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6 min read

2024 Global Payroll Summit Recap

Global payroll

Author

Shannon Hodgen

Published

March 11, 2024

Last Update

July 23, 2024

Table of Contents

Communication and payroll maturity on a global scale

A roundtable conversation with Carta, Brex, and Deel

Using stablecoins in global payroll

Building a global employee recognition program

How to run a successful global payroll transformation project

The benefits of time tracking for small businesses

Classifying employees and independent contractors

As companies of all sizes continue to embrace global hiring, they’re in need of a payroll solution that strengthens their compliance, keeps their workforce connected, and supports competitive compensation strategies.

In this summit, thought leaders and industry experts from brands like Klarna, Brex, Coty, Harvest, Circle, Puzzle, Guusto, and Carta shared a comprehensive overview of payroll tech developments and practical strategies for improvement.

Watch the recording now, or check out this detailed recap to listen in on the discussions and valuable insights that can help you plan and mature your global payroll strategy.

Speakers

  • Daniel Greaves Head of Global Payroll, Klarna
  • Vic O'Callaghan Director, Payroll Implementation, Deel
  • Josh Steinfield Principal Product Strategist, Carta
  • Kiki Hui Principal Product, Brex
  • Phillippe Manzanares SVP, HR Transformation & Digital Operations, Coty
  • Dan Van Damme Manager, Account Executive, ENT, Deel
  • Cameron Fitchett Senior Product Marketing, Harvest
  • Luke Frye, CPA Head of Customer Success, Puzzle
  • Skai Dalziel CEO, Guusto
  • Anuj Bathla Senior Director of Business Development, Circle

Global hiring and payroll overview

To kick off our discussion on global payroll, Raman Deol, Deel’s Director of Brand Communications, shared the latest global hiring trends from Deel’s 2023 State of Global Hiring Report.

One clear throughline in every country is that global hiring has sustained its momentum—companies are continuing to hire skilled talent from outside their country in every major region.

“Our takeaway is that although return-to-office or domestic hiring groups are loud and abundant in the ecosystem, the numbers show that global/remote hiring isn’t going anywhere.”

The report also explores payments, employee mobility, and termination trends, providing end-to-end insights into the employee experience.

“Overall, the results from the report varied across the board when it comes to things like salaries and terminations, depending on where in the world you were looking,” she explained. “For example, in the US we saw a dip in salaries as we rebounded from 2021 highs, whereas we saw salaries increase otherwise.”

Explore the full State of Global Hiring Report.

Leaving global payroll challenges in the past

Vic O’Callaghan is the Director of Payroll Implementation at Deel. She has been in payroll for over 20 years, primarily working in the UK payroll industry before moving into global payroll. 

During the summit, Vic discussed the core challenges of global payroll management she has noticed throughout her career and explained how Deel’s solution streamlines the payroll process, enhances compliance, and supports companies with international operations.

Vendor management

“One of the most common challenges payroll teams face is how disjointed the payroll process becomes when they use a number of different vendors,” said Vic. “Your payroll has grown, and while you may have started with payroll in just two different countries, you start to gather different vendors through global hiring or acquisitions.”

According to Vic, this is really when the difficulties begin. Each vendor comes with their own payroll cutoff dates, approval dates, and SLAs, and your team has to try and manage that, adding to the already-busy role of a payroll professional.

Payroll reporting

Next, you have to take reporting into account.

Reporting is a significant part of payroll, which becomes more complex with different vendors’ gross-to-net reports and approaches to information management. How do you find the headcount when you have data incoming from several different vendors? How do you find your bonuses and total payroll costs? 

You have to look at the calculations for each country, but many teams are missing the support or knowledge to understand payroll on a local level for each jurisdiction.

“Generally, this will never be a good experience for your payroll teams,” said Vic. “They already have a really busy job, and then to sit there and try to manage all of these vendors at the same time can be a real pain.”

Implementation and onboarding with Deel

What happens once you move to a global payroll provider? If you choose Deel, Vic’s team will guide you through the implementation and onboarding process with immense care and expertise.

