The benefits of payroll outsourcing for global businesses
Use our guide to identify how payroll outsourcing could save your business time, money, resources, and risk.
What is international payroll processing?
A company’s payroll is the complete list of its employees and the information required to pay them – such as their annual salaries, pay cycle, role within the company, a history of their pay, documentation concerning tax obligations, and so forth.
Payroll processing refers to the people and practices in charge of making these payments to employees. Due to the complex and often involved nature of the task, payroll is commonly outsourced to third parties.
International payroll, or global payroll, describes payroll processing which operates across borders, and often across a variety of different jurisdictions each with their own set of rules and regulations governing employee wages and tax.
- Creation, administration, and management of accurate timesheets for non-salaried employees, as well as accurate salary information for salaried employees.
- Making the correct deductions from employees’ monthly payslips, such as pension contributions, student loan repayments, or national insurance contributions.
- Withholding income tax on your employees’ behalf, as well as arranging or matching any other tax contributions you as the employer must make.
- Keeping an accurate and accessible record of payroll and submitting these records to the appropriate authorities in a timely manner.
- Delivering employee payment on time, every time, using the payment method agreed upon in your employees’ contracts – e.g., via direct deposit, direct debit, cheque, etc.
- Redistributing the correct portions of employees’ wages who must make regular child support payments, alimony payments, and the like.
What is payroll outsourcing for global businesses?
According to a recent Deloitte survey into global payroll and salary benchmarking, at least 73% of organisations outsource some aspect of payroll, both on the local and international scale. Outsourcing payroll refers to when a company engages a third party to assume all or part of their payroll processing – a move which can prove especially savvy in international business expansion situations.
Payroll outsourcing can go to an accountant or accounting firm, or to a global payroll specialist with decades of experience navigating the complexities of international payroll compliance. Businesses can choose whether to entrust the entire payroll process to the third party, called ‘outsourcing,’ or only part of the process, which would be called ‘co-sourcing.’
Below, we’ve gone into greater detail on some of the most fundamental international payroll processes which might be considered part of your outsourcing payroll package.
Employee payroll management
Each new employee, both local and overseas, must first be enrolled on your company’s payroll. This process includes ensuring pay clarity within the employee or independent contractor’s contract, gathering all the personal information necessary to processing their payment, and integrating this new account into whatever payroll software your company uses.
Paying overseas employees
Businesses expanding across borders must often consider hiring local talent to facilitate their international operations. Payroll regulations differ depending on the country you operate in, and as such, a fundamental aspect of international payroll processing is to ensure compliance regardless of jurisdiction. Laws tend to be more stringent, or at least clearly defined, with regards to paying overseas employees versus dealing with independent contractors.
Paying independent contractors
Depending on the nature of your business expansion, you may alternatively (or additionally) elect to engage the services of independent contractors working remotely. In this situation, accurate and transparent payroll processing plays an important part in helping you to avoid employee misclassification, as well as in ensuring your remote workers are paid fairly.
Payment method management
The method in which you pay your employees can differ considerably from company to company. Once you cross border lines and enter labour markets abroad, you may find the matter complicated further. International payroll processing covers the setup of various desired payment methods for both the company and its employees. In a global context, this will include factors like payment currency.
International tax withholdings and employer/employee contributions
Employers are typically obligated by law to withhold certain percentages of their employees’ wages as tax. These percentages can differ substantially depending on the country in question.
In addition, other contributions may have to be made to local tax authorities as well as private and public services, such as pension schemes, health insurance, and national insurance. Whether it is the employer or employee’s responsibility to make these contributions depends on the country or region, as do the amounts.
A global payroll processing team should ensure full compliance with the tax laws in each of the jurisdictions in which the company operates.
Overseas payroll compliance: 13th month salaries and more
When enrolling new employees on the payroll, it’s important to be aware of local salary customs and pay cycles which may differ from those your company is used to dealing with. For example, in many Central and South American countries, as well as many countries in Asia, it is common practice (if not legally enshrined) to pay employees a 13th month salary. This is but one example of the many unique responsibilities you can relieve your company of by outsourcing global payroll.
End-of-year tax forms and declarations management
No matter where you are in the world, taxes must be filed. In some countries, like the UK for example, the way you file your company’s and employees’ taxes is changing – soon it will be mandatory to submit tax every quarter, rather than annually. The forms you must fill in for your employees, as well as the declarations you must make and on what frequency, depend upon the jurisdictions you operate in. International payroll processing must ensure a range of end-of-year tax deadlines are met.
