If you’ve ever wondered what global payroll is and how organisations manage it in the complex world of international employment, you’re in the right place. From differing tax laws to currency fluctuations to cultural differences, there’s a lot of factors at play. So, whether you’re a seasoned HR and payroll professional or just curious about the inner workings of global business, we’re here to answer two of your key questions: “what is global payroll?” and “how does global payroll work?”
What is Global Payroll?
The global payroll process will look different depending on the country and regions you’re operating in, so the answer to “what is global payroll?” is a big one.
But generally, global payroll is the catch-all term for payroll processes used to pay employees internationally, no matter where they are across the globe.
It covers every element of the payroll process, including:
- Calculating wages
- Deducting taxes and social security
- Managing bonuses, expenses, and benefits
- Making employee payments
- Distributing payslips
- Adhering to local labour laws and regulations
- Payroll compliance filings
There are a range of different global payroll solutions, such as outsourcing to a global payroll provider, working with individual in-country partners, or engaging with an Employer of Record service. Either way, the main goal of global payroll is to pay your employees accurately, timely, and compliantly no matter their location.
Responsibilities of global payroll
So, we’ve covered “what is global payroll?” at a glance. Now, let’s look at a few more of the intricacies to paint a clearer picture of what global payroll actually is, and give you a better understanding of how global payroll works:
Local and regional compliance in every location
a. Employment contracts
Employment contracts for global employees are key as they need to align with the specific legal and regulatory requirements of each country employees are based. They need to comply with labour laws—such as minimum wage, working hours, overtime, statutory benefits and more. We’ll cover a few of these next…
b. Tax and social security
In global payroll, you need to comply with to the specific tax laws and social security requirements of each country where employees are based. This includes accurately calculating and withholding the correct amount of income tax and social security contributions for each employee, considering local tax rates, exemptions, and international tax treaties to prevent double taxation.
c. Minimum wage and statutory payments
Minimum wage rates vary from country-to-country—and sometimes even within regions of the same country—meaning you need to carefully monitor rates to ensure global payroll compliance. Statutory payments, which can include things like overtime, holiday pay, and statutory sick pay, are also governed by local laws and must be accurately calculated and paid in accordance with the regulations in each location.
d. Employee benefits
Managing employee benefits involves tailoring them to the legal and cultural norms of each country. First, you’ll have mandatory benefits in each location—often things like retirement plans and paid leave—which you have to offer every employee depending on where they’re based. Then, there are supplementary benefits that you can use to attract and retain talent. What’s desirable will depend on where you’re employing—but can be things like flexible working and bonuses—but ultimately, they need to align with local expectations and market standards.
e. Reporting and documentation
This involves maintaining detailed and accurate records of all payroll transactions, employee compensation, tax withholdings, and social security contributions. You must also adhere to country-specific reporting requirements, submitting regular reports to local tax authorities and other governmental bodies.
f. Data management
Managing employee data across borders also means actively managing data privacy and security. Different countries have varying data protection laws (like GDPR in Europe), that you absolutely have to adhere to to ensure compliance and avoid penalties.
Cross-border issues
a. Cultural differences and language barriers
Understanding cultural differences and language barriers is important, especially when communicating with employees about their pay and benefits. Miscommunications can lead to dissatisfaction or legal issues.
b. International banking
Making cross-border payments to employees in different countries can be complex due to differing banking systems, regulations, and transaction costs. Choosing the right banking solutions to process efficient and cost-effective international payments is essential.
c. Immigration laws
Understanding the impact of immigration laws on payroll, especially for employees who might move between countries, is key. This includes work permits, visas, and other legal requirements.
d. Remote work considerations
With the rise of remote work, more employees are working from locations different from their employer’s base. This adds another layer of complexity in determining tax liabilities and compliance with local labour laws.
How does global payroll work?
There are a number of different ways to approach global payroll management, and how you choose to do that will be dependent on your businesses unique set-up and needs. Let’s take a look at a few:
In-house global payroll
Managing your global payroll in-house means you can process payroll for your workforce entirely in-house, without the support of global payroll partners. This could be done from one central place such as a head office, or it can be managed by a team in each of your global locations.
Either way, in-house global payroll means you directly control data, and take the reins when it comes to wages, benefits, bonuses, compliance, and everything else that it takes to make global payroll work.
But there are a lot of complexities with in-house global payroll. It can be expensive, time-consuming, and overall challenging—so, it’s usually favoured by the largest global teams, who have a lot of resource internally to manage it.
Outsourced global payroll
a. In-country payroll providers
When you work with in-country payroll providers, you’ll work with individual vendors in each of your employment locations. They’ll manage the payroll for your employees in their respective locations, and you’ll manage the relationships with each of the vendors to make sure everything is running as it should be.
While this means you get to offload the burden of compliance, calculations, and global payroll payments, managing these relationships can be time-consuming—especially if you have multiple locations around the global and multiple international payrolls.
b. Multi-country payroll providers
A multi-country payroll provider will simply manage all your global payrolls for you. It keeps all your payrolls consolidated, so everything is under one-roof. They may process your global payrolls on your behalf, or they may work with all the in-country providers for you.
Whichever way it’s managed, it simplifies your entire global payroll process as it means everything is centralised, and you only have one relationship to manage. Providers will have expertise in all of the countries you employ and should offer you a fully managed service to carry, manage, and run all your global payrolls.
c. Employer of Record services
An Employer of Record (EOR) is a third-party organisation that becomes the legal employer of those you hire using the EOR. They’re responsible for paying your employees and handling the administrative and legal tasks associated with employment, while you focus on the day-to-day management of the employees. Better suited to small teams, EORs eliminates the need to establish a local presence or navigate intricate legal systems, allowing your business to expand into new markets swiftly and efficiently.
Let’s get started
When you partner with Just Payroll Services, there’s no need to ask “what is global payroll?” or “how does global payroll work?”—because we’ve got the expertise, so you don’t have to.
We’re always on hand to manage your global payrolls for you, keeping everything under one roof and supporting you during every stage of the process.
Get in touch to find out more about our global payroll services!