Every client gets dedicated onboarding and implementation managers who work very closely with your teams, starting with a kick-off call.

“We have to learn everything about you as a client and how your teams currently process your payroll,” said Vic. “We want to find out about your policies and your current procedures, and through these kick-off and discovery calls, we will start working with you to find out your deadlines.”

Our team will build your calendars, collect your data, and help determine your payroll’s design. Your team can also upload any required documentation themselves, if preferred.

Next, we migrate your workers onto our platform. We can migrate all employees, employment agreements, onboarding documentation, employee information, and bank details so everyone is set up directly in our payroll system.

After that is the parallel payroll run, where we look at your current supplier, take all of the information that you have for a very specific period, and replicate that within the Deel platform. This is to ensure we have the correct results and that you are happy with the setup.

“We’re very pleased to say that we can get you set up and running between one to three months,” said Vic. “Once we’ve gone through your parallel runs and you’re happy with the results, we can set up all of your very specific reports and customize your reports as well.”

After that, we take you to the go-live state where the team will continue to work alongside you. “If you have any issues, any questions, if your team wants additional support and additional training, we’re there with you,” said Vic.

Payroll Connect

Some payroll professionals juggle up to ten vendors at a time, leading to inconsistent and overwhelming reporting work. With Payroll Connect, you can consolidate all gross-to-net reports into one global report with a click of a button.

“When you have a number of different payroll suppliers and vendors, all the report columns are in different orders depending upon the location or system,” explains Vic. “But Payroll Connect consolidates it all into one really easy report.”

You can then choose which currency you want to view the report in, export the report, and receive a full analytical package as well.

“I would love to go back a few years and be able to consolidate all of those reports from all my different vendors into one easy function,” said Vic. “Deel wasn’t around at that time, but I do truly believe it would have been able to solve a lot of the problems I had.”

Compliance monitoring

Deel is one of the only platforms in the market that has continuous compliance monitoring, providing real-life compliance alerts for over 150 countries.

Wherever your payrolls are based—UK, France, Germany, Spain, etc.—you are able to go into a specific country and look at all the upcoming compliance changes associated with that country, such as minimum wage, maternity laws, family leave, and more.

“This is a game changer for payroll teams,” said Vic. “There isn't another platform on the market that is able to show you all of those compliance changes in one easy step.”

Communication and payroll maturity on a global scale

Next, we welcomed Daniel Greaves, Head of Global Payroll at Klarna, to the virtual stage. Daniel got his start in payroll when he was a teenager, entering data at a large bureau in the UK. Now, he looks after global payroll implementation at Klarna.

In this portion of the summit, Daniel explored how to merge effective communication and payroll maturity as your team grows.

Communication styles

On a global team, everyone is going to communicate differently depending on their culture and personal communication style. As payroll managers, understanding and adapting your communication is key because you’re communicating with an entire business. Here's what Daniel advised:

Be flexible: You must be able to adapt your communication style to people in different regions and at different levels of the organization, from C-suite to fellow payroll experts, to employees asking questions about their payments.

Communicate to infuse, not confuse: It’s easy for payroll jargon and processes to confuse teammates who work in different departments. Instead, communicate in a way that informs and inspires coworkers and gets your team excited about their work.

The Goldilocks approach: Make sure your communication style is flexible but not too lenient. You want to be assertive but still approachable so team members feel comfortable coming to you when they make a mistake.

“We need to make sure we find a really good balance,” said Daniel. “If our teammates know our communication style—or they know we communicate our mistakes and we communicate our issues effectively—that helps everyone to communicate properly. That means everyone's being flexible, everyone's being encouraging, and therefore everyone's getting communication just right.”

Understanding payroll maturity

By determining the maturity of your payroll function, you can better understand how efficient your systems are in relation to your stage of business. During the summit, Daniel explained what the typical payroll maturity scale looks like and how to move up the ranks.

Payroll infancy

This is where you have a simple payroll system. Maybe you’re doing payroll in Excel or everything is done manually. Many times, you’re over-reliant on just one person, and if they go on vacation or have a family emergency, they may become stressed about not completing payroll on time.

