Global payroll management: challenges, best practices and tips

Global payroll management comes with unique challenges and requires a totally different management approach than a local payroll. The progression from a single-country to a multi-country payroll is a difficult step for businesses.

However, it’s not just businesses that have only just started to expand into new markets that find it hard to manage a global payroll. For multinational enterprises that have developed a complex international payroll infrastructure over the course of their expansion and M&A activities, maintaining visibility and control of payroll operations is equally challenging.

In this article, we will dive deep into the ins and outs of global payroll management. More precisely, we will look at why running a global payroll can be extremely challenging and what best practices organizations can follow to manage their international payroll in the most efficient and cost-effective way.

Global payroll management (also referred to as international payroll management) is the set of processes and policies used by a multinational organization to manage payroll operations and people across different countries. 

In contrast to managing a single-country payroll, international payroll management is less focused on day-to-day payroll management tasks, such as collecting employee timesheets, calculating payroll taxes, and distributing payslips, but on managing payroll processes and monitoring payroll costs and performance across different entities.

Despite its reputation as a non-value adding back-office function, payroll is one of the most important business processes. Payroll ensures that employees get paid accurately and on time. In order to fulfill its crucial function, payroll needs to be managed properly, no matter if it’s a local or a global payroll.

The main objective of payroll management hence consists in getting everyone paid, but there are other reasons why businesses need a well-structured approach to managing their payroll. They include:

• Fewer payroll errors: Payroll errors are often the result of non-standardized processes, unclear policies, or lack of operational oversight. Effective global payroll management creates the necessary structures to minimize errors.

• Employee retention: Timely salary payments are crucial for retaining employees. Payroll errors and late salary payments are two major reasons why employees leave their jobs. A properly managed global payroll process helps prevent this.

• Compliance: Compliance mistakes cost businesses a lot of money and should therefore be avoided at all costs. A good payroll management system helps ensure global payroll compliance.

• Increased efficiency: Streamlined payroll management helps businesses increase overall payroll efficiency. More efficient processes save time and money and free up resources that can be dedicated to other tasks and projects.

• Informed business decisions: Payroll data provides businesses with valuable insights into their operations and workforce. Effective global payroll management unlocks access to large sets of extremely valuable data which can be used to inform business decisions and enhance the business’s operational strategy.

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Multinational organizations that succeed in implementing effective global payroll management can gain significant operational advantages. However, there are several hurdles businesses need to overcome on their way to operational efficiency in global payroll. Here is an overview of the most common challenges faced by companies with globally distributed teams.

• Complex payroll infrastructures: For many businesses, the biggest hurdle to overcome is the complexity of their current payroll set-up. After years and years of global business expansion, multinationals typically manage global payroll through a network of multiple payroll service providers and software systems. Overcoming these legacy payroll infrastructures requires a large-scale global payroll transformation project.

• Process standardization: Lack of standardization is another major obstacle to efficient international payroll management. Not only does payroll need to comply with the local rules in each country, but standardizing processes across different payroll providers and systems is a difficult endeavor in itself.

• Multiple payroll vendors: Multi-vendor management in payroll can be challenging. For one thing, monitoring different systems is inefficient and time-consuming. For another, fragmented payroll data makes it hard to control global payroll costs and get consolidated global payroll reporting.

• Data management and security: Payroll produces large sets of data, even more so in the case of a global payroll. Since multi-country payroll typically involves multiple providers, systems, and data formats, data management can be a real challenge for multinational organizations. Also, data transfers between systems pose severe risks to payroll security.

• Compliance with local laws: Complying with local payroll, tax, and employment laws is one of the main global payroll challenges. The more countries a business’s global payroll covers, the more complex and difficult it gets to remain compliant. Also, rules and regulations surrounding employment, taxation, and compensation change frequently, making it hard to keep track of and implement legal changes in a timely manner.

• Different time zones, languages, and cultures: Due to the geographical scope of global payroll operations, managing an international payroll also means overcoming hurdles such as time difference, language barriers, and cultural differences that can cause communication issues.

• Manual processes: Even in the digital era, the need for manual intervention continues to be a major problem in global payroll management. Many businesses still rely on spreadsheets and manual processes for managing their payroll operations.

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No two organizations have the same approach to global payroll management. However, there are certain best practices businesses should follow if they want to run global payroll in an efficient and cost-effective way.

• Global payroll strategy: Effective global payroll management starts with a global payroll strategy that provides a roadmap for cross-border payroll operations and outlines how to manage people, processes, systems, and providers across locations.

• Payroll integration: Payroll integration can be a real game changer for multinational organizations. Integrating payroll with other workforce management tools enables automated data transfers, eliminates manual processes, and reduces the risk for payroll errors.

• Payroll automation: Payroll integration and payroll automation go hand in hand when it comes to increasing global payroll efficiency. There are many parts of the payroll process that can be automated, from data input to payroll calculations to payroll results validation.

• Global payroll software: Manual payroll management is not only a thing of the past, but it has never been a viable option for international payroll. With a multitude of payroll countries, providers, and tools to monitor, global enterprises have no choice but to work with an advanced payroll software that allows them to manage their payroll operations from a central platform.

• Global payroll outsourcing: Successful global payroll management combines a holistic global view of all of the business’s payroll operations and local knowledge and expertise to guarantee compliance in each country where the organization has employees. Local expertise in payroll is best achieved by outsourcing payroll to in-country payroll partners.

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In addition to the above-mentioned best practices, companies should keep in mind the following tips when improving their global payroll management.

• Don’t shy away from transformation: Global payroll transformation means reorganizing payroll structures, processes, systems, and people with the aim to increase payroll efficiency, compliance, and accuracy. Transforming global payroll might be a difficult project that requires many resources, but it is worth the time and money it requires.

• Reduce global payroll complexity: The more complex a payroll, the more difficult it is to manage. Businesses that want to improve their global payroll management should first look at how they can reduce the complexity of their global payroll.

• Choose the right global payroll delivery model: There are different options for running and managing a multi-country payroll. They include a decentralized global payroll with multiple local payroll vendors, working with a single global payroll provider, contracting the services of a global payroll aggregator, or choosing a hybrid approach between outsourcing and in-house payroll management. Businesses need to identify the global payroll delivery model that works best for them by analyzing their individual situation and existing payroll infrastructure.

• Bring together payroll and HR: Integrating HR and payroll systems is a powerful way of increasing global payroll efficiency. Automated data transfers between systems ensure that employee information is up to date across all systems and avoids time-consuming double data entry.

• Build a strong global payroll team: Global payroll management can only be as good as the team behind it. Multinationals that want to enhance their global payroll management should therefore increase their efforts to find qualified payroll professionals and build a strong payroll team whose members have extensive expertise in managing a multi-country payroll.

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Even with a strong in-house team of experienced global payroll professionals, multinational organizations still need local expertise to meet compliance requirements in different countries. To avoid the problems that arise from multi-vendor management in payroll, businesses should opt for a unified global payroll solution to manage payroll for their international workforce.

Lano’s global payroll solution combines global payroll services with a powerful global payroll consolidation platform that allows you to manage all your payrolls through one single system. Easily connect all your payroll providers to the platform and get a global view of your payroll operations paired with detailed insights into your global payroll data and costs.

Book a demo with one of our payroll experts to learn more about how Lano can help you simplify your global payroll management.