Global Payroll: The challenges for HR teams

Unleash Your Payroll Here are some of the most common payroll challenges experienced by international companies.

Many of the world’s biggest companies rely on large teams based in all corners of the globe.

With an international workforce, businesses can accelerate growth in new territories, operate across multiple time zones, attract talent worldwide, increase diversity, and so much more. At the same time, international companies generate job opportunities and economic opportunities all over the world.

But employing people in different parts of the world also gives rise to complexities regarding payroll, particularly with labor and tax laws varying in every country or region.

Below, we explore some of the common challenges experienced by multi-national companies and potential technological solutions.

Payroll challenges

There are a number of things that make international payroll highly complex for multi-national businesses and organizations, according to Lace Partners managing director and co-founder Aaron Alburey.

“When looking at complexities of international payroll there are a number of factors that come into effect, of which local tax is, of course, one (for example church taxes in Germany, or state taxes in Australia and the US), but what we have found in LACE is that in large-scale international businesses there is often a ‘tail’ of countries in which the employee footprint is smaller,” he says.

“Not all multinational businesses have a mature set of terms and conditions that are consistent across the business. Many have multiple terms and conditions, multiple ways of working and in some instances where we have worked with these large businesses, they have small operations in some countries (for example just a small team of salespeople in operation in a country). All still need to be paid so international payroll is as much about catering for that wide variety of terms and working agreements.”

Alburey says businesses without a payroll strategy that brings together different pieces means they have to interface with a number of local payroll providers in every country and region. He points out that this not only becomes cost-prohibitive, but results in manual interfaces and slower data analysis.

“What we have seen when working with large businesses is that there are a small number of payroll providers who act as an umbrella, with systems that cater for payroll across a large number of countries,” he continues.

”This may not be across all countries that a business operates within (for example if a large business is in 100 countries, the payroll provider could operate in 30), but these businesses then work across a network of In-Country Payroll Providers (ICPs) that they have embedded within their own systems. That means that where you as the HR function are trying to connect your business across multiple countries, you have just one source of information that you have your interaction with.”

But Alburey says many newer businesses are building systems that are less reliant on ICPs and that act as a single point of contact, such as ActivPayroll and Neeyamo.

He adds: “Another trend we have noticed is businesses breaking down their payroll requirements into specific zones i.e. one umbrella payroll provider for Europe, one for APAC, or one for the US and because of this demand we have seen some payroll providers look to become that umbrella just for a specific region. Ultimately the goal is to reduce the risk away from ICPs and these types of organizations allow for that.”

International payroll is challenging

Large businesses with international teams often rely on providers in different countries and regions of the world for managing payroll, but doing so presents a wide range of issues.

Sam Grinter, senior principal analyst for HR technology at Gartner, says: “The current state for most multi-national companies (MNCs) is to deliver payroll using local payroll providers. This can lead MNCs to have a different payroll provider in each country, which poses the following challenges: availability of consolidated employee and payroll data, cost of implementing and maintaining point-to-point integrations, and inefficiency for the delivery of shared services for global or regional payroll.”

He says there has been a trend towards the consolidation of multi-national payroll in the last decade. “This usually involves a combination of vendors, including software vendors to support in-house payroll operations; and, outsourcing vendors to deliver payroll services in countries with lower volumes of employees or where there is an increased tendency to outsource at least some aspects of payroll processing (Belgium and US, for example).”

Unfortunately, there isn’t a silver bullet approach or solution for managing payroll on an international scale. In fact, Grinter claims that no single global payroll solution exists on the market today. “Depending on who you ask, there are between 195 to >250 recognized countries. I’ve not come across a payroll provider yet that has claimed to cover every country,” he says.

“If an MNC operates over a small footprint of countries then it is more likely that one vendor may be able to accommodate payroll localization. However, I have worked with clients in the past that have operations in over 100 countries, and usually there will be a few gaps in localization, even for the largest payroll vendors.”

Payroll and HR is disjointed

While global payroll is a crucial aspect of the HR function in every business and organization, many firms rarely combine the two. Chris Brooks, managing director and co-founder of Symatrix, warns there’s a growing disconnect between HR and payroll globally. Brooks tells UNLEASH:

“Organizations rarely align their HCM technology with their global payroll technology. Global companies typically invest more in a strong HCM application and then run global payroll strategies as a separate project. Adding to the disconnect, HR systems are typically not set up with payroll front of mind.”

He says businesses face a host of issues because HR and payroll are so disjointed. “Many global organizations retain a payroll team in-house when they have outsourced their payroll due to the administrative workarounds they have to manage. Typically HR sends a file to the payroll provider, the provider runs the payroll and then sends a file back to HR.”

His view is that HR should be the source of the truth and be responsible for all data in a business. “In short, payroll should leverage the power of great HR. Sadly this is often not the case today and there is still much to do to bridge the divide,” he warns.

Leveraging the cloud

For multi-national businesses and organizations, paying the salaries of employees based in different countries can be challenging due to varying laws, regulations, and other compliance issues. And this has only been exacerbated by the rise of remote and hybrid working during the coronavirus pandemic.

Yvette Cameron, senior vice president of HCM global product strategy at Oracle, says: “Our customers are always looking to expand into new markets and hire the best talent regardless of their location, only further accelerated by Covid-19 and the growing flexibilities that come with remote-working. But from an HR and specifically payroll perspective, this can be difficult to manage on your own due to local complexities and legislation.”

But she believes companies can solve many of these challenges by using centralized and flexible solutions that run on the cloud. “Modern cloud HR systems allow for global companies to put in place standard HR processes and collect data across countries,” says Cameron. “These processes give employers visibility and insights into HR services across their organisation. This centralised view helps managers and business leaders make informed decisions about their business such as whether to expand into new territories.”

Cameron says another benefit of centralized cloud systems is that they can be updated near instantly. She explains that this allows organizations to remain on top of the latest rules and regulations for each region, ensuring their systems are compliant. “Some global organisations also have centralised groups who manage and administer these cloud HR systems, bringing in local knowledge required for compliance.”

Multinational organizations depend heavily on international and distributed workforces, and while there are many advantages of hiring international employees, this can make paying staff challenging. However, it’s clear that new technologies and applications can help businesses effectively manage international payroll.