Typically, companies at this stage lack documentation, legislative knowledge, and self-service options for employees, and regularly run into payroll errors. If you’re not assessing your payroll system, you can remain in the infancy phase indefinitely.

Payroll adolescence

In the next phase of payroll maturity, you likely have good payroll technology—but maybe only some steps are automated. For example, you might have an HR system with a separate payroll system, but you need to enter all data manually. Many companies at this stage don’t have comprehensive compliance support, and though they’ve reduced their amount of payroll errors, they’re still experiencing recurring challenges.

Mature payroll

At this stage, you have a payroll strategy, self-service technology, or potentially AI, and a place where employees can ask a question and get an answer straight away. 

“If people have questions, we want to make sure they can get access to answers as soon as possible,” explained Daniel. “That’s a really important step to reaching payroll maturity.”

Then, you can take it a step further by analyzing your other systems or dependencies, such as benefits systems and HR systems. “Realistically, payroll maturity is looking at full automation, full documentation, integrated reporting, compliance, and limited errors. That’s what you want to get to,” said Daniel.

To set yourself up for full payroll maturity, you need to hire experienced payroll people, have a clear payroll process, and use the right payroll systems. 

“You can be absolutely anywhere on this scale when you find the right people, process, and systems,” said Daniel. “You can be in the first stages, that's absolutely fine. But as long as we're on that journey to payroll maturity, that is what's going to matter.”

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A roundtable conversation with Carta, Brex, and Deel

Next, Josh Steinfield, Principal Product Strategist at Carta, Kiki Hui, Principal Product at Brex, and Dan Van Damme, Manager, Account Executive (Enterprise) at Deel came together for a roundtable discussion on employee compensation, retention, exchange rates, and more.

How can companies use Deel to streamline M&As?

Dan (Deel): The conversations we’ve been in typically involve, ‘How can you help us quickly onboard employees? This merger or acquisition is coming to a close in a matter of weeks, and we need to set up payroll fast.’

Because we own our infrastructure globally, we can quickly onboard payroll in a specific country in a matter of weeks, not months. 

Deel is also called upon when a company has entities that are being wound down and they need an Employer of Record (EOR) model in order to retain talent. Talent retention comes up as a common theme as it relates to payroll and having the ability to seamlessly integrate payroll and reporting across different types of employees and regions, especially in the mergers and acquisitions field.

M&A audits will often reveal employees who may need visa support as well. That’s an implication, a very costly implication, that the folks working on the M&A may not even be aware of. So that’s typically where we come into play.

How can organizations use global compensation data to reduce employee turnover?

Josh (Carta): Compensation is really an opportunity to educate your employees. And generally, the better an employee is educated about their compensation, the happier they tend to be about it, particularly if they can understand how their compensation was determined. 

For example, providing employees with a total rewards statement that outlines all of their compensation—their salary, if they’re eligible for a bonus, what their equity holdings look like, and what their equity holdings could potentially be worth, along with other benefits. Laying that out all in one place can be a pretty powerful tool.

If you ask a lot of startup employees how much equity they have, there’s a good chance they might not know the answer. In which case, why are you spending the resources to provide them with that equity in the first place? So give them that transparency, and educate them.

I'll put in a shameless plug for Carta’s Equity 101 resources which break equity education down into nice bite-sized videos.

What should global teams prioritize when assessing their tech?

Kiki (Brex): As companies expand globally, they end up becoming an expert on compliance and regulations in every new geography they expand into. You can become a global organization overnight by acquiring a new company, and you need to adapt your tools so quickly. 

From my perspective, companies should consider two things:

**1. Do your tools actually work together seamlessly?
**When you’re bringing on a new geography that comes with so much extra operational complexity, your tools are so important because you don’t want to replicate your setup multiple times. You don’t need to create a new expense policy for Brazil versus Canada, and you can actually have everything work seamlessly and quickly because you don’t want Brazilian employees to get their reimbursements three weeks later than other employees. 

