No one said global payroll compliance was easy. When rules change from location to location and region to region, it takes a team to keep even the basics of compliance in order on top of the usual day-to-day work that comes with global payroll management.
And the mass of complicated legal explainers certainly doesn’t help when trying to wrap your head around the complexities. With that in mind, we’ve summed up seven key areas of global payroll compliance that you need to understand, in the simplest terms we can, so you can get started becoming an expert on payroll compliance laws!
What is global payroll compliance?
Every location has its own rules and regulations for payroll—in some cases even changing from region to region—and the legal requirements cover everything from payroll processing to employee benefits.
So, given how many differences they are and how fast things can change as new legislation is released, it’s no surprise that global payroll compliance is tricky. The long list of global payroll compliance tasks includes:
- Tax and social security requirements
- Statutory employee benefits
- Data privacy and security
- Currency and exchange rate management
- Payroll filing and reporting
- Employment laws and regulations
And that’s not exhaustive! So, ask yourself… how exactly are you keeping on top of all the above, in every location? Are you doing enough to stay compliant, and avoid the risks that come with not adhering to payroll compliance laws? We’ll now look at the most important to help you keep on top of the key global compliance considerations.
Key global payroll compliance considerations
Whether your business is already global or you’ve got expansion plans in the works, everyone needs a refresher on global payroll compliance from time to time. Here are the things we recommend you regularly audit and review:
Local labour laws
Labour laws, or employment laws, are the regulations designed to protect workers’ rights and govern relationships between employers and employees. They differ from place to place, meaning you’ll have to focus in on specific regulations depending on where you’re operating.
For example, France is known for its 35-hour working week, where anything above that requires overtime pay. But the UK allows for up to 48-hours per week under their Working Time Regulations. And things can vary within country, such as in the US where labour laws vary by state, like differing minimum wage rates and leave entitlement.
Reporting requirements in global payroll compliance consists of the submitting the legally-required information to the governing authorities in each country. While they all focus on similar aspects—like reporting global payroll payments, taxes, social security, and other payroll related activities—exactly what you must report on, how you submit it, and when you submit it changes from place to place.
For example, in the US, companies must report wages and taxes to the Internal Revenue Service (IRS) using forms like W-2 for employees and 1099 for contractors. And in the UK, employers are required to use the PAYE (Pay As You Earn) system to report employee earnings and taxes to HM Revenue and Customs (HMRC) on a regular basis, typically every time payroll is processed. Or, in Australia, Under the Single Touch Payroll (STP) system, employers report employees’ payroll information, including salaries, wages, PAYG (Pay As You Go) withholdings, and superannuation, to the Australian Taxation Office (ATO) each time they pay their employees.
Payroll reporting and deadlines are non-negotiable, so we recommend creating a list of required reports and a calendar of their deadlines in each location your run your payroll.
Data privacy and security
Obviously, payroll involves collecting and storing sensitive employee data, such as their banking details and social security numbers. And the laws surrounding how you handle sensitive data differs around the globe.
There’s EU General Data Protection Regulation (GDPR) and the somewhat-adapted UK GDPR. There’s US Health Insurance Portability and Accountability Act (HIPAA) plus state-specific regulations such as the California Consumer Privacy Act (CCPA). There’s India’s Personal Data Protection Bill.
Ultimately, you’ll find different regulations in each location. While they all serve the similar purpose of protecting personal data and regulating the use of data by businesses, they’ll each has their own nuances you need to consider when adhering to payroll compliance laws.
Tax and social security
One of the most important areas of global payroll compliance is tax and social security, there’s no doubt. But rates for tax and social security vary from country to country, for both your business and your employees. For the most part, you’re responsible for making sure the correct deductions are made from your employees’ wages via payroll. But there’s also some instances where they’ll be responsible for paying their own taxes, so make sure you’re up to speed on what needs to be deducted and when.
In the UK, under the PAYE (Pay As You Earn) system, employers withhold income tax and National Insurance contributions from employee wages, remitting them to HM Revenue & Customs. In Germany, employers withhold income tax and solidarity surcharge, along with social security contributions that cover health insurance, unemployment insurance, pension insurance, and nursing care insurance. But in Singapore, employees typically file and pay their own income taxes directly to the Inland Revenue Authority of Singapore (IRAS) and employers issue a statement of earnings (Form IR8A) to assist in this process.
Typically, tax and social security contributions are calculated using a percentage of income, which is set by the governing authority in each country. In cases where employees are responsible for their own income taxes, you may still have obligations for other types of deductions or contributions, such as social security or provident fund contributions, depending on the country’s laws.
By registration requirements, we mean registering your business with the relevant government authorities and tax agencies so that you can legally run payroll in each location you operate. While there are a number of legal entity types that you can set up in each location (each with their own advantages and disadvantages), there are certain payroll registrations you have to adhere to.
In Germany, employers in Germany must register with the local trade office (Gewerbeamt) and the tax office (Finanzamt). Or, in the UK, companies must register with HM Revenue & Customs (HMRC) for a PAYE (Pay As You Earn) system to report and pay employee taxes and National Insurance contributions. And in the US, employers must obtain an Employer Identification Number (EIN) from the IRS and register with state tax agencies for state income tax and unemployment insurance.
Make sure you’re registered with every governmental body you need to be registered with in each location to maintain your global payroll compliance.
Statutory benefits are the employee benefits you’re required to offer your employees by law, and again, these vary widely around the world.
France mandates comprehensive health insurance. The EU mandates at least four weeks of paid annual leave. Parents are entitled to 480 days of parental leave in Sweden, which can be shared between them. Employees are entitled to 30 days of annual leave in Brazil after one year of service. The list of nuances goes on!
Make sure you pull together a clear global benefits strategy and keep on top of any legislative changes. You’re always able to offer your teams more than the statutory minimum requirements to help you stand out as a great employer, no matter what the location.
And the final area of global payroll compliance we’ll talk you through is employee classification. Classification determines your obligations around their taxes, benefits, and labour protections. Are they a full-time employee? Part-time? Temporary? Independent contractor? Whatever their employment type, you must classify them correctly.
The UK distinguishes between employees, workers, and self-employed individuals, each with varying entitlements to things like paid leave and dismissal processes. The Canada Revenue Agency uses a set of criteria to distinguish between employees and independent contractors, affecting payroll deductions and benefits like Employment Insurance. Indian labour laws categorise workers based on factors like the nature of work, duration, and the extent of control.
Make sure all your employees are classified in the right way, in every location, to make sure you’re fully compliant with employment and payroll compliance laws.
Global payroll compliance needn’t be complicated
So, down to business. One centralised payroll team might struggle to be on top of the intricacies of payroll compliance laws and nuances in all your international locations. And it may not be feasible to have a payroll team on site in each place – you know how difficult it is to hire the right in-house payroll professionals across the globe and let’s not even get started on the expense.
But partnering with a global payroll outsourcing team could be the answer. We pride ourselves on working with our clients to create the perfect global payroll solution for the global payroll challenges they face. Get in touch to find out more about our fully managed international payroll services so that you can see the difference they can make to your business.