The popularity and flexibility of remote work has facilitated an increase in the number of businesses willing to engage in international hiring. While, among many others, global remote work has the benefits of flexibility and diversity, it has also introduced challenges with global payroll processing and caused organizations to revisit how they manage their global payroll services.
Payroll compliance, in the context of payroll for remote workers, means staying compliant in every country where you run payroll. In navigating each country's different laws and regulations, avoiding penalties, legal disputes, and even reputational damage all add to the complexities of contending with payroll and compliance challenges in a global remote work setting.
While this all sounds pretty daunting, you’ll be happy to know that you can easily avoid the consequences of failing to comply with international payroll rules and regulations by enlisting the help of an employment of record (EOR) like Borderless.
Automated global payroll solutions and technologies can help you anticipate, mitigate, simplify, and solve any issues related to payroll compliance. In addition to these advantages, you’ll maximize your chances of accurate calculations and safely pay remote employees, regardless of where they are located. Sounds like another perk of remote work to us!
What is Global Payroll Compliance?
Also known as international payroll compliance, global payroll compliance is the method by which companies ensure their payroll procedures and policies comply with local laws, rules, and regulations of the land.
Global payroll compliance is an unavoidable requirement for many businesses. When considering the ever-increasing number of work-from-home international employees, getting payroll for remote workers right is essential in the eyes of the law.
Businesses with an international workforce must abide by the location-specific payroll regulations on which each employee is based because failure to do so will result in lost time and money.
Depending on local governing laws, the components of a company’s payroll services that should be compliant are inclusive of, but not limited to:
- Wage calculation and pay
- Tax withholding
- Employer contributions
- Bonuses
- Statutory benefits
- Employee work hours
- Worker classification
- Paid time off
- Overtime pay
- Severance
- Deducting social security
- Health insurance
- Pension
With wide and varied local labor laws, taxes, and social securities to consider, navigating payroll complexity in global remote work can become very tedious. This is why having at least some knowledge of global payroll compliance is crucial. It is beneficial to understand what global payroll challenges exist, especially when deciding which EOR or professional employment organization (PEO) service to invest in.
Why is Payroll Compliance Important?
Individual countries, states, and regions each possess their own set of local standards and regulations—in addition to the ongoing stream of amendments and updates to these practices. It is vital for companies to maintain payroll compliance in every area of operation for several key reasons. Doing so will help your company avoid facing serious legal consequences, being penalized, fined, or having your standing destroyed.
Payroll compliance and learning how to mitigate global payroll challenges should therefore be a top priority for every business. The advantages of doing this will boost the financial integrity and seamless operation of global payroll services, not to mention the overall upswing in employee retention and a trusting, satisfied cohort of international employees. If your business plans to expand into other countries or territories, understanding will aid you in successfully developing a presence, devoid of legal issues.
A thriving global payroll service entails the rolling out a global compensation strategy in which payroll for remote workers is compliant, data secure, and timely. Partnering with or outsourcing to a trusted and effective EOR like Borderless is strongly advised when you have international employees. This way, you won’t have to set up a brand new entity every time you hire an employee in a new country, nor will you be tasked with managing the long-winded payroll process for remote workers.
An EOR will lift the administrative burden off your shoulders by tapping into their own local contacts. Each expert will have exhaustive knowledge in employment law and payroll compliance so that any and all global payroll challenges are avoided or, at worst, dealt with quickly and efficiently. As a business leader, you’ll be able to focus your efforts where you need to, without worrying about payroll-related issues.
Your investment also demonstrates your commitment to ethical business practices. This comes with dual advantages of enhancing the integrity and reputation of your business among existing and potential employees, customers, and partners.
What Are The Most Common Global Payroll Challenges?
When your business employs international employees, beyond grappling with the different languages, time zones, and currencies, you must also bear other details in mind. Foregoing an EOR's assistance will necessitate an in-depth understanding of the employment legislation of every country in which your company operates.
With that said, here are some of the most common global payroll challenges:
Not Investing in the Right Software
Not all payroll software solutions are created equal, and that’s why using an international payroll system, like Borderless, is essential.
From the logistical complexities of establishing payroll for remote workers to considering payroll compliance and local employment and tax laws, our software will increase the efficiency of your global payroll services. If you’d like to expand your team and access talent globally, having the right software is a must.
Misunderstanding Local Rules and Payroll Taxes
As you know, every country has its own distinct set of standards and regulations to adhere to when it comes to labor laws, local taxes, and social security procedures. Employers must be aware of the regulations for federal income tax and state income taxes in some cases. If you are an international employer dealing with payroll for remote workers, things can quickly become confusing. With partners in 170+ countries, Borderless can alleviate the confusion by helping you centralize your payroll management and tick all the compliance and tax management boxes.
Careless Record-Keeping
Keeping track of employee records is a key part of the global payroll process. As an employer, you must keep track of how much each employee is paid and when they are paid. Including details around social security contributions or tax withholding is also required. Diligent record-keeping will ensure you’re on top of things if an audit occurs.
Payroll Inaccuracy and a Lack of Timeliness Across Time Zones
Employing international employees will inevitably entail working across different time zones. Although asynchronous communication is one of the advantages of remote work that has dramatically helped with time zone issues associated with the “global office”, but the benefits don’t extend to payroll.
Being Unclear on Varied Payroll Processes
While it isn’t inherently bad for international businesses to utilize local payroll systems and services within their countries of operation, it does have its drawbacks. In monitoring data for compliance, things can become pretty challenging. If payroll processes are siloed in different locations, there is an increased potential for errors to go unnoticed.