The 6 major benefits of outsourcing international payroll
Depending on the size of your business, you may well already have a dedicated payroll team. Even the smallest businesses often outsource their various payroll needs to an accountant. As such, you may be asking: Why payroll outsourcing? What could outsourcing global payroll to a third party do for my company that my current payroll processes can’t already?
Below, we explore 6 key benefits which might better explain the exceptional value of outsourcing payroll for businesses looking to expand internationally.
Benefit 1: Saving money
One of the main draws of outsourcing payroll is its cost-effectiveness. The costs of conducting global payroll in-house can quickly mount up; requiring a team-wide fluency in international tax law and pay culture, the purchase and maintenance of expensive payroll systems and software, and extensive payroll training to ensure payroll employees don’t make costly mistakes.
Engaging the assistance of a third-party payroll provider can often reduce your expenditure, allowing you to redirect funds elsewhere in the company. Outsourcing payroll becomes especially cost-effective for businesses operating across multiple countries with myriad different payroll obligations.
Benefit 2: Saving time
By outsourcing payroll, employers can retrain their time, effort, and focus on other more profitable initiatives which can help to grow their business. Time saved is of particular use during international expansion, since there are so many different gears turning. Outsourcing global payroll means more time to spend on revenue-generating activities.
Benefit 3: Minimise errors
The intricacies of global payroll have hopefully been made abundantly clear by this point. The potential for human error is great when you rely on an in-house team to calculate, record, and process payroll for a workforce spread around the world. Most crucially, mistakes made in global payroll can affect compliance, breaches of which can trigger hefty fines and other financial penalties. A trained third party, with expertise in global payroll, the time to dedicate themselves to your needs, and access to the latest payroll software, can automate a lot of these processes to minimise the risk of errors.
Benefit 4: Stay compliant across multiple jurisdictions
From international labour laws to tax, compliancy is key to the success of overseas expansions. In addition to the legal jargon which shrouds much of the regulatory literature your in-house payroll team would have to master, the sheer number of these rules can prove too much for even a seasoned member of staff. By engaging the services of a global payroll provider, you instantly access expert knowledge and an international team of experts with firsthand local knowledge of different jurisdictions – making compliancy easy, and better still, stress free.
Benefit 5: Enable smoother strategic human resource management
Strategic human resource management (SHRM) helps businesses toward their long-term goals by getting the right people into the right jobs, for the right money, at the right time and in the right place. Payroll plays a big role in ensuring you are able to attract the right people when you need them, and as such should be given every opportunity to excel. An overworked in-house payroll team dealing with global compliance issues, and meeting the many other needs of a remote workforce, may not have time to create the sort of benefits packages needed to attract the top talent. A trusted payroll solutions provider, on the other hand, could.
Benefit 6: Access the latest technology
Lastly, it’s worth noting that global payroll processing requires quality systems to operate smoothly and efficiently. These systems, backed by the latest software, can be prohibitively expensive for MSMEs, and may not prove cost-effective if the people using them are not fully-trained or equipped to make the most of them.
Global payroll experts tend already to have the latest and greatest payroll technology at their disposal, which they can use to streamline your company’s international payroll needs without you having to foot the bill. Moreover, because these third parties handle the sensitive information of potentially thousands of people all around the world, their security systems must be state of the art. Improving the security around your own employees’ information is another potential benefit of outsourcing payroll.
Recap: Why payroll outsourcing?
Payroll outsourcing takes a great deal of pressure off your shoulders, especially when framed in the context of international business expansion. Navigating the ever-changing regulatory landscape of global compliance, tax, and remote employee onboarding can put unnecessary strains on even the largest and most experienced enterprises; leading to expensive mistakes, financial penalties, poor employee retention, and a lack of time to spend on revenue-generating activities.
By outsourcing payroll internationally, you can dramatically reduce your in-house costs, whilst refocusing the time, resources, and employee power saved on the more pressing matters of your business growth. Moreover, you can be confident that your business will stay compliant across all the jurisdictions you currently operate in and plan to expand into. With expert advice and the latest technology at your disposal, you also maximise the potential return on your investment into global payroll, helping to attract the top talent from around the world.
Learn more about what global payroll outsourcing can do for you, and begin your journey toward a more efficient, compliant, less stressful international expansion today.
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