Global Payroll Compliance Essentials
The global economy brings many benefits to organizations, including being able to tap into the global workforce. But while hiring remote workers or opening offices in other countries significantly expands your organizational capabilities, it can also increase burdens for global payroll compliance.
Navigating the tax, labor and privacy laws across many countries introduces significant complexity to payroll processes. And when you’re scaling up with new offices or hiring remote talent internationally, that complexity multiplies.
Maintaining global payroll compliance can save your organization time, money and legal worries. In this primer, you’ll learn the greatest threats to global payroll compliance, what noncompliance could mean for your business and how to prevent and mitigate future errors.
4 Risks to Global Payroll Compliance
Achieving global payroll compliance requires organizations to monitor several factors, including a patchwork of labor laws, and to be deliberate about how they structure payroll teams and processes. Learn more about four key risks facing these employers.
Misclassifying employees as contractors, and vice versa, can be complicated when operating in only one country. Factoring in international differences in classifications only complicates that process and can increase the risk of paying or taxing workers improperly. Classifying a worker as a contractor when they’re operating as an employee can lead to legal penalties including fines, restored benefits and back pay.
Each country you operate in could have its own criteria for classifying contractors, which means managing different types of workers can increase compliance risks. Hiring contractors through approved platforms like Upwork, which handles the tax complexity on behalf of the employer, can significantly reduce this risk.
Global businesses may experience internal tension when deciding on global policies and processes versus decentralizing them. Given country-level legal differences, it’s likely impossible to develop universally applicable policies and processes. But decentralization — transferring payroll processes to local offices — can introduce risks, too.
In a decentralized payroll system, there’s less visibility into what’s happening at each office, which can make it easier for noncompliant behavior to go unnoticed — until it’s too late. That lack of transparency can lead to inconsistency and confusion around organizational best practices.
Decentralization also introduces complexity through sheer number of processes. Your organization might have a different payroll process at each location, which makes monitoring that data for compliance even more challenging.
A combination of a global office or vendor monitoring system, as well as liaisons at the local level, can minimize the risks of noncompliance. A unified dashboard that’s accessible to a central global payroll team provides transparency into each local unit’s operations so you can stay on top of compliance.
Expanding into additional jurisdictions, each with their own labor laws, introduces complexity to your payroll processes. Furthermore, your organization is responsible for monitoring regulatory updates in each jurisdiction and updating processes to maintain compliance.
As new laws or regulations are introduced concerning employee data privacy, environmental, social and governance issues or remote work, for example, your payroll team and legal counsel have to not only remain alert to those changes but also develop new guidelines for ensuring compliance.
More than 100 countries around the world, for example, have their own social security systems. As those countries update their systems, your payroll team has to understand what’s changing and adjust as necessary.
Employee Data Breaches
Employee data breaches are a growing concern for global enterprises, and countries around the world are revisiting their data protection and privacy laws. While many of these laws pertain primarily to online transactions and consumer data, protecting the personal data you collect from employees to better serve your workforce is paramount to maintaining compliance.
One of the more well-known privacy laws, the EU’s General Data Protection Regulation (GDPR), governs how employee data can be used, stored and accessed, and that can have a tangible impact on your payroll processes. Only certain trained and authorized parties should have access to sensitive employee data, which can affect who processes payroll and how you train those select few. Data storage is an important factor, too, and may require new software or technology to be compliant with data maintenance.
Privacy laws continue to evolve as technology becomes more advanced, and those changes can add more complexity to your payroll processes.
3 Types of Noncompliance Costs
The costs of noncompliance can be severe and can affect the bottom line. While financial costs are the most expected and measurable consequence of noncompliance, soft costs to your reputation and talent strategy can be just as detrimental.
The most common — and most tangible — type of noncompliance cost is financial. Typically, companies who fail to comply with global payroll regulations can be subject to back pay obligations, fines and penalties, not to mention legal expenses.
Something as simple as missing a filing deadline can result in penalties, for example. And because deadlines differ based on each jurisdiction you operate in, missing multiple deadlines is a significant risk. Each jurisdiction has its own benefit and insurance offerings, too, where noncompliance can result in financial penalties.
All of these costs add up and can even affect the bottom line.
Failure to comply with global employment regulations can damage your reputation, causing consumers and other stakeholders to lose faith in your brand. Repeated payroll errors can signal that your organization isn’t cautious or prudent even when the stakes are highest. This negative spin and loss of faith can contribute to significant financial losses for your business.
Incidents of noncompliance aren’t just alarming to the public: Your workforce is most affected by these failures. And problems with an employee’s paycheck can hit especially hard, both in financial terms and in lost trust.
That lost trust can spiral into lower employee morale, increased disengagement and higher turnover. And in a climate where talent is in high demand, you can’t afford to let that happen.
3 Best Practices for Improving Global Compliance
Maintaining global payroll compliance is complicated, but you can take steps to make the process easier. Implement these three best practices to keep your global payroll in line.
Assemble a Global Payroll Team
Enterprise-wide oversight of your payroll processes is essential. Appointing a team to monitor global payroll compliance at the corporate level can prevent many compliance errors.
Team members should include:
- Someone from finance who is well-versed in the taxation and legal requirements of the payroll process.
- Someone from HR as a strategic representative who can develop effective processes and manage people data.
- Someone from IT to help monitor systems and cybersecurity.
The global team can also stay abreast of country-specific changes in laws that may affect payroll, and develop training and support for local administrators.
Draft an International Payroll Process
Developing consistent guidelines for payroll processes — while leaving room for differences in country-level requirements — can help local administrators make choices that are consistent with your organizational policies and values.
An administrator processing payroll at a local office, for example, should have a standardized process to follow while being able to make specific exceptions. With a global payroll team in place, the administrator can reach out with questions or concerns, escalating any potential issues to the corporate team before they become significant.
A high level of consistency across the organization can help the global oversight team more effectively monitor payroll-related data and spot errors more quickly.
Implement Centralized HCM Software
Housing your payroll data from locations around the globe in one centralized human capital management (HCM) system can further support consistency. Payroll administrators can access the data they need regardless of location, while the global team can monitor the data and easily flag errors or concerns. A unified dashboard enables easy, at-a-glance oversight by your global payroll team.
And because this employee data is especially sensitive, keeping it in one place where only authorized users have access adds an additional layer of protection. Work with the global payroll team’s IT representative to develop safe and repeatable security processes.
Identify tech tools with features that help you manage a global workforce. Software with built-in tax calculators, for example, can help you maintain compliance across borders. Criterion HCM uses geocodes to accurately withhold the right amount of tax from each employee’s paycheck. These country-specific configurations abide by the latest laws and regulations, providing your payroll compliance team with much-needed peace of mind.
Master Global Payroll Compliance to Drive Growth
Don’t leave compliance to chance. With the right plan, processes and tools in place to maintain global payroll compliance, you can expand your business with confidence.