Running payroll is complex—especially when your workforce is in multiple countries. Employers with global teams must navigate obstacles like employment and tax regulations, currency exchange rates, and data security in each country where they hire talent.
Fortunately, running payroll for international teams doesn’t have to be overwhelming with the right global payroll solution.
This guide covers everything you need to know about global payroll and how to simplify paying teams in international markets.
What is global payroll?
Global payroll refers to the process of managing payroll for employees located around the world. Components of global payroll include wage calculation, tax withholding, managing expenses such as bonuses and benefits, paying talent, tracking work hours and paid time off, and ensuring compliance with labor laws.
Standardizing payroll data and efficiently paying international employees becomes more complicated with every market you enter. A global payroll solution consolidates and standardizes payroll streams into one platform to simplify reporting, ensure compliance, and make it easier for businesses to pay international talent accurately and on time.
What are the challenges of global payroll?
Running payroll in multiple countries is a complicated and multi-faceted process that creates costly and time-consuming challenges. Running incorrect global payroll leads to fines, legal fees, and severe compliance issues. Some global payroll challenges include:
Complex employment laws and local tax regulations
Every country has unique employment laws and tax codes. Payroll teams must adhere to these ever-changing regulations in each country where they pay employees to avoid noncompliance.
Global payroll administration also requires navigating multiple languages, working across different time zones, opening and maintaining foreign bank accounts, and providing local support in real time when issues arise.
Read also: Our Complete Guide to Payroll Tax + How to Calculate
International payments and fees
Managing global payroll requires calculating currency exchange rates, incorporating bank transfer fees, and paying employees through the proper channels. For example, some employees may only receive payment through country-approved banks.
Additionally, payroll teams must make payments to local tax authorities and other appropriate parties, which compounds challenges when administering payroll in multiple jurisdictions.
Data protection
Payroll data includes personal information protected by data privacy laws, such as the Global Data Protection Regulation (GDPR) in Europe and the Privacy Act of 1974 in the United States. If employers violate these laws, they risk exposure to cyber-criminals and face severe financial penalties.
Data collection and privacy requirements vary by country. Payroll teams must adhere to data privacy laws in every country they operate in to ensure secure and compliant data management.
Transparency and visibility
Without a streamlined global payroll solution, payroll data may become siloed over various locations and formats—especially as a company hires talent in new markets.
Retrieving payroll data from multiple locations and in multiple formats across several countries is time-consuming and lends itself to reporting errors and global payroll compliance risks.
What are the main types of global payroll methods?
When choosing the right global payroll method for your needs, consider the following three options.
- In-house global payroll. Control global payroll processes internally with in-house teams in each country. In-house global payroll means taking full control of employing and paying your global talent. However, this method is costly, time-consuming, and hard to scale. Plus, companies must have the resources to handle compliance on their own.
- Decentralized global payroll. Use individual in-country vendors. Decentralized global payroll means outsourcing payroll administration to local third-party payroll providers in each country. Still, this method requires managing multiple vendors in different countries, lacks standardization and visibility, and may lead to security risks.
- Centralized global payroll. Use one global payroll provider that partners and coordinates with in-country payroll vendors on your behalf. Centralized global payroll streamlines all payroll processes into a single management system, reducing errors and inefficiencies. Companies that decide to work with one global payroll provider should carefully vet their options to ensure the partner they choose is trustworthy and reliable.
What are the benefits of outsourcing global payroll?
Payroll outsourcing allows you to bypass international payroll challenges and effortlessly pay your team across markets. A global payroll partner streamlines payroll operations into a one-stop-shop payroll solution and ensures the following benefits:
Global payroll compliance
A reliable global payroll provider is well-versed in global employment law to ensure global payroll compliance in each market you operate. They stay current on country-specific tax codes, labor law changes, and data privacy protection—so you don’t have to.
Local expertise
A global payroll provider works with regional professionals with in-country experience and resources to support your international teams. They also provide local support to your employees whenever they need it.
