is to open a foreign legal entity wherever you want to hire an employee. Then you can either hire local payroll and HR staff or outsource these functions to payroll partners with local expertise.

Opening your foreign legal entity typically needs more planning and thought, concerning international company taxation, local office setup, staffing, and other local laws and considerations.

Valueleaf support a complete end-to-end international expansion service, from understanding your international expansion goals, recruiting the talent and skills you need in your chosen locations, hiring and compliantly managing your  talent through our local EOR in over 150+ worldwide locations.

Whatever works best for your organisation, Valueleaf has the solution for your international expansion.

For more info contact us.