7 Common Global Payroll Challenges + How to Solve Them
Need help onboarding international talent?
- Managing global payroll can be challenging due to varying labor laws, tax systems, and compliance requirements in different countries.
- Companies can choose between in-house payroll solutions or outsourcing to streamline their global payroll processes.
- Automation, standardized data, and centralized reporting are key elements in optimizing global payroll operations while ensuring data protection and GDPR compliance.
Every company, whether local or multinational, has its payroll system—how it manages every payment that needs to be made to employees and independent contractors (or freelancers).
To comply with the law, a company must ensure every wage, tax payment, invoice, and data entry is in place. Businesses that don’t have foreign subsidiaries worldwide have a less complex task to tackle here, but a global business has to deal with more complex procedures since not all countries have the same labor laws and tax systems.
That means more demanding payroll processes, more data, and more room for complications and errors. Luckily, overcoming all these challenges and enjoying the perks of hiring from the global talent pool is still possible.
As one of the leading global payroll solutions, Deel helps over 15,000+ companies streamline their global payroll around the world.
In this article, we share our know-how, tackle the most common global payroll challenges, and offer a few ideas on making payroll processes easier and outsourcing less complicated.
Local compliance: Do you know the region’s tax and labor laws?
Paying your employees doesn’t mean just handing them their paychecks. The way you make payments to them needs to comply with the law, and if you hire foreign contractors or employees, there’s something else to consider: local compliance. It may be the biggest challenge for every business since it requires the employer to get to know the legal systems and labor laws of different countries and jurisdictions.
Hiring foreign workers means you’ll need to learn some procedures and regulations that are specific to each country. For example: Do you know what the minimum wage requirements are in your target country?
What about the payroll compliance requirements for before, during, and after payroll? Save this guide to reduce your risk of payroll errors and non-compliance:
Non-compliance leads to legal consequences that may cost your business. To avoid financial penalties, lawsuits, and even shutdowns and jail time, you have to ensure all your documentation is accurate and timely.
The solution: In-house payroll vs outsourcing
There’s too much information to take in when you’re a global company with many employees from all over the world. But, there’s actually a simple solution for keeping track of necessary payroll data.
Thanks to technological advances, there are now payroll software solutions that allow you to handle employee data more efficiently and reduce the chances of making a mistake. Certain parts of the payroll process can be automated, which means you avoid time-consuming tasks and make it simple to deal with different tax forms, rules, and deadlines you have to meet.
You will need a reliable team of payroll professionals who can track any changes in tax laws in different countries. These changes will sometimes mean you need to adjust your payroll system and ensure your payroll team is up-to-date with anything that may be going on in the home countries of your workers.
Another adequate solution is payroll outsourcing. Hiring a company that provides payroll services and trusting them with your whole payroll process may relieve a lot of stress and give you back valuable time so you can focus on other critical aspects of your business. The top benefits of payroll outsourcing include:
- Reduced risk of non-compliance
- Cost savings
- Better experiences for scaling teams
- Increased data security
- Fewer payroll mistakes
- More efficient processes
Accurate and real-time reporting: Can you see all of your workforce data in one place?
Automation doesn’t only save time but also contributes to more accurate and efficient reporting. When feeling exhausted, people are prone to making mistakes, and if you remove time-consuming, manual tasks from their plate, they become more focused and productive. That’s what automation software is for; it undoubtedly makes real-time reporting more straightforward.
The solution: Look for a platform with customizable, consolidated reporting
When your global payroll management is standardized and consolidated between countries and subsidiaries, you have quicker access to all necessary data whenever you need it because the systems are integrated and available to everyone within the organization, regardless of their location.
Using payroll technology can remove any inefficiencies that have been stopping you from improving your employee retention and accurate payroll reporting.
Employee misclassification: Is your worker an employee or contractor?
The consequences of employee misclassification can cause significant reputational, financial, and legal damage to a company if the IRS discovers an employer classified an employee as an independent contractor.
The solution: Work with compliance experts
Dan Westgarth, Chief Operating Officer, Deel
If you’re a US business owner and don’t want to make an honest mistake when determining if you’re hiring someone as a contractor or an employee, you can check out the 20 Factor test to help you make a clear difference. Most of these factors come down to the amount of work performed by the employee/contractor you have control over.
A more comprehensive solution is to use Deel to engage independent contractors and employees. When you use our employer of record (EOR) model, we take on the legal responsibility for your employees, including their classification.
With Deel Shield, we’ll assess the correct classification of your workforce, handle the hiring and HR admin on your behalf, and create locally compliant contracts.
Data protection: Are you following GDPR guidelines?
In 2018, Europe released new regulations related to personal data collecting and processing, introducing stricter rules (and higher penalties) for businesses worldwide. Those using third-party services to manage their clients’ or customers’ data had to make policy changes and adjustments to comply with the new standards.
That’s why having a suitable Data Processing Agreement (DPA) in place is extremely important. A DPA is a contract that legally binds the third-party data processor to handle the data in compliance with the GDPR. If they fail to do so, the document protects the data controller—the company that provided the data to the processor.
