What is International payroll processing? International payroll processing refers to the payment of salaries to employees in a country other than the company's domicile. International payroll processing includes the payment and monitoring of payroll to contractors and individuals employed by your agency, as well as employees in offices you manage abroad. A more streamlined and efficient payroll system allows all employees to manage payroll through a single system, regardless of location. Operational Challenges for International Payroll Processing Some of the challenges of international payroll management include: ● Legacy in-house payroll features For some companies, payroll is handled in-house. This wasn't for any strategic reason, it was simply the 'always done' way. It made sense in the early days of the organisation, but often little thought was given to outsourcing or a good payroll strategy. This is exacerbated when working across nations with differing laws and payroll customs. ● Manage payments and payment methods In some countries, employees still have the right to require payment by check. Businesses should check which payment methods are permitted by law in other countries. Multiple Payroll processing & reporting in New Jersey methods are time-consuming, expensive, and error-prone. Read about some of the international rules that apply to processing payments internationally. What exactly is global regulatory compliance, and why is it so critical? ● Immediate Error Correction Some errors in payroll processing are unavoidable. However, for organisations that do not have processes in place to quickly identify and correct these errors, these errors can take a significant amount of time. This problem is multiplied when processing payments in multiple jurisdictions. ● Accounting for employee vacation and absenteeism This is a common problem with payroll processing systems. The system needs a way to automatically account for the impact of employee vacations and absenteeism on employee payroll. Many corporate systems still require employees or managers to manually calculate these absences, leaving a lot of room for human error. ● Integrated software system Payroll errors are common when there is a communication breakdown between the human resources (HR) software platform and the payroll processing platform.Not all organisations integrate these systems, especially across national borders. ● International variant With employees spread across multiple countries, international organisations must manage the tension between wage differences in each country and the importance of implementing company-wide policies. The Compliance Challenge for International Payroll Processing Responsible for payroll at multiple international locations means making sure that each location meets complex payroll requirements. Some factors to consider: ● Accurate payroll and income tax withholding calculations Employers are responsible for withholding and remitting the correct amount of tax to the tax authorities in each jurisdiction in which they operate. A related tax issue is whether the presence of employees in a country creates a 'permanent establishment' and the company is liable to pay corporate income at that location. ● Suspension/reduction of employee benefits and contributions This means guaranteeing exact amounts for employee benefits such as health insurance, workers' compensation and pension contributions. This is difficult because required deductibles vary widely from country to country ( Insurance Claim Management in New York , for example, are not mandatory everywhere). Therefore, employers must ensure that the 13th monthly salary is provided in each country where it is legally required. ● Information protection Payroll Information contains employee personal data that is protected under several data protection laws, such as the General Data Protection Regulation (GDPR) for European Union employees, the California Consumer Privacy Act for employees located in California, the Brazilian LGPD, and the Chinese Civil Code. Employees in China (effective January 1, 2021). Payroll processing must have systems in place to prevent unauthorised processing or publication of this information. Five International Payroll Strategies Given the challenges involved, what can international organisations do to improve payroll processing? Payroll Strategies to Improve Operational Efficiency and Compliance: ● Automation Automating different aspects of your payroll has a number of benefits. It increases the accuracy of payroll data, facilitates compliance with international data protection laws (e.g. GDPR), and enables a variety of useful reports and data analysis for organisations (e.g. up-to-date analysis of overtime and forecasting future usage). ● Setting up a regional payroll processing hub For example, if an organisation has multiple locations in Asia, only one location may process payroll. This strikes a balance between fully 'localised' payroll processing and the cost savings made possible by duplicate payroll processing. ● Establish quality improvement process and optimise payroll While some degree of error is inevitable, international organisations need a system to monitor various payroll performance indicators to identify areas for improvement in payroll processing. For example, possible measures are the number of payroll errors as a percentage of total pay and the number of days required to correct the errors. Payroll should be recorded on a rolling schedule for review and internal audit. Payroll frequency is another area you can optimise to increase payroll efficiency. Biweekly payments are common in the US, but monthly payments are common in many countries in Europe and Asia. Significant savings can be achieved by reducing payroll frequency where appropriate in certain countries. ● Outsourcing payroll A recent survey found that more than 40% of U.S. companies outsource payroll. This is not surprising as providing payroll services in-house can be expensive and inefficient. Payroll professionals know how to process payroll quickly and cost-effectively, freeing up time to focus on the revenue-generating side of the Business Accountants You can contract payroll processing to a third party in the form of business process outsourcing (BPO). The Company is responsible for ensuring that payroll is processed in accordance with applicable laws and internal procedures. These obligations are set forth in the Service Agreement. ● Global PEO Participation With this option, a global professional employer organisation ('PEO') becomes the legal employer of the workforce in a given country. Your company (the 'client company') still has day-to-day control of its workforce, but the PEO assumes all employer responsibilities, including payroll. An important difference between using a global PEO and outsourcing is that a global PEO takes over the employer's legal and compliance responsibilities whereas with outsourcing this is not the case.