2. How do your tools impact the employee experience? One set of employees having a different experience than another can affect how they feel about the company. With Brex, we want to make sure everyone has a similar experience no matter where they are. 

How does your company manage currency fluctuations and exchange rates?

Dan (Deel): We built our own treasury management system at Deel. Our business—with 150 entities across 120+ countries and over 400 bank accounts—is a pretty complex system. So, we manage that internally, and exchange rates are applied when payments are being made. It’s very complex in terms of being able to facilitate those payments and the exchange rates globally, but we manage that all internally for our clients, so it’s a much more seamless process.

Josh (Carta): From a compensation and benchmarking standpoint, exchange rates can be tricky when you're dealing with a global workforce. If you're providing a total rewards statement, include a currency conversion on that. It might also make sense to do a bit of a look back, whether that’s 7 days, 10 days, or 30 days. If you can find a trailing exchange rate average, you can smooth some of the volatility out and take a bit of pressure off what the currency markets happen to be doing on a given day.

Kiki (Brex): Brex processes reimbursements and, similar to currency fluctuations, will process it for the exchange rate at that time. On the employee experience side, it's going to their actual local bank account in their currency. And that is so important for the end employee—the money is exactly what they expect in the time they expect it.

How can companies ensure accurate tax withholding for global workers?

Kiki (Brex): I’m not a tax expert, but you need a tool that actually makes it easy for employees to understand what’s expected of them, and make it easy to do the right thing. With Brex, we automate a lot of these things with AI. So when a European employee pays for a meal in a restaurant in France, Brex will automatically pull out the corresponding tax for the correct substantiation for that expense, making it really easy for them—and for us as the finance team—to comply with the regulations in that area.

Josh (Carta): One thing I would add from a compensation design standpoint is that different countries will have different tax rules when it comes to equity vehicles. So make sure you’re working with an expert if you are moving into a new country or thinking about how to pay people in a new country. Those rules vary from country to country and you don’t want to put your employees in a position where you’re providing them with this equity award and then you’re just creating massive issues for them on their taxes.

What pay metrics should companies use to stay competitive?

Josh (Carta): What’s most important is starting with a compensation philosophy. How do you think about compensation? How do you think about your labor market? How do you think about who you’re competing with for talent? What percentile of those markets do you want to compete with for talent? 

This lays the groundwork for whatever you're going to be paying people. From there, you can start to build out local pay structures, and looking at country-specific data will help you set that up. When you start to build that program out, you can start to measure its effectiveness.

There's a concept called compa-ratio, which is someone's pay as a percentage of either your internal pay target or a market benchmark. You could be looking at 10 employees who are all in the same role, same level, but they could be scattered across a number of different countries. And simply looking at their pay in local currency isn't going to tell you a whole lot.

But if you're able to look at their pay as a percentage of a target, both in local currency, and you can see that 8 out of these 10 employees are at 98% of their target and we have 2 employees who are at 80% of that target, you know where to focus your efforts and you know where you might have issues when it comes to retention down the line. 

How can employees advocate for themselves when it comes to pay?

Josh (Carta): We're entering into this great age of pay transparency, so there are a few things employees can do when they're looking at this. Obviously there are online sources like Glassdoor, and companies now have to disclose pay ranges in their job listings in a lot of states in the US, and those rules are starting to come online in the EU as well. 

If you are an employee and you want to have a conversation with your manager about pay, it's also important to have a conversation about level. Because how you think about your role might be a little bit different from how your manager thinks about your role, and that's going to impact how compensation gets determined for your role. So do your research and outline your case to better prepare for that conversation.

Which features and functions of global tools have made the biggest impact on your processes?

Kiki (Brex): Being a remote-first global company, it's really the tools that provide a frictionless employee experience. For example, the ease of onboarding employees is something that is paramount. It’s not just that your payroll has the ability to actually pay these employees in their currency, but that all the tools they need to do their job are enhancing that employee experience.