When engaging in work that involves sharing clients’ personal data, countries within the EU are legally obligated to sign a DPA with the companies they collaborate with.
The solution: Confirm your global payroll partner is GDPR compliant
Hiring new employees abroad requires extending access to your payroll data. To ensure accuracy and efficiency, consider investing in automation software.
By using such programs, you can reduce the risk of human error since less data will be managed manually. This approach enhances data security by ensuring that only essential personnel have access to and manage confidential information.
How Deel helped Telin simplify and scale their global payroll
Telin is an international telecommunications service provider based in Jakarta, Indonesia.
As Telin aimed to continue growing—with a goal of scaling in 15 new international markets—they needed a solution that handled:
- Onboarding documents
- Employee benefits
That’s where Deel came in. With Deel, Telin can view their whole international workforce so they’re confident their team gets paid, employed, and serviced correctly and compliantly in their own countries and time zones.
“The intangible value is using Deel to handle all the compliance aspects of hiring and operating payroll processes around the world. It has saved Telin considerable time compared to if we handled it ourselves.” — Wayan Damayant, Human Capital Specialist, Telin
Leveraging automation: Have you optimized your local payroll operations?
We already mentioned how technology could help us save time and achieve better results in business, though it may be time-consuming to integrate programs into your daily processes. Sometimes, the complexity of it is due to the inexistent standardization of your data and a lack of a single system that will collect it.
When you standardize your data, you will notice how automated HR processes can easily replace manual tasks. By implementing automation in your systems, you will become more efficient and reduce the time and money you’d usually spend on daily tasks that consume too much energy.
The solution: Audit, standardize, and centralize your global payroll platform
The first step towards well-implemented global payroll automation is to look at your local payroll. Where can you make cuts? Are your processes completely optimized, or is your staff wasting time on repetitive tasks?
If you successfully identify points where you can make these cuts and introduce automated processes, you’ll see how cost-effective and fast your global payroll operations can become.
Integrating your global payroll process and the system used by your human resources department can result in multiple long-term benefits. For example, you can spend 51% less time onboarding new employees by using Deel, an all-in-one global HR solution for international teams.
Automating specific payroll processes gives your employees time to focus on core business aspects that can’t be completed without their attention. By standardizing your data, you also make it easier to pull them whenever it’s necessary to prove your global payroll compliance or evaluate your HCM (human capital management system).
It’s worth mentioning that almost half of payroll respondents and just as many HR respondents said that their departments don’t share payroll services—or any services at all, for that matter. However, businesses that strive to attract top talent from countries around the world should find a way to integrate these departments to enable the best employee experience within their organization.
KPIs: Are you measuring the right metrics?
It may be difficult to determine what key performance indicators your should measure when evaluating your global payroll processes.
Wherever your workers are located, you should be able to determine whether they’re being paid timely and accurately. These two metrics, along with being compliant with the local tax and labor regulations, are the three key indicators of how successful your payroll system is.
Some businesses also take customer satisfaction into account—in this case, your customers are your employees and contractors. Are they happy with the way their payments are made? Also, you may realize at some point that your current system isn’t cost-effective. That’s a red flag telling you it may be time to consider other options.
The solution: Identify and track specific payroll performance metrics
Payroll metrics are crucial indicators that help evaluate the efficiency and accuracy of payroll operations. By tracking these metrics in a user-friendly dashboard, companies can assess the current state of their payroll process, identify areas for improvement, and ensure timely payment to employees:
- Cost of payroll
- Effectiveness of payroll
- Time to run payroll
- Number of errors
- Employee leave
- Training costs
Cultural differences: How are you managing different languages, time zones, and regional expectations?
When working with international employees, you must not neglect the challenges of different cultures, expectations, communication styles, and payroll requirements.
Running international payroll requires working with different currencies, time zones, languages, and more. The success of your global payroll system may depend on how well you can adjust your day-to-day processes to your global workforce.
The solution: Establish clear policies, processes, and workplace training
You can easily overcome these hurdles by setting up systems and procedures for your team. Also, it’s vital to consider these culture-related factors before you open the subsidiary or your new employee is waiting for their first payment.
As an employer, you’ll want every new employee to feel welcome to your organization, so it’s important to set some expectations before the collaboration starts. Learning about your employees’ (or contractors’) backgrounds and cultures before you hire them may help establish open communication and ground rules that will help you solve any issues as efficiently as possible.
Implementing mandatory training on diversity, equity, and inclusion (DEI) will help managers and team members understand their roles and responsibilities when working on a global team, as well as your company’s policies and values.
Simplify global expansion with Deel’s all-in-one international payroll
According to our State of Global Hiring Report, global employment is showing no signs of slowing—in 2022, 89% of contracts created on the Deel platform were for remote workers.
Deel makes paying remote workers as simple as possible by centralizing worker payments, compliance, HR, immigration, and more, all in one platform.
Alex Bouaziz, Co-founder and CEO, Deel