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The complexity of international payroll

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International payroll management cannot be summarized to managing a multi country commodity, with an end goal to generate a payslip in each country.

Payroll calculation is becoming increasingly complex and requires not only a mastery of labor law and payroll practice with highly secured technology layers and data flows.

 

A different complexity depending on the country

If for instance, we do focus on countries, where we HR Path have direct teams, and based on our 20+ years of expertise in the area of payroll outsourcing, we do see extremely heterogeneous levels of complexity.

EMEA

Labor laws in the first four countries are notoriously in favor of a social balance and rather employee oriented. Unions are strong and collective agreements protect labor relations. Collective bargaining agreements (CBAs, Conventions collectives) set the rules. For an agreement to be valid, it is negotiated at the national and regional levels, and often at the industry, company or plant level. The legal frame does articulate local requirements with additional European/regional measures such as GDPR.

 

APAC

Sixty percent of the world’s population lives in the APAC region. Ten languages are spoken and exchange rate conversions are difficult. There is a need to align regulatory standards with the rest of the world. This was necessary to continue to attract Western service-oriented organizations. Many of the processes introduced are digital, which is common practice for modern payroll solutions. However, the technology is still unreliable in many countries, so the alternative is to outsource or to use high risk manual processes handled by low-cost manpower. The trend toward outsourcing is also attributed to the complexity of country-level security regulations, cultural sensitivities, and the need for country-specific knowledge for processing and reporting.

 

USA

Employment and wage regulations in the United States are complex. They vary considerably among the 52 states and territories in the country. Rules also vary by region and city. The priority of enforcement of the rules is not uniform. Penalties for non-compliance can be high. As an example, in 2020, the U.S. government set the national minimum wage at $7.25 per hour. However, 29 states and the District of Columbia have set their own higher minimum wage. Tax deductions add challenges. There are seven brackets, each taking into account singles, married filing separately, married filing jointly, highest income households and widows and widowers. Some states also levy additional taxes.

 

 

Difficulty in anticipating internal and external changes related to payroll

 

Anticipate internal changes:

The globalization of our businesses is pushing us to reinvent the way we manage our payroll processes locally and it’s sometimes difficult to control a payroll based in other countries and to have a clear visibility on all processes. Furthermore, the tools used locally/internally do not necessarily allow for easy payroll operations in another country or in case the company size in country is changing significantly.

 

Moreover, there is also a need to anticipate all future needs related to the company’s growth strategy. Not taking into account a possible evolution of its international activities can indeed become penalizing in the medium term to manage its payroll without calling upon external and building an agregation of solutions rather than having the right flexible set from the start.

 

Control internal changes:

As previously mentioned, many external parameters can impact your payroll management. Beyond the legislative changes that are specific to each country, the changes in the world of work linked to the transformation of our societies, such as the emergence of telecommuting, push us to constantly adapt our payroll solutions in order to attract talent abroad and/or reinvent our companies.

 

You have discovered many multi-countries issues that you may have already encountered, if you are unsure about the accuracy of your international payroll, do not hesitate to contact us.