Dan (Deel): I've seen a massive shift in our company in the last year and a half in terms of leveraging technology like AI and our compliance hub to really help organizations stay on top of changing regulations, tax implications, etc. We should be taking advantage of the technologies available from companies like Carta, Brex, Deel, and AI overall to work more efficiently and do our best work as global payroll and HR professionals.

Using stablecoins in global payroll

Next, Anuj Bathla, Senior Director of Business Development at Circle joined the stage to share his expertise in using USDC in global payroll and how it benefits multinational teams.

What is USDC? USDC is a stablecoin—or a fully reserved digital dollar—regulated like other dollars are regulated by other money movement companies.

USDC can offer highly liquid digital dollars that are redeemable one-to-one, backed by cash and cash-equivalent assets. In traditional markets, money moves when traditional markets are open during business hours. With always-on digital dollars like USDC, money can move faster over blockchain infrastructure at a fraction of the cost.

Core benefits include:

  • Access to dollars: In some markets, currencies are not stable but people want access to a stable currency and to digital dollars or digital euros.
  • Cross-border payments: Companies can send payroll in USDC to workers in countries like Argentina, Brazil, and UAE to provide the dollar stability they desire.
  • Efficiency: Sending stablecoin is a near-instant, low-cost payment you can make to anyone with a wallet that accepts USDC.
  • Better exchange rates: Employees can often get better exchange rates with USDC than in traditional markets, as it costs a premium to get dollars in some countries.

“What this means for payroll is that someone is able to make 5 or 10% more on their money by receiving digital dollars in some of these markets,” explained Anuj. “So the use cases for cross-border money movement or storing the digital dollar, they're immense.”

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Building a global employee recognition program

Different time zones, languages, cultures, preferences, and living costs can all make building a global employee recognition program difficult. In this session, Skai Dalziel, CEO at employee recognition software company Guusto, shares some of the most effective strategies for building a successful program.

Skai explains that many multinational companies make two common mistakes when building their recognition programs:

1. Building out a program based on your HQ location, and trying to roll the same program out across the globe.

“Inevitably, it won't be fair. It can also potentially cause resentment between your different locations.”

2. Taking your total global recognition budget, chopping it up, giving a portion to each country, and allowing them to build their own recognition programs.

“Some countries will do a good job of this, but some won't. It'll be a bit of a mess to manage it all. You won't have the kind of insights into your program that you want and will fail to build a culture of recognition throughout the organization.”

Instead, Skai recommends working with a company-wide platform that will support multiple languages and enable recognition for teams collaborating across borders. These platforms can act as a control center for how budgets are spent, provide insights into the impact of your recognition programs, and help identify what's working well in certain regions and what's not.

Distributing budgets

When distributing budgets, Skai recommends starting with the cost of living—looking at where people are located and making sure the rewards match appropriately. 

“It's best to give your local admins the ability to decide how to allocate funds to managers for day-to-day recognition. Instead of making those decisions centrally and applying them across the globe, let’s empower our local program administrators to take the funds and decide which of their managers get them and for what reasons.”

Determining approvals

When distributing rewards, Skai recommends removing approvals for day-to-day recognition, whether it's a global or local program.

“You don't want to make people across borders or time zones get permission to reward somebody,” said Skai. “Those barriers will just prevent recognition from happening and the program will fail to get off the ground.”

If approval is needed for larger rewards, get local managers to approve them so there’s no time delay in the recognition. 

Adapting to local culture

How people like to be recognized varies from culture to culture. They might prefer public recognition over private recognition, while some cultures might feel uncomfortable with public recognition and prefer that most of it happen privately.

“In some cultures, rewards and recognition for day-to-day work might be perceived as unfair or unwarranted, so you may want to structure your programs such that you’re not stepping on anybody's toes.”

Flexible reward options 

How do you ensure people get something they actually want? By providing flexible and fair options. Again, this means not having an amazing recognition and rewards catalog in one country and then having fewer rewards options in another.

“Finding a catalog of options for people in each of your kind of countries that you're operating in provides some flexibility there,” said Skai. He goes on to suggest using digital rewards instead of physical rewards, as physical rewards can potentially be delayed or face issues when shipped internationally.