Accurate and on-time payments
Working with disparate vendors increases the likelihood of payment delays and errors when hiring talent in new countries. Working with a single reliable global payroll provider helps guarantee that your employees receive accurate and on-time payments—every time.
Time and cost savings
A global payroll partner sheds the burden of navigating regulations and payroll processes between countries, giving you more time to focus on your daily responsibilities and goals.
Outsourcing payroll to one partner saves you money by reducing global payroll processing errors and off-cycle payments. It also eliminates the need to hire in-house payroll teams in each country or source multiple in-country payroll vendors, reducing overall business costs.
Increased productivity
When HR teams can pass on the hassle of compliantly administering global payroll to an outsourced partner, they gain significant time back to work on the most important aspects of their role, like managing the happiness and well-being of their teams.
Read more about international payroll outsourcing.
How does global payroll work with an employer of record?
One reason a company may outsource payroll is that they do not have a legal entity in the country where they seek to hire talent. In this case, a company may partner with an employer of record (EOR) to help hire, pay, and manage their international workforce.
An EOR is a third-party organization that serves as the legal employer of your talent. An EOR partner not only handles all payroll operations across countries but makes it possible to employ talent without setting up an entity in each country.
An employer of record handles all risk mitigation, stays on top of local labor laws, and ensures compliance so you can engage employees across the globe risk-free.
In addition to managing ongoing payroll operations, an EOR simplifies hiring, onboarding, benefits administration, and HR support while you handle all day-to-day responsibilities.
Learn more: What Is an Employer of Record (EOR)?
Alternative solutions to global payroll
What if you already have an established entity in a foreign market, or you’re targeting niche talent for a one-off project? Consider the following alternative solutions to global payroll:
Pay international employees with multi-country payroll
If you already have a legal entity in one or more foreign countries, your company can outsource a multi-country payroll provider to streamline local payroll for your employees. This solution strictly processes payroll for your distributed workforce through one vendor without the additional employment, benefits, or immigration solutions offered through an EOR.
Engage and pay contractors
If you seek to hire internationally but don’t want to hire full-time employees, a more flexible option is to engage contractors. Paying contractors is straightforward and gives you access to specialized talent for short-term projects.
However, employers should consider the classification risks when engaging contractors. If local authorities legally classify your contractor as an employee, your company is liable for unpaid taxes, back pay, and benefits. You may also face other legal fines and reputational damage.
The risks only increase when engaging international talent because employment laws and worker classification vary from country to country. If you’re considering engaging international contractors, consult a legal expert to avoid misclassification risks and ensure compliance.
How to choose the right global payroll solution
When searching for a global payroll solution that best suits your needs, consider the following:
- Examine your business growth goals. Do you plan to establish a long-term presence in a specific country, or do you want to hire talent quickly without setting up an entity? How many global employees do you plan to hire in the future?
- Determine the right global payroll model for your goals. If you only plan to expand into one or two countries, an in-house or decentralized payroll solution may be the right choice. However, if you plan to hire employees across several countries, a centralized payroll solution may suit you best.
- Vet potential partners for local compliance expertise. Whether you plan to hire a small team in one country or multiple employees in several countries, you must ensure the payroll provider you choose is knowledgeable in country-specific tax and labor law.
Learn more: How to Select the Right Global Payroll Partner
Simplify global payroll with Velocity Global
Paying your international workforce is challenging. Simplify global payroll administration by partnering with Velocity Global.
As part of our EOR solution, our streamlined workforce platform coordinates all your payroll operations to overcome unique tax laws and ensure global payroll compliance. When you partner with Velocity Global, you gain peace of mind that your global team receives accurate, on-time payments and steadfast payroll support no matter their location.
Velocity Global also simplifies hiring, onboarding, benefits administration, and HR support to your global workforce so you can quickly test new markets and grow your team without establishing an entity or navigating complex labor laws.
Reach out today to learn more about how Velocity Global can help you quickly and compliantly hire and pay your global team.
