Paying employees across different countries is not easy. You will need to acquire an understanding of taxes, local laws and regulations, currencies, and technology. 

As an employer, you could be wondering about how the whole international payroll system works. Don’t fret about it. In this blog, we take you through the guide to international payroll processing–traditional methods, structure, and popular solutions.

Traditional Method of Processing International Payroll

The traditional process of international payroll is almost the same in most businesses, but certain components must be taken into account before beginning with the processing of international payroll.

 Here are a few steps that will help you understand the payroll process better: 

1.Establish a local entity

If you run a business in different countries, then setting up a local entity and getting your business registered with the relevant authorities is of great importance. This also helps in maintaining compliance with the country's local tax laws and regulations. 

This procedure can be hard to follow and expose a business to potential liabilities, which is why many companies prefer to outsource their payroll and onboarding needs. 

2.Understand the payroll taxes of the country

Employers must understand the local payroll laws and process payroll on time. They must be aware of essential deductions they have to make such as payroll taxes, social security contributions, to the respective parties or government bodies.

3. Setup payroll processes 

Establishing a standard payroll process is crucial for every business. If you have business globally, then there will be different factors along with the laws of the countries your business is operating in. Generally, these are the things required to establish a successful payroll process:

• Payroll frequency: As per the company or the business, your payroll processing could be weekly, bi-weekly, or monthly. In some countries, the government demands a certain schedule for payroll to be followed. Other times, the payroll is processed according to the cash flow, employee types, and other factors. 
• Employee type: In a company, there can be different types of employees, such as a full-time employee, a part-time employee, a freelancer, or a contractor. To pay these employees, the firm must classify these employees and set up payroll cycles to pay them on-time. 
• Employee benefits: Every company must administer benefits the employee gets from the company as well as the ones mandated by the local laws.
• Payment made to employees: A company can pay its employees, either digitally or by direct deposit. Other payment methods such as pay cards or cheques can also be used to maintain compliance with local rules and regulations. 

4. File the right paperwork

Since the forms differ from country to country, the employees must be issued with the correct forms. Upon successful registration of the employee in the payroll system, a payroll number can be given for easier identification.

5. Safeguard the records 

Keeping a record of the number of hours worked during each pay period, benefit deductions, and making necessary payroll tax before processing the compensations to the employees is essential.

Maintaining a thorough record of payroll procedures is crucial, especially when managing an overseas payroll. These documents would be helpful in case of inquiries by a regulatory authority or any controversy an employee may raise. 

How to structure your payroll team

A payroll team would be responsible for smooth payroll functioning. A payroll function consists of processing payrolls, paying employees' salaries, handling payroll taxes, and taking care of other payroll management tasks. For all these responsibilities to be fulfilled, an extensive payroll team is required. 

These are some of the most common payroll team professionals and their responsibilities include:

• Payroll assistant/ technician: Their role doesn’t require having extensive knowledge of payrolls and they usually manage different routine tasks.
• Payroll practitioner: They are charged with payroll administrative tasks that include payroll processing, payroll record keeping, and employee timekeeping. As they advance in their field, they are given higher responsibilities such as gathering payroll data and preparing payroll reports. 
• Lead payroll administrator: The role of a lead payroll administrator is to guide payroll practitioners and take on general payroll processing responsibilities.
• Payroll supervisor: Their role is similar to that of a lead payroll administrator. However, payroll supervisors are usually needed in bigger payroll departments where they report to the next higher payroll position.
• Payroll analysts: They are charged for ensuring payroll accuracy and are also responsible for the payroll reconciliation process.
• Payroll manager: Their role includes overseeing the activities of several payroll departments and also taking over tasks such as tax reporting.
• Director of the payroll: The individual in this position is senior most and is responsible for the company's payroll-related goals. As the head of the payroll department, they also have control over the payroll process, strategy, and governance.

Depending on the company's structure for payroll function, there can be other members of the payroll team such as a payroll specialist or a payroll tax administrator, and would generally be accountable for operating, maintaining, and coordinating the payroll system. 

How to structure a payroll department

A clear organizational structure is crucial, especially in terms of payroll function. The structure of the payroll function should be aligned with the company's global payroll strategy and payroll model. Two fundamental aspects to consider here include:

• Centralized vs. decentralized payroll
• Outsourcing vs. in-house payroll

Centralized vs. decentralized payroll

Any organization should first choose between centralized or decentralized payroll when structuring a payroll function. In centralized payroll management, only one payroll function is responsible for supervising and managing policies, and performances of the entire organization's payroll operations.

