Payroll & Compensation

Ensuring Proper Payroll Practices

These compensation considerations will set organizations up for success when expanding and employing a global workforce.

By Judith Lamb

In a way, global business expansion has never been easier. Whether opening an office in another country or enabling staff to work in different countries, the tools and infrastructure exist to make it happen.

Remote collaboration resources and video conferencing allow teams to feel connected wherever they are. Lightning-fast financial transactions and rapid product delivery facilitate global e-commerce markets. And incentives like digital nomad VISAs enable remote workers to do their jobs while experiencing other cultures and ways of living.

It all sounds so easy, right?

Hiring a global workforce and giving them tools to succeed is one thing, but paying that workforce on time, accurately, and in accordance with local laws and regulations is another. When done correctly, payroll can be one of the most strategic elements of a global expansion. So, before a company starts expanding globally, there are a number of things HR leaders should be aware of to ensure payroll is that strategic driver.

Complexities Associated with Global Expansion

Companies can expand globally in several different ways—some more complex for HR leaders than others.

One way to expand is for a company based in a single country to hire remote workers in a different country. Since the pandemic, this has become much easier and it’s something even a small business can easily do. From an HR perspective, this can easily be executed in-house.

It becomes much more complicated for HR and payroll teams when a company wants to expand by opening an office or setting up an entity in another country. Take, for example, a U.S.-based retailer wants to open a store in Barcelona, Spain, and another one in Paris, France, and hire area workers to staff those locations. The company will now have to pay employees in multiple different currencies, in countries with different tax regulations and employee benefits requirements.

In that same scenario, the company may need workers from the U.S. to travel to these other countries for a period of time to help set up the offices properly and train local workers. Those U.S. workers will need work VISAs to work in Barcelona and Paris, and how VISAs are obtained in each country is different.

A survey by PwC found that 75% of organizations that have implemented a global payroll solution have seen a reduction in payroll errors, and 68% have seen improved compliance with local regulations.

How to Administer Payroll on a Global Scale

Just as nearly every element of business becomes more complex when a company goes global, so does payroll. And because of that, HR leaders should have a strategic seat at the table during global expansion discussions.

Here are three things HR leaders must consider when employing a global workforce.

  • Expand strategically. Even if a particular country is growing and there is a market for a product or service, it doesn’t mean opening an entity there is a smart move. Just as the CEO brings his or her vision to the table and the CFO considers the financial implications, a CHRO and their team must examine the people dynamics. How stable is the currency there? How educated is the workforce? Do workers in this area have the skill sets needed? Is the company capable of paying workers there? Are the banking and financial systems reliable? The answers to these questions are critical in determining whether a global expansion to a particular country makes sense.
  • Adhere to local laws and regulations. Labor laws differ considerably from country to country. HR leaders must know how workers are classified in each country, conduct the proper right-to-work checks, and develop competitive compensation packages that align with local market standards. Each country also has different tax laws and administrative requirements. Some countries still require ink signatures on documents and paper check stubs. Other countries require employers to fund pensions or have precise rules about overtime or social security. If laws and regulations are overlooked, companies face significant fines and fees, which can quickly tarnish an organization’s reputation.
  •  Consider overlooked costs. With the company’s workforce now dispersed across the globe, HR teams must stay up-to-date with reporting requirements and maintain compliance. This may require new platforms with expanded capabilities, enhanced record-keeping software, or a partnership with a new provider. To ensure payroll data privacy across international borders, the company may need to invest in increased security measures or IT infrastructure. It’s also often much more cost-effective to work with a single global payroll provider than to use multiple providers that can only operate in select countries. A single provider often offers more flexibility, better visibility, and reduce complexities.

The success of a company’s global expansion can be negatively impacted if these sometimes hidden costs aren’t brought to light by HR teams.

HR Plays a Critical Role in Global Business Success

There’s no question that a significant amount of pressure and responsibility falls on the shoulders of HR leaders when a company expands globally. Hiring, employing, and paying employees across the globe requires forethought, strategic planning, and strong partnerships.

Sometimes it means working with an employer of record that has people on the ground in the country where a business is opening an entity. It may also require partnering with a payroll provider that can pay people in dozens of different countries. HR leaders should know  when to bring in a partner and evaluate options thoroughly.

The benefits of a global and diverse workforce are many. By conducting research, being prepared, and identifying the right partners ahead of time, HR teams can set the rest of their organization up for successful global expansion both now and in the future.

Judith Lamb is chief human resources officer at Cloudpay.

Tags: November 2023

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