Consistent communication

Skai recommends getting your program admins together once a quarter to gather feedback on the program. During this time, they can share insights into best practices, results, and the impact of the programs they’re running.

“This way, you know how participation rates might be driving levels of engagement, performance, or retention,” said Skai. “This often also helps breed healthy competition across regions and drive more recognition throughout the company.”

How to run a successful global payroll transformation project

In the next session, Phillippe Manzanares, SVP of HR Transformation and Digital Operations at Coty walked us through the global payroll transformation journey, sharing key principles you can follow to smooth out the process.

Change management

Change management should be part of each stage of your transformation journey, but it’s especially important in the beginning.

“Thinking that change management comes at the end when you have some training or when you engage some of the employees—that’s important, but it’s the last piece.”

Phillippe says that change management should start as soon as you begin the project. You want to make sure stakeholders are engaged from the beginning and that they are in full participation. This is critical as you are bound to face some resistance along the way—but if you have shared the goal with leadership, the process can be a lot smoother.

Finding the right partner

Not every partner is for everyone. You have to be mindful of your company’s size, footprint, and the complexity of your markets. 

“Finding the right vendor with the flexibility or structure to enable you to grow in size or add certain geographies is key. Having a strong partner is key because this process is complex—you want someone to help you do it right.”

Integrations

Phillippe also stressed the importance of ensuring your payroll system is integrated with your global HRIS. Check that the data can flow between the systems smoothly, and that the architectures between your payroll, time tracking, and other systems are completely integrated.

“You really need to think about the technology and the integration between technology,” said Phillippe. “It cannot be clunky.”

Data architecture

Spend time on your data architecture—where should each data point go? Philippe suggests that if you operate in different geographies with different legal constraints, you may not want to overload your global HRIS with all of the data.

“You may want to only have your global data in your global HRIS, and keep other specific market data in their own payroll systems. We at Coty keep in our global HRIS what's mandatory, and keep our local payroll, local.”

Don’t over-engineer

Phillippe’s last piece of advice is to keep your payroll strategy simple. He says that if you over-engineer, it can break down and maintenance can become more complicated than it needs to be. 

“Don't overdo it and you will have something easier to maintain and—I believe in the end—a better quality.”

The benefits of time tracking for small businesses

Cameron Fitchett, Senior Product Marketing at Harvest, took the stage next for a whistle-stop tour on the benefits of time tracking for small businesses. Harvest is a time-tracking platform that surfaces real-time business insights about project profitability, team capacity, resource allocation, and more. They automate invoicing and integrate with many popular HR tools so workers can track their work with ease.

What is time tracking, really?

Many people associate time tracking with employee monitoring or surveillance. But really, it’s about a team coming together and tracking the billable and non-billable hours they spend on different work. This enables businesses to better understand how to manage projects, allocate resources, estimate budgets, and ultimately, increase company profitability.

Here are some of the core benefits of time tracking, according to Cameron:

Task management, flexibility, improved productivity

By using a time tracking tool, small businesses will have a clear record of where their workers are spending their time, which enables them to better understand and track the time and resource cost of every single activity.

On the employee experience side, time tracking can help improve productivity, as workers can look back on a log of everything they worked on in a day, week, or more, and find where they are duplicating work or running into inefficiencies. It also provides workers with documentation of their workload and progress, providing a great reference during one-to-one meetings or quarterly check-ins.

“There’s flexibility from both a team and business standpoint. You’re optimizing what you're working on, when you're working on it, and individual team members and employees are able to have more clarity.”

Collaboration and improved focus

Collaboration and improved focus go hand-in-hand. Getting aligned on the work that is happening within your organization allows your team to come together and collaborate with intention and minimal back and forth. 

With time-tracking software, teams can easily identify and reduce duplicative work and get a clear look at the big picture of any project without distractions.

“When work is aligned that way, you and your team can really start to switch off that part of your brain that wants to check in on the status of other parts of the project. It can free up that mental capacity to actually focus because you know other areas of the business are on track.”