In a decentralized payroll system, the company has separate payroll departments for each unit or location. Companies with global payroll operations usually go for a hybrid option.

Outsourcing vs. in-house payroll

Another decision an organization has to make when structuring a payroll department is to either have an in-house payroll or to outsource payroll to an external payroll service provider.

Choosing an outsourced payroll service provider can be a great advantage to an organization. The benefits include enhanced payroll compliance, time and cost savings, increased operational efficiency, and reduced risk of payroll error. In addition, a global payroll also avoids issues that usually arise with multi-vendor management. 

Popular international payroll solutions

Companies that operate in more than one country face different payroll challenges. Along with complying with a country's requirements and local rules and regulations, delivering a consistent payroll experience to an employee can be expensive and time-consuming. 

However, there are a few tools that can make this process simpler, such as:

Global payroll software

The software streamlines cross-border payroll processes and ensures compliance with international payroll regulations. It manages transactions and conversions across multiple currencies and gives quick access to payroll data which helps with swift decision making. 

Employer of Record (EOR) solutions

It is a partner including taking on employees' legal responsibilities along with managing employee taxes, benefits, payroll, offboarding, and ensuring compliance with the country’s local labor rules and regulations.

International money transfer

It includes sending salaries or wages to employees in different countries while adhering to the local rules. It also involves converting currencies, dealing with transaction fees, and using reliable and efficient methods to facilitate payments.

Common international payroll processing questions

Still, have doubts? We have answered a few common questions on the international payroll process below.

1.How do you calculate payroll?

Payrolls can be manually calculated based on the employee's working hours and the number of days worked per month. For salaried employees, their annual salary can simply be divided by weekly, bi-weekly, or monthly pay periods. 

However, as the number of employees increases or if the company starts hiring globally, manually calculating payrolls is difficult. In a SurePayroll survey, more than 30% of small business owners have reported that they have made a payroll mistake at least once, such as underpaying an employee. 

Hence, using global payroll software is recommended to avoid errors in calculating hours and wages. Apart from calculating salaries, the software will also calculate payroll taxes and bonuses. 

2.What is multinational payroll outsourcing?

It is a business practice that involves assigning global payroll to a third-party service provider. It also includes handling payments and taxes for the international team. 

3.What do payroll processing fees include?

The payroll processing fees would differ depending on the provider, the location of the workers, and the number of employees on the payroll. Some global payroll providers offer tier-based pricing depending on the country and the number of employees based in the location. These providers may also charge a one-time account set-up fee or a monthly fee.

What are the best management practices for global payroll?

There are several management practices that you can integrate into your global payroll process to ensure its functioning efficiently. Here are a few key steps to consider:

Understand all differences in cross-border salaries 

It is crucial to adjust cross-border salaries that would reflect the differences between countries, such as tax rules, cost of living, and labor market conditions since these factors affect the global payroll. In addition, different countries have their income tax rates which can affect an employee's net salary. 

Hence, understanding all these differences and different factors is necessary to ensure that the employees are getting fair and competitive pay across borders while the company fulfills its tax and legal duties. 

Ensure your security systems are solid

It is important to have a strong cybersecurity infrastructure to ensure that sensitive information is protected. It can be achieved by: 

• Using strong passwords, two-factor authentication, and encryption when managing data online
• Ensuring teams dealing with personal information receive regular training on cyber protocols.
• Establishing a high standard of security
• Developing comprehensive guidelines across access control and use of the company’s IT equipment. 

Implementing these steps would ensure that your business is protected against potential threats.

Automate as much as possible

Automating global payrolls offers several benefits such as streamlining operations, saving time on administrative tasks, and preventing errors. However, consider the following points before you start automating:

• Ensure your company’s HR processes are in order since automation works best when the company’s procedures are clear and standardized. 
• Analyze which automation software works best for your company in terms of scalability, security measures, and cost-effectiveness. 
• Ensure your people are aware of any new systems or tools used in the payroll process.

Choose Gloroots To Pay Global Teams

Looking to hire internationally but worried about the whole host of payroll challenges?

Gloroots global payroll system offers multiple benefits including timely and accurate payroll for your international employees. They also offer multi-currency transactions, streamlined operations along with compliance with the country’s local laws and regulations.

Gloroots offers global payroll services for over 140 countries, simplifying hiring and boosting a diverse workforce. If you’d like to know more about Gloroot's services, contact us today!