Being Unaware of Employment Laws for International Employees
When your global payroll services are operational in multiple countries, it’s on you as the employer to keep track of each individual employee’s payroll laws - wherever they are. There are finer details to comb through, such as limits on overtime, establishing the minimum wage, or perhaps specifying the maximum amount of hours an employee is permitted to work within a pay period. Paying attention to these variances is a mandatory part of payroll compliance.
Being Unsure of Guidelines for Processing Payroll
While it isn’t inherently bad for international businesses to utilize local payroll systems and services within their countries of operation, it does have its drawbacks. In monitoring data for compliance, things can become pretty challenging. If payroll processes are siloed in different locations, there is an increased potential for errors to go unnoticed.
Employee Misclassification
The requirements and regulations for worker payments not only differ on a country-to-country basis, but also in keeping with how work is classified. For example, in the United Kingdom, there are distinctions between sole proprietors and independent contractors. Similarly in the United States, the Internal Revenue Service distinguishes between a self-employed person and an employee. If we look at the U.S. example, contractors take ownership and responsibility for their own taxes, while employers must take on the tax withholding for employees.
What’s more is that, depending on where they live, full-time employees and contractors do not share the same employment rights and entitlements. For example, employers will have the appropriate taxes withheld from the base pay of their full-time employees, while contractors will have to pay self-employment tax.
This is why having the correct classification for your international team ensures that you attribute the appropriate employee benefits and keep your payroll compliant.
It is worth noting that even if an employer has unintentionally misclassified their workers, penalties, some very severe, will be incurred. Misclassifying your employees is not conducive to payroll compliance, and legal ramifications are also possible if global payroll services are inadequate.
Permanent Establishment Risk
Permanent establishment risk adds to the list of global payroll challenges and presents yet another issue when implementing global payroll compliance. The tax concept is related to companies that owe local taxes wherever the company is permanently established.
This means employers should be aware of the criteria for permanent establishment in their countries and understand how to avoid the associated risks.
Tax Obligations
Many businesses report tax compliance as one of the leading global payroll challenges. Different countries usually have distinct withholding rates, protocols, and filing deadlines. Employers are typically responsible for overseeing this process. In places like the US, companies are also responsible for contributing to Social Security programs such as the Federal Insurance Contributions Act and Federal Unemployment Tax Act. If you are found to be managing your employee taxes incorrectly, back taxes or substantial fines may be incurred.
With permanent establishment laws, global employers may also be susceptible to activating them if the company has a large enough presence outside of the home country. This would involve creating a legal entity, as well as paying the corporate taxes associated with the new entity, tax will have to be paid for the home country of the organization. These are all important things to consider when it's time for your company to pay taxes.
Protecting Employee Data
With the amount of sensitive employee data that employers manage, including home addresses, bank details, and social security numbers. Even when appropriate security measures are taken, data protection risks are still a real possibility.
As an international employer managing payroll for remote workers, it’s also important to be aware of the different rules and regulations of different countries when it comes to data protection.
Taking Europe as an example, there are strict data protection policies under the General Data Protection Regulation (GDPR). In some cases, adhering to GDPR policies applies to companies outside of the EU, and if your company is uninformed or found to be violating the regulations, legal issues and/or hefty will ensue.
The responsibility for protecting data and remaining compliant when managing confidential data falls entirely on employers, so being clued up is vital.
The International Transfer of Money
International payments differ from domestic payments, and this must be a consideration when managing your global payroll services. One of the easiest ways to manage payments for remote workers while still remaining compliant is through the help of an EOR.
With all the challenges above, you must educate yourself on the requirements of global payroll compliance and use a payroll provider that you can trust.
How Can I Avoid The Risks and Ensure Payroll Compliance?
By now, it’s clear that many global payroll challenges and risks are present when working with international employees, which means the issue of payroll compliance becomes even more pressing. It is possible, however, to mitigate these risks by proactively assessing your current global payroll services and exploring payroll management tools and software.
One of the best ways to streamline your international payroll management. You should ensure payroll compliance through instituting fully compliant practices by outsourcing your international payroll operations.
By working with an employer of record like Borderless, you will have global reach and local compliance. This means you will be able to expand your business on an international scale, without having to take on the administrative burden of regional laws and requirements or worry about making timely, secure payments.
As your team grows, the idea of managing payroll manually will no longer be a viable option, and you’ll want to start seriously considering automating as much of your payroll as possible. Automating your global payroll services has several advantages, including:
- A centralized database
- Accurate, timely payments
- Reduced risk of errors
- Reduced operating costs
- Increased security
- Increased efficiency and productivity
- Saved time and money
- Global payroll compliance
- Calculating taxes
- Statutory deductions
- Social security contributions
- Generating payroll reports
- Secure data privacy and protection
- Reporting
Are You Ready to Partner With Borderless?
When partnering with an EOR, as well as gaining access to global payroll services that are proven to mitigate global payroll challenges, you will be operating within a payroll infrastructure that was built to seamlessly handle payroll for remote workers.
This means you will be able to concentrate on the day-to-day responsibilities of your business without having to worry about global payroll challenges. An EOR serves as the legal employer of your global talent and helps your company hire, onboard, and pay employees. Maintain compliance for your international workforce while you control all day-to-day responsibilities.
The easiest and most cost-effective way to avoid the risks of payroll compliance is to consolidate and automate your payroll processes, and Borderless is here to help. So get in touch today to start efficiently, accurately, and compliantly managing your global payroll services.