Increased accountability and better decision-making

The success of a project is often determined by acutely defined timelines and a deep understanding of what work needs to happen, and when. When your team starts to track time, you end up with a library of detailed projects that will inform how you plan future projects. 

“You can easily spot areas of improvement and create more realistic timelines that keep your team motivated, because they have the room to do their best work. It also really keeps them accountable because they have those deadlines in place.”

Increased accuracy and better client relationships

A significant piece of running a successful small business is accuracy—accurate budget estimates, accurate timelines, and accurate pay.

Time-tracking software like Harvest ensures your team is getting paid accurately for the work they're doing. In turn, your organization doesn’t waste time auditing records to correct billing errors. Accuracy is also crucial for maintaining trust with your clients, as you'll be able to show them real-time reports of project progress and correct invoices to match.

“There's a strong sense of trust and reliability that's built when you have such a meticulous record of what's happening.”

Reduced overhead costs and increased profitability. 

Small businesses are often built on a very detailed optimization of resources. Doing more with less is the name of the game, and the ability to track work against your budget lets you optimize on the fly. You can pull resources off a project before going over budget and track how you're pacing the work, with maneuverability that allows you to better plan for future projects.

_“Ultimately, you’ll get a real sense of how to optimize your team's performance. You'll be able to cut costs where you're doing duplicative work, see if teams aren't working in the right positions, maximize the profitability of every piece of work that you do for your customers, and really just ensure the success and optimized organization of your business.”

Classifying employees and independent contractors

Correct worker classification is crucial for businesses of all sizes. Luke Frye is a Certified Public Accountant (CPA) and the Head of Customer Success at Puzzle, a modern accounting software. He has owned his own tax practice and has set up hundreds of people on different payroll systems throughout his career.

During the summit, he explained how to determine if a worker is an employee, the consequences of misclassification, and how to pay a contractor vs. an employee in the US.

Consequences of misclassification

In the US, you can be fined up to a hundred percent of the tax owed if you classify an employee as an independent contractor. In some instances, you can also face criminal penalties. Incorrectly classifying workers, of course, impacts your financial books, as you may be understating the actual costs of labor, which could impact your tax returns and even funding rounds if you’re a startup.

“I've heard of people trying to raise money but they forgot to pay payroll taxes because they didn't know they should have been classified as an employee. Then all of a sudden, there’s $30-100,000 of debt that needs to be paid and the round goes under.”

Determining worker classification

So how do you determine if somebody is an employee? According to the IRS, the main areas to focus on are the behaviors, finances, and type of relationship. Overall, it comes down to how much control you as the employer have over when, where, and how a person does their work.

If you can control what the person works on and how it will be completed, regardless of their location, they’re likely an employee—this could include providing office equipment, setting work hours, providing retirement benefits, and more. However, each state in the US—and beyond—can classify workers differently, which is why working with legal and compliance experts is so important.

“The more control you have, the more likely they're going to be an employee,” said Luke. “Obviously this gets really complicated if you're hiring people overseas, which is why Deel is such a great option because they actually manage this for you.”

Managing payments and taxes

When it comes to payments, payroll tax, and tax forms, Luke recommends using payroll software like Deel that automatically withholds taxes, remits the tax to the agency on your behalf, and files forms for you. In the US, trying to manage payroll manually adds more work to your plate and also opens the door to payment, tax, and compliance errors, especially since you have to file different forms and reports for each state.

If you have a contractor in the US, make sure you get Form W9 from them to collect income tax information. If they're not in the US, get Form W8 to confirm they are not a US taxpayer. Businesses also need to use Form 1099 to report payments made to independent contractors over the course of a year.

Thank you to our speakers, webinar host Kate Morel (Deel), and summit attendees for your participation and support. We hope you found the event valuable and look forward to seeing you at our next summit!

Next steps

Disclaimer: This content is for informational purposes only and should not be considered legal or tax advice. Consult a tax specialist or legal counsel for guidance.

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